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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999 Commission File Number 0-23702

STEVEN MADDEN, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware 13-3588231
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

52-16 Barnett Avenue, Long Island City, New York 11104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (718) 446-1800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.0001 per share

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 [ ]

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. [ ]

The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 15, 2000 was approximately $149,162,000.

The number of outstanding shares of the registrant's common stock as of
March 15, 2000 was 11,859,759 shares.

DOCUMENTS INCORPORATED BY REFERENCE:
PART III INCORPORATES CERTAIN INFORMATION BY REFERENCE FROM THE
REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
SCHEDULED FOR MAY 12, 2000.

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TABLE OF CONTENTS

Business.......................................................................1

Properties....................................................................17

Legal Proceedings.............................................................18

Submission of Matters to a Vote of Securityholders............................19

Market for Registrant's Common Equity and Related Stockholder Matters.........19

Selected Financial Data.......................................................21

Management's Discussion And Analysis of Financial Condition
and Results of Operations..................................................22

Quantitative and Qualitative Disclosures about Market Risk....................30

Financial Statements And Supplementary Data...................................30

Changes in and Disagreement with Accountants on Accounting
and Financial Disclosure...................................................30

Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of The Exchange Act of The Registrant........31

Executive Compensation........................................................34

Security Ownership Of Certain Beneficial Owners And Management................34

Certain Relationships And Related Transactions................................34

Exhibits And Financial Statement Schedules And Reports On Form 8-K............34




PART I

ITEM 1. BUSINESS.

Steven Madden, Ltd. (together with its subsidiaries, the "Company")
designs, sources and sells fashion footwear under the Steve Madden(R), l.e.i.(R)
and David Aaron(R) brands for women and girls ages 6 to 45 years. The Company's
branded products are designed to appeal to style-conscious consumers in the
girls, juniors and better market segments. As of December 31, 1999, the Company
distributed its products through its forty one (41) Steve Madden(R) retail
stores, one (1) David Aaron(R) store, six (6) outlet stores, its e-commerce
website (WWW.STEVEMADDEN.COM) and more than three thousand (3,000) department
and specialty store locations in the United States and Canada. The Company's
product line includes core products, which are sold year-round, complemented by
a broad range of updated styles which are designed to establish or capitalize on
market trends.

The Company's business is comprised of three (3) distinct segments: a
wholesale division which includes the Steve Madden(R), l.e.i.(R) and David
Aaron(R) brands, a retail subsidiary; and a private label subsidiary. The
Company also has an aggressive licensing program and as of December 31, 1999 had
entered into licensing agreements for belts, sportswear and jeanswear,
outerwear, handbags, sunglasses, hosiery, intimate apparel, hair accessory
products and jewelry. The Company also has the right to source, distribute and
market footwear under the l.e.i.(R) and Jordache(R) trademarks.

The Company anticipates continuing the execution of its strategy to
increase sales in each of its wholesale, retail and private label divisions. The
wholesale division expects growth in the number of locations selling the Steve
Madden(R), l.e.i.(R) and David Aaron(R) brands which will in part be due to
adding new department store and specialty store accounts. The Company expects to
add approximately nine (9) Steve Madden retail stores and one (1) David Aaron
Store during the 2000 fiscal year which the Company believes will increase
revenues for its retail division. Adesso-Madden, a subsidiary of the Company
specializing in sourcing product for mass merchandisers and other high volume
purchasers, anticipates higher revenues in 2000 because of increased sales of
the Jordache(R) footwear line as well as growth with existing accounts. And
while the Company does not anticipate replicating its rate of sales growth from
its e-commerce website (700% in fiscal 1999), the Company expects internet sales
to increase considerably.

Steven Madden, Ltd., was incorporated as a New York corporation on July
9, 1990 and reincorporated under the same name in Delaware in November 1998. The
Company was founded and developed by Steven Madden, its principal designer, and
Chief Executive Officer and Chairman of the Board, who has established a
reputation for his creative designs, popular styles and quality products at
accessible price points. The Company completed its initial public offering in
December 1993 and its shares of Common Stock currently trade trading on The
Nasdaq National Market under the symbol "SHOO".



RECENT DEVELOPMENTS

In January 2000, the Company announced the launch of its new
Stevies(TM) brand which will be marketed to girls ages 6 to 12 years old. The
new shoe line will mirror some of the design concepts and attitude present in
the Steve Madden(R) brand and will be initially distributed through moderate and
better department stores and footwear specialty stores. The Company expects to
commence shipping of the Stevies products in time for the back-to-school season.
It also anticipates that the Company will license the Stevies(TM) trademark for
additional product categories and that the launch of the e-commerce website,
WWW.STEVIES.COM, will occur in July 2000.

The Company maintains its principal executive offices at 52-16 Barnett
Avenue, Long Island City, NY 11104, telephone number (718) 446-1800.

STEVEN MADDEN - WHOLESALE DIVISION

The wholesale division sources, sells and markets the Company's Steve
Madden(R) brand to major department stores, better specialty stores, and shoe
stores throughout the country and Canada. During the last few years the Steve
Madden(R) product line has become a leading footwear brand in the fashion
conscious junior marketplace. To serve its customers (women primarily ages 16 to
25), the wholesale division creates and markets fashion forward footwear
designed to appeal to customers seeking exciting, new footwear designs at
reasonable prices.

As the Company's largest division, the Steve Madden(R) wholesale
division accounted for $78,890,000 in sales in 1999, or approximately 48% of the
Company's total sales. Many of the wholesale division's newly created styles are
test marketed at the Company's retail stores. Within a few days, the Company can
determine if a test product appeals to customers. This enables the Company to
use its flexible sourcing model to rapidly respond to changing preferences which
is essential for success in the fashion footwear marketplace.

DIVA ACQUISITION CORP. - THE DAVID AARON(R) WHOLESALE DIVISION

Diva Acquisition Corp. ("Diva") designs and markets fashion footwear to
women under the "David Aaron(R)" trademark through major department stores and
better footwear specialty stores and one (1) Company owned retail shoe store
located in the Soho area of Manhattan. Priced a tier above the Steve Madden(R)
brand, Diva's products are designed to appeal principally to fashion conscious
women, ages 26 to 45, who shop at department stores and footwear boutiques. The
Company recorded sales from the David Aaron(R) brand of $7,970,000 for the year
ended December 31, 1999, or approximately 5% of the Company's total sales.

L.E.I.(R)- WHOLESALE DIVISION

In April, 1998, the Company entered into a license agreement with
R.S.V. Sport, Inc. pursuant to which the Company was granted the license to use
the l.e.i.(R)trademark in connection with the sale and marketing of footwear.
The l.e.i.(R)trademark is well known for jeanswear in the junior marketplace and

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nationally through department and specialty stores. The Company's
l.e.i.(R)footwear products were targeted to attract girls ages 6 to 11 years old
and young women ages 12 to 20 years old a majority of which are younger than the
typical Steve Madden(R)brand customer. Despite having only started selling
l.e.i.(R)products at retail in August 1998, the l.e.i. Wholesale Division
generated revenue of $27,546,000 for the year ended December 31, 1999.

STEVEN MADDEN RETAIL, INC. - RETAIL DIVISION

As of December 31, 1999, the Company owned and operated forty one (41)
retail shoe stores under the Steve Madden(R) name, one (1) under the David
Aaron(R) name and six (6) outlet stores. Four (4) stores are located in
Manhattan (two (2) in Soho, one (1) on the Upper Westside and one (1) on the
Upper Eastside), forty one (41) stores are located in major shopping malls in
California, Colorado, Florida, Georgia, Illinois, Maryland, Massachusetts,
Michigan, Minnesota, New Jersey, New York, Ohio, Pennsylvania, Texas and
Virginia and three (3) stores are located in highly traveled urban street
locations in Coconut Grove, Florida, Philadelphia, Pennsylvania and Washington,
D.C. Each of the Steve Madden(R) stores has been designed to appeal to young
fashion conscious women by creating a "nightclub" type atmosphere. The retail
stores have been very successful for the Company, generating annual sales in
excess of $700 per square foot. Sales are primarily from the sale of the
Company's Steve Madden(R) produc line. Same store sales increased 26% in 1999
over 1998 sales and total sales for the retail division were $48,630,000
compared to $26,563,000 for 1998. Sales from the retail division for year ended
December 31, 1999 were approximately 30% of the Company's total sales.

The Company believes that the Retail Division will continue to enhance
overall sales and profits while building equity in the Steve Madden brand. It is
for these reasons that the Company has embarked upon an aggressive expansion
plan and intends to add approximately ten (10) new retail stores during the 2000
calendar year. Additionally, the expansion of the Retail Division enables the
Company to test and react to new products and classifications which strengthens
the product development efforts of the Steve Madden wholesale division.

THE ADESSO-MADDEN, INC. - PRIVATE LABEL DIVISION

In September 1995, the Company incorporated Adesso-Madden, Inc. as a
wholly owned subsidiary ("A-M"). A-M was formed to serve as a buying agent to
mass market merchandisers, shoe store chains and other off-price retailers in
connection with their purchase of private label shoes. As a buying agent, A-M
arranges with shoe manufacturers in Asia and South America for them to
manufacture private label shoes to the specifications of its clients. The
Company believes that by operating in the private label, mass merchandising
market, the Company is able to maximize additional non-branded sales
opportunities. This leverages the Company's overall sourcing, design and
distribution capabilities. Currently, this division manufactures women's
footwear for large retailers including J.C. Penny, Sears, Mervyn's, Wal-Mart and
Target. A-M receives commissions in connection with the purchase of private
label shoes by its clients. A-M also sources and sells footwear under the Soho
Cobbler(R) trademark, and in 1999, commenced sales under the Jordache(R)
trademark. The private label division generated commission revenue of $2,560,000
for the year ended December 31, 1999 compared to $2,679,000 in 1998.

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PRODUCTS AND LICENSING

The Company's products emphasize youthful styling and contemporary
design and are marketed at moderate to better price points. The Company's
primary products include Steve Madden(R), l.e.i.(R) and David Aaron(R) branded
shoes. In addition, the Company has a private label shoe operation,
Adesso-Madden, Inc., and has also entered into strategic licensing agreements
for additional Steve Madden(R) branded products. The following paragraphs
describe the Company's products:

STEVE MADDEN(R)

Steve Madden(R) branded products are designed to appeal to style
conscious consumers in the junior market (ages 16 to 25 years). The Steve
Madden(R) line emphasizes up-to-date fashion and includes a wide range of
women's footwear including boots, sneakers, evening shoes, slippers, casual and
tailored shoes and sandals. Steve Madden(R) brand shoes sell at retail price
points generally ranging from $48 to $70 for shoes and up to $99 for boots.

In order to reduce the impact of changes in fashion trends on the Steve
Madden(R) brand product sales, the Company designs and classifies its product
line into three categories: CORE, CORE-PLUS, and FASHION. The Company's CORE
line is available year round and consists of classic products which have proven
to be consistent sellers over several seasons. The CORE line currently includes
twelve (12) style/color combinations six (6) of which can be reordered using the
Company's EDI system and shipped to retailers within one to two weeks. This
results in rapid replenishment of the most popular Steve Madden styles. The
Company's CORE-PLUS line consists of basic styles whose patterns and colors are
updated each season to keep pace with changing trends. Finally, the Company's
FASHION line consists of styles that are designed close to or in season and
capitalize on the Company's ability to design, test, manufacture and market
products quickly. CORE and CORE-PLUS products account for a majority of Steve
Madden(R) brand sales.

DAVID AARON(R)

The Company acquired the David Aaron(R) brand in 1996, and David
Aaron(R) products are marketed through the Company's Diva subsidiary. David
Aaron(R) branded products are designed to appeal to more sophisticated, career
and fashion oriented consumers (ages 26 to 45 years) in the better market
segment. David Aaron(R) products are priced at a tier above the Steve Madden(R)
brand and have retail price points generally ranging from $70 to $85 for shoes
and up to $150 for boots. Similar to the Steve Madden(R) line, the Company's
David Aaron(R) line is organized into CORE, CORE-PLUS, and FASHION categories
with CORE and CORE-PLUS products accounting for a large majority of David
Aaron(R) brand sales.

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L.E.I.(R)

In April 1998, the Company entered into a license agreement with R.S.V.
Sport, Inc. pursuant to which the Company was granted the license to use the
l.e.i.(R)trademark in connection with the sale and marketing of footwear in
exchange for which the Company is required to make periodic royalty payments
based on its net sales of l.e.i.(R)footwear. The l.e.i.(R)trademark is well
known for jeanswear in the junior marketplace and l.e.i.(R)jeans are sold in
department and specialty stores nationwide. The Company's l.e.i.(R)footwear
products were targeted to attract girls ages 6 to 11 years old and young women
ages 12 to 20 years old, the majority of which are younger than the typical
Steve Madden(R)brand customer. Despite having only started selling
l.e.i.(R)products at retail in August, 1998, sales of l.e.i.(R)products
increased considerably in 1999. The license agreement with R.S.V. Sport
terminates on September 30, 2000, however, it may be renewed, upon the
satisfaction of certain conditions, for the re (3) additional terms of two (2)
years each.

JORDACHE

In January 1999, the Company entered into a license agreement with
Jordache Enterprises, Inc. pursuant to which the Company was granted a license
to use the Jordache(R) trademark in connection with sale and marketing of
footwear in exchange for which the Company has agreed to make periodic royalty
payments based on its net sales of Jordache(R) footwear. The Jordache(R)
trademark is well known for jeanswear and Jordache(R) jeans are sold nationwide
in the mass merchandise market. The Company's Jordache(R) footwear products are
targeted to attract girls ages 10 to 16 years old. The license agreement with
Jordache terminates on June 30, 2002, however, it may be renewed, upon the
satisfaction of certain conditions, for two (2) additional terms of three (3)
years each.

LICENSING

The Company believes that strategic licensing will enhance the Steve
Madden brand(R), leverage brand equity and increase customer loyalty. During
1997, the Company began to license the Steve Madden(R) brand selectively while
attempting to maintain strict design, merchandising and marketing control over
its licensees. In 1998, the Company terminated licenses with its sportswear
licensees and entered into a new license with an affiliate of the Jordache
organization as of January 1, 1999. Pursuant to the Agreement, a Jordache entity
agreed to manufacture, market, sell and distribute sportswear and jeanswear
under the Company's Steve Madden trademark to better department stores and
specialty shops.

Presently, the Company has licensed the Steve Madden trademark for use
in connection with the manufacturing, marketing and sale of sportswear and
jeanswear, outerwear, belts, handbags, sunglasses, hosiery, intimate apparel,
hair accessory products and jewelry. Each license agreement requires the
licensee to pay to the Company a royalty based on net sales, a minimum royalty
in the event that net sales fail to reach specified targets and a percentage of
sales for advertising of the Steve Madden(R) brand. During 2000, the Company may

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continue to pursue additional licensees in new product categories, including
licenses for the Company's new Stevies(TM) brand, as well as to seek expansion
into certain markets outside the United States.

DESIGN

Steve Madden, the principal designer of the Company, has established a
reputation for his creative designs, popular styles and quality products at
accessible price points. Mr. Madden has been involved in the footwear industry
for over twenty (20) years and is responsible for the Company's overall fashion
direction, maintaining direct, day-to-day supervision of the Company's ten (10)
person product design and development team.

The Company believes that its future success will depend in substantial
part on its ability to continue to anticipate and react to changing consumer
demands in a timely manner. To meet this objective, the Company has developed a
unique design process that allows it to recognize and adapt quickly to changing
consumer demands. Mr. Madden and his design team work together to create a
design which they believe fits the Company's image, reflects current or
approaching trends and can be manufactured in a timely and cost-effective
manner. Once the initial design is complete, a prototype is developed, which is
reviewed and refined prior to the commencement of limited production. Most new
designs are then tested in the Steve Madden(R) retail stores. Designs that prove
popular are then scheduled for mass production overseas and wholesale and retail
distribution nationwide. The Company believes that its unique design and testing
process and flexible sourcing model is a significant competitive advantage
allowing the Company to cut mass production lead times and avoid the costly
production and distribution of unpopular designs.

PRODUCT SOURCING

The Company sources each of its product lines separately based on the
individual design, styling and quality specifications of such products. The
Company does not own or operate any mass manufacturing facilities and sources
its branded products directly or indirectly through independently owned
manufacturers in Brazil, China, Italy, Mexico, Spain, Taiwan and the United
States. The Company has established relationships with a number of manufacturers
in each country. The Company believes that this sourcing of footwear products
minimizes its investment and inventory risk, and enables efficient and timely
introduction of new product designs. Although the Company has not entered into
any long-term manufacturing or supply contracts, the Company believes that a
sufficient number of alternative sources exist for the manufacture of its
products. The principal materials used in the Company's footwear are available
from any number of sources, both within the United States and in foreign
countries.

The Company's design and distribution processes are intended to be
flexible, allowing the Company to respond to and accommodate changing consumer
demand. The Company's production staff tracks warehouse inventory on a daily
basis, monitors sell through data and incorporates input on product demand from
wholesale customers. The Company can use product feedback to adjust production
or manufacture new products in as little as five weeks. Constant inventory
tracking allows the Company to manage inventory on a continuous flow basis with


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the goal of optimizing inventory turns. More specifically, all inventory is
classified into three categories: CORE products, which are sold year round,
CORE-PLUS products which are in-season styles that are experiencing unusually
strong sell through, and FASHION products. The Company strives to only have
reorder inventory in selected CORE and CORE-PLUS products that are proven
best-sellers.

In 1999, the Company expanded its use of electronic data interchange
("EDI") quick replenishment system to its department store accounts on
designated CORE items and offered EDI to all of its significant wholesale
accounts. Sales resulting from EDI replenishment increased 86% during 1999
compared to 1998. The Company believes that its flexible product introduction
schedule and perpetual inventory control system are competitive advantages in an
industry that is subject to high fashion risks.

CUSTOMERS

The Company's customers purchasing shoes consist principally of
department stores and specialty stores, including shoe boutiques. Presently, the
Company sells approximately sixty percent (60%) of its products to department
stores, including Federated Department Stores (Bloomingdales, Bon Marche,
Burdines, Macy's and Rich's), May Department Stores (Famous Barr, Filene's,
Foley's, Hecht's, Kaufmann's, Meier & Frank, Lord and Taylor and Robinsons May),
Dillard's, Dayton-Hudson and Nordstrom; and approximately forty percent (40%) to
specialty stores, including Journey's, Wet Seal and The Buckle; and catalog
retailers, including Victoria's Secret and Fingerhut. Federated Department
Stores and May Department Stores presently account for approximately twenty one
percent (21%) and fifteen percent (15%) of the Company's wholesale sales,
respectively.

DISTRIBUTION CHANNELS

The Company sells it products principally through its Company-owned
retail stores, better department stores and specialty shoe stores in the United
States and abroad. Retail stores and wholesale sales account for approximately
thirty percent (30%) and seventy percent (70%) of total sales, respectively. The
following paragraphs describe each of these distribution channels:

STEVE MADDEN AND DAVID AARON RETAIL STORES

As of December 31, 1999, the Company operated forty one (41)
Company-owned retail stores under the Steve Madden(R) name and one (1) under the
David Aaron(R) name. The Company believes that its retail stores will continue
to enhance overall sales, profitability, and its ability to react to changing
consumer trends. The design, format and environment of the Steve Madden(R)
retail stores resemble a nightclub type atmosphere which has become a popular
destination and gathering place for young women. The David Aaron(R) store has a
more sophisticated design and format styled to appeal to its more mature target
audience. These stores are used as a marketing tool which allow the Company to
strengthen brand recognition and to showcase certain of its full line of branded
and licensed products. Furthermore, the retail stores provide the Company with a
venue to test and introduce new products and merchandising strategies.
Specifically, the Company often tests new designs at its Steve Madden(R) retail

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stores be scheduling them for mass production and wholesale distribution. In
addition to these test marketing benefits, the Company has been able to leverage
sales information gathered at Steve Madden(R) retail stores to assist its
wholesale accounts in order placement and inventory management.

The Company's prototype Steve Madden(R) store is approximately 1,400 to
1,600 square feet and is located in malls and street locations which attract the
highest concentration of the Company's core demographic -- style-conscious young
women ages 16 to 25 years old. In addition to carefully analyzing mall
demographics, the Company also sets profitability guidelines for each potential
store site. Specifically, the Company targets sites at which the demographics
fit the consumer profile, the positioning of the site is well trafficked and the
projected fixed annual rent expense does not exceed a specified percentage of
sales over the life of the lease. By setting these standards, the Company
believes that each store will contribute to the Company's overall profits both
in the near- and longer-terms.

OUTLET STORES

In May 1998, Shoe Biz, Inc. (formerly known as Steven Madden Outlets,
Inc.) a wholly owned subsidiary of the Company ("Shoe Biz"), purchased certain
assets from and assumed certain liabilities of, Daniel Scott, Inc. with respect
to its Shoe Biz outlet store located in Mineola, New York. In connection with
the transaction, the Company hired Robert Schmertz, the former President and
sole stockholder of Daniel Scott, as the President of Shoe Biz. Shoe Biz
operates the six (6) outlet stores in New Jersey and New York, four (4) of which
operate under the Shoe Biz name and two (2) of which operate as Steve Madden
Outlet stores. Shoe Biz sells many product lines, including Steve Madden, David
Aaron and l.e.i.(R) footwear, at significantly lower prices than prices
typically charged by other "full price" retailers.

DEPARTMENT STORES

The Company currently sells to over 2,000 locations of twenty five (25)
better department stores throughout the United States and Canada. The Company's
top accounts include Federated Department Stores (Bloomingdale's, Bon Marche,
Burdine's, Macy's and Rich's), May Department Stores (Hecht's, Famous Barr,
Filene's, Foley's, Kaufmann's, Meier & Frank, Lord and Taylor and Robinson's
May), Dillard's, Dayton-Hudson and Nordstrom.

Department store accounts are offered merchandising support which
includes in-store fixtures and signage, supervision of displays and
merchandising of the Company's various product lines. An important development
in the Company's wholesale merchandising effort is the creation of in-store
concept shops, where a broader collection of the Company's branded products are
showcased. These in-store concept shops create an environment that is consistent
with the Company's image and enable the retailer to display and stock a greater
volume of the Company's products per square foot of retail space. In addition,
these in-store concept shops encourage longer term commitment by the retailer to
the Company's products and enhance consumer brand awareness. Currently, the
Steve Madden(R) brand is featured in over eight hundred (800) in-store concept
shops in leading department and specialty stores which represents an increase of
sixty percent (60%) compared to last year.

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In addition to merchandising support, the Company's customer service
representatives maintain weekly communications with their accounts to guide them
in placing orders and to assist them in managing inventory, assortment and
retail sales. The Company leverages its sell-through data gathered at its retail
stores to assist department stores in allocating their open-to-buy dollars to
the most popular styles in the product line and to phase out styles with poor
sales records. In addition to this account order support, the Company has
implemented an electronic data interchange ("EDI") program which allows top
accounts rapid size replenishment of six (6) style/color combinations of certain
core products within one to two weeks. EDI replenishment of key core styles is
offered to all of the Company's retail customer accounts.

INTERNET SALES

In 1999, the Company updated its internet site, WWW.STEVEMADDEN.COM,
with improved graphics and more efficient e-commerce capabilities. Customers can
now purchase numerous styles of the Company's footwear, accessory and clothing
products. As a result of the Company's increased focus on e-commerce, sales in
1999 derived from WWW.STEVEMADDEN.COM increased 700% compared with sales in
1998. In August 1999, the Company signed an agreement with America Online
pursuant to which the Company has a presence in Shop AOL in both the footwear
and apparel areas.

SPECIALTY STORES/CATALOG SALES

The Company currently sells to approximately one thousand (1,000)
specialty store locations throughout the United States and Canada. The Company's
top specialty store accounts include Journey's, The Buckle and Wet Seal. The
Company offers specialty store accounts the same merchandising, sell-through and
inventory tracking support offered to its department store accounts. Sales of
the Company's products are also made through various catalogs, such as Fingerhut
and Victoria's Secret.

COMPETITION

The fashionable footwear industry is highly competitive. The Company's
competitors include specialty shoe companies as well as companies with
diversified footwear product lines. The recent substantial growth in the sales
of fashionable footwear has encouraged the entry of many new competitors and
increased competition from established companies. Most of these competitors,
including Kenneth Cole, Nine West, DKNY, Skechers, Nike and Guess, have
significantly greater financial and other resources than the Company. The
Company believes effective advertising and marketing, fashionable styling, high
quality and value are the most important competitive factors and intends to
continue to employ these elements as it develops its products.

MARKETING AND SALES

Prior to 1997, the Company's marketing plans relied heavily on its few
Steve Madden(R) retail store locations and word-of-mouth referrals. In 1998, the
Company continued to focus on creating a more integrated brand building program

9


to establish Steve Madden as the leading designer of fashion footwear for
style-conscious young women. As a result, the Company developed a national
advertising campaign for lifestyle and fashion magazines which was also used in
regional marketing programs such as radio advertisements, television
commercials, outdoor media, college event sponsorship and live online chat
forums. The Company also continues to promote its website (WWW.STEVEMADDEN.COM)
where consumers can purchase Steve Madden(R) products and interact with both the
Company and other customers.

In order to service its wholesale accounts, the Company retains a sales
force of thirteen (13) independent sales representatives. These sales
representatives work on a commission basis and are responsible for placing the
Company's products with its principal customers, including better department and
specialty stores. The sales representatives are supported by the Company's
Executive Vice President, a staff of four (4) account executives, three (3)
merchandise coordinators and twenty (20) customer service representatives who
continually cultivate relationships with wholesale customers. This staff assists
accounts in merchandising and assessing customer preferences and inventory
requirements, which ultimately serves to increase sales and profitability.

MANAGEMENT INFORMATION SYSTEMS (MIS) OPERATIONS

Sophisticated information systems are essential to the Company's
ability to maintain its competitive position and to support continued growth.
The Company operates on a dual AS/400 system which provides system support for
all aspects of its business including manufacturing purchase orders; customer
purchase orders; order allocations; invoicing; accounts receivable management;
real time inventory management; quick response replenishment; point-of-sale
support; and financial and management reporting functions. The Company has a
PKMS bar coded warehousing system which is integrated with the wholesale system
in order to provide accurate inventory positions and quick response size
replenishment for its customers. In addition, the Company has installed an EDI
system which provides a computer link between the Company and certain wholesale
customers that enables both the customer and the Company to monitor purchases,
shipments and invoicing. The EDI system also improves the Company's ability to
respond to customer inventory requirements on a weekly basis. Anticipating
continued growth, the Company recently strengthened its systems by adding an
AS/400, model 620. The Company also implemented in 1998 a licensing tracking
system, a disaster recovery system and automated the Adesso-Madden order
placement and fulfillment business. The Company also completed its upgrade for
the Year 2000 in October 1999. In anticipation of continued growth, the Company
updated its internet site in August 1999 by enhancing its support functions and
scalability.

RECEIVABLES FINANCING; LINE OF CREDIT

Under the terms of a factoring agreement with Capital Factors, Inc.,
the Company is permitted to draw down eighty (80%) percent of its invoiced
receivables at an interest rate of one (1) point below the Prime Rate (as
defined). The agreement provides that Capital Factors is not required to
purchase all the Company's receivables and requires that the Company to pay an

10


unused line fee of .25% of the average daily unused portion of the maximum
amount of the credit line. On September 1, 1998, the Company and Capital Factors
amended its Factoring Agreement to, among other things, provide the Company with
a credit line of up to $15,000,000, subject to certain limitations. The Company
has not recently borrowed funds under its credit line with Capital Factors. The
Factoring Agreement is scheduled to terminate in December 2000.

TRADEMARKS AND SERVICE MARKS

The STEVE MADDEN and STEVE MADDEN plus Design trademarks/service marks
have been registered in numerous International Classes (25 clothing, shoes; 18
leather goods, handbags, wallets; 9 eye wear, 14 jewelry, 35 retail store
services; 3 fragrances, cosmetics) in the United States. The Company has several
pending applications for registration of the STEVE MADDEN plus Design mark in
the United States (20 picture frames; 16 notebooks; 24 bed linen). The Company
also has trademark registrations in the U.S. for the marks EYESHADOWS by Steve
Madden (Int'l Cl. 9 eye wear), ICE TEE (Int'l Cl. 25 clothing) and SOHO COBBLER
(Int. Cl. 9 eye wear, 25, shoes).

The Company also owns registrations for the STEVE MADDEN and STEVE
MADDEN plus Design trademarks/service marks in various International Classes in
Argentina, China, Hong Kong, Israel, Japan, Korea, Mexico, Panama, Taiwan,
throughout the 15 cooperating countries in Europe and the Benelux countries and
has pending applications for registration for the STEVE MADDEN and STEVE MADDEN
plus Design trademarks/service marks in Canada, Australia, Brazil, Chile,
Malaysia, Peru, South Africa and Venezuela. There can be no assurance, however,
that the Company will be able to effectively obtain rights to the STEVE MADDEN
mark throughout all of the countries of the world. Moreover, no assurance can be
given that others will not assert rights in, or ownership of, trademarks and
other proprietary rights to the Company or that the Company will be able to
successfully resolve such potential conflicts. The failure of the Company to
protect such rights from unlawful and improper appropriation may have a material
adverse effect on the Company's business, financial condition and results of
operations.

Additionally, the Company owns registrations for the DAVID AARON
trademark and service mark in various International Classes in the United States
(Int'l Cl. 25 clothes, shoes, 18 leather goods, handbags, wallets, 35 retail
store services), Australia, Canada, Hong Kong, Israel and the 15 cooperating
countries in Europe. The Company further has pending applications for
registration of the DAVID AARON trademark and service mark in Japan, Panama and
South Africa. The Company believes that the DAVID AARON trademark has a
significant value and is important to the marketing of the Company's products.

The Company also has several pending trade and service mark
applications for registration of the STEVIES and STEVIES plus Logo marks in the
United States (25 clothing, footwear; 14 jewelry; 18 handbags; 9 eye wear; 35
store services; 26 hair accessories; 28 toys) and a pending application for the
STEVIES by STEVE MADDEN mark (25 clothing, footwear), although none of these
applications have yet been approved by the Trademark Office. The Company also
pending applications for the STEVIES plus logo mark for jewelry, hair
accessories, handbags and clothing in Canada.

11


EMPLOYEES

At December 31, 1999, the Company employed approximately 709 employees,
of whom approximately 314 work on a full-time basis and approximately 395 work
on a part-time basis. The management of the Company considers relations with its
employees to be good.

IN ADDITION TO OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K,
THE FOLLOWING IMPORTANT FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE
COMPANY AND ITS BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT
IMPACT ON THE COMPANY'S BUSINESS, PROSPECTS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.

DEPENDENCE ON KEY PERSONNEL. The Company is dependent, in particular,
upon the services of Steven Madden, its Chief Executive Officer, Chairman of the
Board and chief designer and Rhonda Brown, its President and Chief Operating
Officer. If Mr. Madden or Ms. Brown are unable to provide services to the
Company for whatever reason, the business would be adversely affected. The
Company therefore maintains a key person life insurance policy on Mr. Madden
with coverage in the amount of $10,000,000; however, the Company does not
maintain a policy on Ms. Brown. The Company has an employment contract with Mr.
Madden that expires on December 31, 2010, and an employment contract with Ms.
Brown that expires on June 30, 2001. In the event Mr. Madden is terminated for
other than cause or total disability, the Company will be required to pay Mr.
Madden's remaining salary under his contract, half of which must be paid upon
termination. Mr. Madden is also entitled during the term of the contract to an
annual $50,000 non-accountable expense account. In the event of a change in
control, Mr. Madden and Ms. Brown may choose to continue their employment with
the Company or terminate employment and receive the remaining salary under their
respective contracts.

Since Mr. Madden and Ms. Brown are involved in all aspects of the
Company's business, there can be no assurance that a suitable replacement for
either could be found if either were unable to perform services for the Company.
As a consequence, a loss of Mr. Madden, Ms. Brown or other key management
personnel could have a material adverse effect upon the Company's business,
results of operations and financial condition. In addition, the Company's
ability to market its products and to maintain profitability will depend, in
large part, on its ability to attract and retain qualified personnel.
Competition for such personnel is intense and there can be no assurance that the
Company will be able to attract and retain such personnel. The inability of the
Company to attract and retain such qualified personnel would have a material
adverse effect on the Company's business, financial condition and results of
operations.

FASHION INDUSTRY RISKS. The success of the Company will depend in
significant part upon its ability to anticipate and respond to women's product
and fashion trends as well as to anticipate, gauge and react to changing
consumer demands in a timely manner. There can be no assurance that the
Company's products will correspond to the changes in taste and demand or that
the Company will be able to successfully market products which respond to such
trends. If the Company misjudges the market for its products, it may be faced
with significant excess inventories for some products and missed opportunities
with others. In addition, misjudgments in merchandise selection could adversely
affect the Company's image with its customers and weak sales and resulting

12


markdown requests from customers could have a material adverse effect on the
Company's business, financial condition and results of operations.

The industries in which the Company operates are cyclical, with
purchases tending to decline during recessionary periods when disposable income
is low. Purchases of contemporary shoes and accessories tend to decline during
recessionary periods and also may decline at other times. While the Company has
fared well in recent years in a difficult retail environment, there can be no
assurance that the Company will be able to maintain its historical rate of
growth in revenues and earnings, or remain profitable in the future. A recession
in the national or regional economies or uncertainties regarding future economic
prospects, among other things, could affect consumer spending habits and have a
material adverse effect on the Company's business, financial condition and
results of operations.

In recent years, the retail industry has experienced consolidation and
other ownership changes. In addition, some of the Company's customers have
operated under the protection of the federal bankruptcy laws. In the future,
retailers in the United States and in foreign markets may consolidate, undergo
restructurings or reorganizations, or realign their affiliations, any of which
could decrease the number of stores that carry the Company's products or
increase the ownership concentration within the retail industry. While such
changes in the retail industry to date have not had a material adverse effect on
the Company's business or financial condition, there can be no assurance as to
the future effect of any such changes.

INVENTORY MANAGEMENT. The Company's ability to manage its inventories
properly is an important factor in its operations. Inventory shortages can
adversely affect the timing of shipments to customers and diminish brand
loyalty. Conversely, excess inventories can result in increased interest costs
as well as lower gross margins due to the necessity of providing discounts to
retailers. The inability of the Company to effectively manage its inventory
would have a material adverse effect on the Company's business, financial
condition and results of operations.

DEPENDENCE UPON CUSTOMERS AND RISKS RELATED TO EXTENDING CREDIT TO
CUSTOMERS. The Company's customers purchasing shoes consist principally of
department stores and specialty stores, including shoe boutiques. Certain of the
Company's department store customers, including some under common ownership,
account for significant portions of the Company's wholesale net sales.
Presently, the Company sells approximately sixty percent (60%) of its products
to department stores, including Federated Stores (Bloomingdales, Burdines,
Macy's and Bullocks), Dillards, Nordstrom, Dayton Hudson and May Department
Stores (Famous Barr, Filene's, Foley's, Hecht's, Kaufmann's, Meier & Frank, Lord
and Taylor and Robinson's May) and approximately forty (40%) percent to
specialty stores, including shoe boutiques. The Company's largest customers,
Federated Stores and May Department Stores, account for approximately twenty one
percent (21%) and fifteen percent (15%) of the Company's wholesale sales,
respectively.

The Company believes that a substantial portion of sales of the
Company's licensed products by its domestic licensing partners are also made to
the Company's largest department store customers. The Company generally enters
into a number of purchase order commitments with its customers for each of its
lines every season and does not enter into long-term agreements with any of its

13


customers. Therefore, a decision by Federated Stores, Nordstrom or any other
significant customer, whether motivated by competitive conditions, financial
difficulties or otherwise, to decrease the amount of merchandise purchased from
the Company or its licensing partners, or to change its manner of doing business
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company sells its products primarily to
retail stores across the United States and extends credit based on an evaluation
of each customer's financial condition, usually without requiring collateral.
While various retailers, including some of the Company's customers, have
experienced financial difficulties in the past few years which increased the
risk of extending credit to such retailers, the Company's losses due to bad
debts have been limited. However, financial difficulties of a customer could
cause the Company to curtail business with such customer or require the Company
to assume more credit risk relating to such customer's receivables.

IMPACT OF FOREIGN MANUFACTURERS. Substantially all of the Company's
products are currently sourced outside the United States through arrangements
with a number of foreign manufacturers in four different countries. During the
year ended December 31, 1999, approximately 90% of the Company's products were
purchased from sources outside the United States, including Mexico, China,
Brazil and Spain.

Risks inherent in foreign operations include work stoppages,
transportation delays and interruptions, changes in social, political and
economic conditions which could result in the disruption of trade from the
countries in which the Company's manufacturers or suppliers are located, the
imposition of additional regulations relating to imports, the imposition of
additional duties, taxes and other charges on imports, significant fluctuations
of the value of the dollar against foreign currencies, or restrictions on the
transfer of funds, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
does not believe that any such economic or political conditions will materially
affect the Company's ability to purchase products, since a variety of materials
and alternative sources exist. The Company cannot be certain, however, that it
will be able to identify such alternative sources without delay or without
greater cost to the Company, if ever. The Company's inability to identify and
secure alternative sources of supply in this situation would have a material
adverse effect on the Company's business, financial condition and results of
operations.

The Company's imported products are also subject to United States
customs duties. The United States and the countries in which the Company's
products are produced or sold may, from time to time, impose new quotas, duties,
tariffs, or other restrictions, or may adversely adjust prevailing quota, duty
or tariff levels, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.

POSSIBLE ADVERSE IMPACT OF UNAFFILIATED MANUFACTURERS' INABILITY TO
MANUFACTURE IN A TIMELY MANNER, TO MEET QUALITY STANDARDS OR TO USE ACCEPTABLE
LABOR PRACTICES. As is common in the footwear industry, the Company contracts
for the manufacture of a majority of its products to its specifications through
foreign manufacturers. The Company does not own or operate any manufacturing
facilities and is therefore dependent upon independent third parties for the

14


manufacture of all of its products. The Company's products are manufactured to
its specifications by both domestic and international manufacturers. The
inability of a manufacturer to ship orders of the Company's products in a timely
manner or to meet the Company's quality standards could cause the Company to
miss the delivery date requirements of its customers for those items, which
could result in cancellation of orders, refusal to accept deliveries or a
reduction in purchase prices, any of which could have a material adverse effect
on the Company's business, financial condition and results of operations.

Although the Company enters into a number of purchase order commitments
each season specifying a time frame for delivery, method of payment, design and
quality specifications and other standard industry provisions, the Company does
not have long-term contracts with any manufacturer. As a consequence, any of
these manufacturing relationships may be terminated, by either party, at any
time. Although the Company believes that other facilities are available for the
manufacture of the Company's products, both within and outside of the United
States, there can be no assurance that such facilities would be available to the
Company on an immediate basis, if at all, or that the costs charged to the
Company by such manufacturers will not be greater than those presently paid.

The Company requires its licensing partners and independent
manufacturers to operate in compliance with applicable laws and regulations.
While the Company promotes ethical business practices and the Company's staff
periodically visits and monitors the operations of its independent
manufacturers, the Company does not control such manufacturers or their labor
practices. The violation of labor or other laws by an independent manufacturer
of the Company or by one of the Company's licensing partners, or the divergence
of an independent manufacturer's or licensing partner's labor practices from
those generally accepted as ethical in the United States, could have a material
adverse effect on the Company's business, financial condition and results of
operations.

INTENSE INDUSTRY COMPETITION. The fashionable footwear industry is
highly competitive and barriers to entry are low. The Company's competitors
include specialty companies as well as companies with diversified product lines.
The recent substantial growth in the sales of fashionable footwear has
encouraged the entry of many new competitors and increased competition from
established companies. Most of these competitors, including Kenneth Cole, Nine
West, DKNY, Sketchers, Nike and Guess, have significantly greater financial and
other resources than the Company and there can be no assurance that the Company
will be able to compete successfully with other fashion footwear companies.
Increased competition could result in pricing pressures, increased marketing
expenditures and loss of market share, and could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company believes effective advertising and marketing, fashionable styling, high
quality and value are the most important competitive factors and plans to employ
these elements as it develops its products. The Company's inability to
effectively advertise and market its products could have a material adverse
effect on the Company's business, financial condition and results of operations.

EXPANSION OF RETAIL BUSINESS. The Company's continued growth depends to
a significant degree on further developing the Steve Madden(R), David Aaron(R)
and l.e.i.(R) brands, creating new product categories and businesses and
operating Company-owned stores on a profitable basis. The Company plans to open

15


nine (9) Steve Madden retail stores and one (1) David Aaron store in 2000. The
Company's recent and planned expansion includes the opening of stores in new
geographic markets as well as strengthening existing markets. New markets have
in the past presented, and will continue to present, competitive and
merchandising challenges that are different from those faced by the Company in
its existing markets. There can be no assurance that the Company will be able to
open new stores, and if opened, that such new stores will be able to achieve
sales and profitability levels consistent with existing stores. The Company's
retail expansion is dependent on a number of factors, including the Company's
ability locate and obtain favorable store sites, the performance of the
Company's wholesale and retail operations, and the ability of the Company to
manage such expansion and hire and train personnel. Past comparable store sales
results may not be indicative of future results, and there can be no assurance
that the Company's comparable store sales results will increase or not decrease
in the future. In addition, there can be no assurance that the Company's
strategies to increase other sources of revenue, which may include expansion of
its licensing activities, will be successful or that the Company's overall sales
or profitability will increase or not be adversely affected as a result of the
implementation of such retail strategies.

The Company's growth has increased and will continue to increase demand
on the Company's managerial, operational and administrative resources. The
Company has recently invested significant resources in, among other things, its
management information systems and hiring and training new personnel. However,
in order to manage currently anticipated levels of future demand, the Company
may be required to, among other things, expand its distribution facilities,
establish relationships with new manufacturers to produce its products, and
continue to expand and improve its financial, management and operating systems.
There can be no assurance that the Company will be able to manage future growth
effectively and a failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations.

SEASONAL AND QUARTERLY FLUCTUATIONS. The Company's quarterly results
may fluctuate quarter to quarter as a result of the timing of holidays, weather,
the timing of larger shipments of footwear, market acceptance of the Company's
products, the mix, pricing and presentation of the products offered and sold,
the hiring and training of additional personnel, the timing of inventory write
downs, the cost of materials, the mix between wholesale and licensing
businesses, the incurrence of other operating costs and factors beyond the
Company's control, such as general economic conditions and actions of
competitors. In addition, the Company expects that its sales and operating
results may fluctuate significantly due to (i) the opening of new retail stores,
(ii) the introduction of new products and (iii) the commencement of the
Company's new Stevies(TM) brand. Accordingly, the results of operations in any
quarter will not necessarily be indicative of the results that may be achieved
for a full fiscal year or any future quarter.

TRADEMARK AND SERVICE MARK PROTECTION. The Company believes that its
trademarks/service marks and other proprietary rights are important to its
success and its competitive position. Accordingly, the Company devotes
substantial resources to the establishment and protection of its trademarks on a
worldwide basis. Nevertheless, there can be no assurance that the actions taken
by the Company to establish and protect its trademarks and other proprietary
rights will be adequate to prevent imitation of its products by others or to
prevent others from seeking to block sales of the Company's products as
violative of the trademarks and proprietary rights of others. Moreover, no

16


assurance can be given that others will not assert rights in, or ownership of,
trademarks and other proprietary rights of the Company or that the Company will
be able to successfully resolve such conflicts. In addition, the laws of certain
foreign countries may not protect proprietary rights to the same extent as do
the laws of the United States. The failure of the Company to establish and then
protect such proprietary rights from unlawful and improper appropriation could
have a material adverse impact on the Company's business, financial condition
and results of operations. See "Business - Trademarks and Service Marks".

FOREIGN CURRENCY FLUCTUATIONS. The Company generally purchases its
products in U.S. dollars. However, the Company sources substantially all of its
products overseas and, as such, the cost of these products may be affected by
changes in the value of the relevant currencies. Changes in currency exchange
rates may also affect the relative prices at which the Company and foreign
competitors sell their products in the same market. There can be no assurance
that foreign currency fluctuations will not have a material adverse impact on
the Company's business, financial condition and results of operations.

ABSENCE OF DIVIDENDS. The Company anticipates that all of its earnings
in the foreseeable future will be retained to finance the continued growth and
expansion of its business and has no current intention to pay cash dividends.

OUTSTANDING OPTIONS. As of December 31, 1999, the Company had
outstanding options to purchase an aggregate of approximately 2,720,000 shares
of Common Stock. Holders of such options are likely to exercise them when, in
all likelihood, the Company could obtain additional capital on terms more
favorable than those provided by the options. Further, while its options are
outstanding, they may adversely affect the terms in which the Company could
obtain additional capital.

ITEM 2. PROPERTIES.

The Company maintains its executive offices at 52-16 Barnett Avenue,
Long Island City, NY 11104, and wholesale warehouse at 34-09 Queens Boulevard,
Long Island City, NY 11101. The Company maintains approximately 14,000 square
feet for its executive offices and approximately 12,000 square feet and 23,600
square feet at each of its wholesale warehouses.

The Company's showroom is located at 1370 Avenue of the Americas, New
York, NY. All three of the Company's brands (Steve Madden(R), l.e.i.(R) and
David Aaron(R)) are sold from the 3,500 square foot showroom. The lease for the
Company's showroom expires in November, 2002.

All of the Company's retail stores are leased pursuant to leases that
extend for terms which average ten years in length. A majority of the leases
include clauses that provide for contingent rental payments if gross sales
exceed certain targets. In addition, a majority of the leases enable the Company
and/or the landlord to terminate the lease in the event that the Company's gross
sales do not achieve certain minimum levels during a prescribed period. Many of

17


the leases contain rent escalation clauses to compensate for increases in
operating costs and real estate taxes.

The current terms of the Company's retail store leases expire as
follows:

Years Lease Terms Expire Number of Stores
------------------------ ----------------
2003 4
2004 4
2005 4
2006 1
2007 7
2008 12
2009 11
2010 5








18


The Company also leases two (2) warehouses for the distribution of its
footwear products. Recently, however, the Company elected to outsource the
distribution of its footwear products to third parties specializing in
distributing goods to retailers. As a result, a 23,000 square foot warehouse
leased by the Company located in Brooklyn, New York, and a 12,000 square foot
warehouse leased by the Company located in Long Island City, New York are
presently vacant. The Company is actively pursuing subleasing these spaces for
the remainder of their lease terms. The lease for the Brooklyn, New York
warehouse terminates in August 2003 and the lease for the Long Island City, New
York warehouse terminates in December 2001.

ITEM 3. LEGAL PROCEEDINGS.

Except as set forth below, no material legal proceedings are pending to
which the Company or any of its property is subject.

MAGNUM FASHIONS INC., ET AL. V. STEVEN MADDEN, LTD. On or about May 25,
1999, Magnum Fashions, Inc. ("Magnum") and WK Maxy Industries, Ltd. ("WK")
commenced an arbitration proceeding (the "Arbitration") against the Company
before the American Arbitration Association ("AAA"). In the Statement of Claim
filed as part of the Arbitration (and as subsequently amended on June 25, 1999),
Magnum has alleged, inter alia, that it was fraudulently induced to enter into a
license agreement, dated as of February 1, 1997, with the Company pursuant to
which Magnum licensed the Company's "Steve Madden" trademark for handbag and
related products (the "Handbag License"). Similarly, WK alleged that it was
fraudulently induced into providing a guaranty ("Guaranty") of Magnum's
obligations under the Handbag License. In addition to the fraudulent inducement
claim, Magnum asserted claims of fraudulent nondisclosure, negligent
misrepresentation, mutual mistake, wrongful termination, failure of
consideration and defamation. Based on those allegations, Magnum and WK have
sought to be released from their financial obligations to the Company under the
Handbag License and Guaranty, respectively, and Magnum has also sought damages
that it subsequently estimated to be in excess of $5 million.

On July 7, 1999, the Company submitted its Answer and Counterclaims in
the Arbitration. In addition to denying the claims asserted by Magnum and WK,
the Company asserted a claim against Magnum and WK for the balance of the
minimum royalty due under the Handbag License. The Company also asserted
additional claims against Magnum and WK based on improper sales made during the
term of the Handbag License and Magnum's improper liquidation of its inventory
following termination of the Handbag License. Magnum and WK have denied the
Company's counterclaims. The parties to the arbitration are currently engaged in
documentary discovery. Hearings are scheduled for April and May.

The Company believes that the claims asserted by Magnum and WK are
meritless, and that the Company's counterclaims have substantial merit.
Accordingly, the Company intends to vigorously contest Magnum's positions in
this proceeding.

Steven Madden, Ltd. v. Lee 'N Gi On or about October 27, 1999, the
Company commenced an action in the New York State Supreme Court, New York County
entitled Steven Madden, Ltd. v. Lee N' Gi, Index No. 121900/99 (the "Lee N' Gi
Action"), currently pending in the Supreme Court of the State of New York,

19


County of New York, in which it claimed that Lee N' Gi, the exclusive marketing
and distribution agent for Magnum Fashion, Inc. ("Magnum"), had wrongfully
induced Magnum to breach its obligations under the Handbag License between the
Company and Magnum. The Company is seeking damages of $3,000,000. On or about
December 14, 1999, Lee N' Gi served an Answer and Counterclaim in which it
denied the allegations in the Company's complaint and claimed that the Company
had breached or wrongfully terminated the Handbag License to its detriment. Lee
N' Gi seeks damages of $2,000,000 on its counterclaim. On or about December 21,
1999, the Company served a Reply to Counterclaim in which it denied Lee N' Gi's
allegations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

No matters were submitted to a vote of the holders of the Company's
Common Stock during the last quarter of its fiscal year ended December 31, 1999.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's shares of Common Stock, Class A Warrants and Class B
Warrants were quoted since December 10, 1993 on The Nasdaq SmallCap Market under
the symbols SHOO, SHOOW and SHOOZ, respectively. In January 1996 and August,
1998 the Class A Warrants and Class B Warrants, respectively, ceased trading as
a result of the Company's call for redemption of such securities. The Company's
shares of Common Stock presently trade on The Nasdaq National Market.

The following table sets forth the range of high and low bid quotations
for the Common Stock, Class B Warrants for the two year period ended December
31, 1999, as reported by The Nasdaq SmallCap Market and The Nasdaq National
Market. The quotes represent inter-dealer prices without adjustment or mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.
The trading volume of the Company's securities fluctuates and may be limited
during certain periods. As a result, the liquidity of an investment in the
Company's securities may be adversely affected.

COMMON STOCK CLASS B WARRANTS
HIGH LOW HIGH LOW
---- --- ---- ---

1999
Quarter ended
March 31, 1999 9 7/16 7 1/8 * *

Quarter ended
June 30, 1999 14 7 7/8 * *


20



COMMON STOCK CLASS B WARRANTS
HIGH LOW HIGH LOW
---- --- ---- ---


Quarter ended
September 30, 1999 14 1/8 11 1/8 * *

Quarter ended
December 31, 1999 19 1/16 11 15/16 * *

1998

Quarter ended
March 31, 1998 10 1/8 6 3/8 4 3/4 1 3/16

Quarter ended
June 30, 1998 11 7/8 8 1/8 6 1/8 3 3/16

Quarter ended
September 30, 1998 11 11/16 5 3/4 5 13/16 3 1/8 *

Quarter ended
December 31, 1998 9 1/16 3 9/16 * *


* The Class B Warrants ceased trading as of August 13, 1998 as a result
of such securities being called for redemption by the Company.

On March 15, 2000, the final quoted prices as reported by The Nasdaq
National Market was $14.00 for each share of Common Stock. As of March 15, 2000,
there were 11,859,759 shares of Common Stock outstanding, held of record by 75
record holders and approximately 3,630 beneficial owners.

21



ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data has been derived from the
Company's audited financial statements. The Income Statement Data relating to
1999, 1998 and 1997 and the Balance Sheet Data as of December 31, 1999 and 1998
should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto appearing elsewhere herein.


YEAR ENDED DECEMBER 31,

1999 1998 1997 1996 1995
------------ ----------- ----------- ----------- -----------

INCOME STATEMENT DATA:
Net sales $163,036,000 $85,783,000 $59,311,000 $45,823,000 $38,735,000

Cost of sales 94,536,000 49,893,000 34,744,000 31,343,000 25,911,000
------------ ----------- ----------- ----------- -----------

Gross profit 68,500,000 35,890,000 24,567,000 14,480,000 12,824,000
Commissions and licensing fees 3,367,000 3,273,000 2,321,000 951,000 378,000
Operating expenses (52,946,000) (29,949,000) (22,262,000) (13,998,000) (7,451,000)
------------ ----------- ----------- ----------- -----------

Income from operations 18,921,000 9,214,000 4,626,000 1,433,000 5,751,000
Interest income 909,000 380,000 312,000 322,000 167,000
Interest expense (90,000) (235,000) (339,000) (162,000) (265,000)
Loss on sale of net assets (104,000)
------------ ----------- ----------- ----------- -----------

Income before provision for income taxes 19,740,000 9,359,000 4,599,000 1,593,000 5,549,000
Provision for income taxes 8,274,000 3,912,000 1,899,000 534,000 1,793,000
------------ ----------- ----------- ----------- -----------

Net Income $ 11,446,000 $ 5,447,000 $ 2,700,000 $ 1,059,000 $ 3,756,000
============ =========== =========== =========== ===========

Basic income per share $ 1.06 $ 0.58 $ 0.33 $0.14 $ 0.66
============ =========== =========== =========== ===========
Diluted income per share $ 0.92 $ 0.50 $ 0.30 $0.13 $ 0.51
============ =========== =========== =========== ===========

Weighted average common shares outstanding-basic
income per share 10,831,250 9,436,798 8,064,604 7,689,848 5,674,579

effect of potential common shares from exercise of
options and warrants 1,634,102 1,546,303 848,462 737,232 1,644,873
------------ ----------- ----------- ----------- -----------

Weighted average common shares outstanding-diluted 12,465,352 10,983,101 8,913,066 8,427,080 7,319,452
income per share ============ =========== =========== =========== ===========

BALANCE SHEET DATA

Total assets $78,135,000 $48,928,000 $29,277,000 $22,361,000 $14,530,000
Working capital 48,076,000 33,627,000 16,545,000 13,719,000 9,625,000
Noncurrent liabilities 980,000 681,000 359,000 166,000 0
Stockholders' equity 62,435,000 44,960,000 25,793,000 20,101,000 12,765,000


22


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this document.

Statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this document as well as statements
made in press releases and oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf
that are not statements of historical or current fact constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other unknown factors that could cause the actual
results of the Company to be materially different from the historical results or
from any future results expressed or implied by such forward-looking statements.
In addition to statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled with the terms
"believes", "belief", "expects", "intends", "anticipates" or "plans" to be
uncertain forward-looking statements. The forward looking statements contained
herein are also subject generally to other risks and uncertainties that are
described from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission.

The following table sets forth information on operations for the periods
indicated:



PERCENTAGE OF NET REVENUES
TWELVE MONTHS ENDED
DECEMBER 31
CONSOLIDATED: 1999 1998 1997
- ------------- ------------ ----------- -----------

Net Sales $163,036,000 100% $85,783,000 100% $ 59,311,000 100%
Cost of Sales 94,536,000 58 49,893,000 58 34,744,000 59
Other Operating Income 3,367,000 2 3,273,000 4 2,321,000 4
Operating Expenses 52,946,000 32 29,949,000 35 22,262,000 38
Income from Operations 18,921,000 12 9,214,000 11 4,626,000 8
Interest Income (Expense) Net 819,000 1 145,000 0 (27,000) 0
Income Before Income Taxes 19,740,000 12 9,359,000 11 4,599,000 8
Net Income 11,466,000 7 5,447,000 6 2,700,000 5


23



PERCENTAGE OF NET REVENUES
TWELVE MONTHS ENDED
DECEMBER 31
By Segment 1999 1998 1997
---------- ---------- -----------

WHOLESALE DIVISIONS:
Steven Madden, Ltd.
- -------------------
Net Sales 78,890,000 100% 49,891,000 100% $38,487,000 100%
Cost of Sales 49,770,000 63 31,201,000 63 23,385,000 61
Other Operating Income 807,000 1 594,000 1 129,000 0
Operating Expenses 22,758,000 29 14,549,000 29 13,348,000 35
Income from Operations 7,169,000 9 4,735,000 9 1,883,000 5

DIVA ACQUISITION CORP.
- ----------------------
Net Sales $ 7,970,000 100% $ 5,846,000 100% $ 6,447,000 100%
Cost of Sales 5,296,000 66 4,421,000 76 4,086,000 63
Operating Expenses 1,547,000 19 1,489,000 25 2,207,000 34
Income (Loss) from Operations 1,127,000 14 (64,000) (1) 154,000 2

L.E.I. FOOTWEAR:
- ----------------
Net Sales $27,546,000 100% $ 3,483,000 100% --- --
Cost of sales 17,856,000 65 2,200,000 63 --- --
Operating Expenses 5,856,000 21 828,000 24 --- --
Income from Operations 3,834,000 14 455,000 13 --- --


STEVEN MADDEN RETAIL INC.:
- --------------------------
Net Sales $48,630,000 100% $ 26,563,000 100% $13,249,000 100%
Cost of Sales 21,614,000 44 12,071,000 45 6,143,000 46
Operating Expenses 21,106,000 43 11,751,000 44 5,501,000 42
Income from Operations 5,910,000 12 2,741,000 10 1,605,000 12

ADESSO MADDEN INC.:
- -------------------
(FIRST COST)

Net Sales --- --- --- --- $ 1,128,000 ---
Cost of Sales --- --- --- --- 1,130,000 ---
Commission Revenue --- --- --- --- 2,192,000 ---
Total Operating Revenue $ 2,560,000 100% 2,679,000 100% 2,190,000 100%
Operating Expenses 1,679,000 66 1,332,000 50 1,206,000 55
Income from Operations 881,000 34 1,347,000 50 984,000 45

24



RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999 VS. YEAR ENDED DECEMBER 31, 1998

CONSOLIDATED:

Sales for the year ended December 31, 1999 were $163,036,000 or 90% higher than
the $85,783,000 recorded in the comparable period of 1998. The increase in sales
is due to several factors, including (i) the addition of new wholesale accounts,
(ii) an increase in reorders from existing customers, (iii) an 86% increase in
Electronic Data Interchange (EDI) size replenishment program, (iv) an 83%
increase in retail sales due to the opening of additional Steve Madden retail
stores during 1999 and increases in same store sales, (v) a full year of sales
from the l.e.i. Wholesale Division ("l.e.i. Wholesale") which was launched in
the third quarter of 1998, (vi) an increase in the number of Steve Madden
concepts shops located in major department stores, (vii) an expansion in the
number of products offered by the Company, (viii) an increase in the number of
retail locations offering the Company's products and (ix) increased public
awareness in the Company's brands. As a result, management feels that "Steve
Madden" and "l.e.i. footwear" as a brand name has increased in popularity
nationwide. In turn, increased sales have enabled the Company to expand its
advertising and in store concept efforts, all of which have contributed to the
continuing increase in sales. Gross profit as a percentage of sales in 1999
remains the same as 1998.

Selling, general and administrative (SG&A) expenses increased to $52,946,000 in
1999 from $29,949,000 in 1998. The increase in SG&A is due primarily to a 60%
increase in payroll, officers' bonuses and payroll related expenses from
$11,948,000 in 1998 to $19,147,000 in 1999. Also, the Company focused its
efforts on advertising and marketing by increasing those expenses by 101% from
$2,515,000 in 1998 to $5,046,000 in 1999. Additionally, selling, designing and
licensing costs increased by 149% from $3,488,000 in 1998 to $8,702,000 in 1999.
This is due in part to an increase in sales in the current period and to the
Company's increased focus on selling, designing, and licensing activities. The
increase in the number of retail outlets and expanded office facilities resulted
in an increase in occupancy, telephone, utilities, legal, computer,
printing/supplies and depreciation expenses by 88% from $6,920,000 in 1998 to
$13,031,000 in 1999. In addition, in August 1999, the Company paid $600,000 to a
former principal of the underwriter of the Company's initial public offering.
Such payment was made in settlement of a dispute regarding an option issued in
connection with the Company's initial public offering in December 1993.

Income from operations for 1999 was $18,921,000, which represents an increase of
$9,707,000 or 105% over the income from operations of $9,214,000 in 1998. Net
income increased by 111% to $11,466,000 in 1999 from $5,447,000 in 1998.

WHOLESALE DIVISIONS:

Sales from the Steve Madden Wholesale Division ("Madden Wholesale"), accounted
for $78,890,000 or 48% and $49,891,000 or 58% of total sales in 1999 and 1998,

25


respectively. The increase in sales is due to the addition of new "Madden
Wholesale" accounts, an increase in reorders from existing customers and an 86%
increase in Electronic Data Interchange (EDI) size replenishment program. Gross
profit as a percentage of sales remains the same. Operating expenses increased
to $22,758,000 in 1999 from $14,549,000 in 1998. This increase is due to an
increase in payroll and payroll related expenses principally due to the hiring
of additional management personnel and an increase in occupancy expenses due to
additional warehouse space needed for expanding EDI size replenishment
inventory. Additionally, selling, designing and licensing costs increased due to
an increase in sales in the current period and to the Company's increased focus
on selling, designing, and licensing activities. Madden Wholesale income from
operations was $7,169,000 in 1999 compared to income from operations of
$4,735,000 in 1998.

Sales from the Diva Acquisition Corp. Wholesale Division ("Diva Wholesale")
which markets the "David Aaron" brand name in footwear accounted for $7,970,000
or 5%, and $5,846,000 or 7%, of total sales in 1999 and 1998, respectively. The
increase in sales due to the addition of new "Diva wholesale" accounts and an
increase in reorders from existing customers. Gross profit as a percentage of
sales increased from 24% in 1998 to 34% in 1999 due to a change in the product
mix, balanced sourcing and improved inventory management. Operating expenses
increased to $1,547,000 in 1999 from $1,489,000 in 1998 due to increases in
occupancy, computer, payroll and payroll related expenses. Income from
operations from Diva was $1,127,000 in 1999 compared to a loss from operations
of $64,000 in 1998.

Sales from the l.e.i. Wholesale ("l.e.i. Wholesale") accounted for $27,546,000
or 17%, and $3,483,000 or 4%, of total sales in 1999 and 1998, respectively. The
increase in sales due to the addition of new "l.e.i. Wholesale" accounts and an
increase in reorders from existing customers. l.e.i footwear now sells in over
2400 doors in the United States, primarily in department stores, including
Macy's - east, Burdines, Rich's, Hecht's, Filene's, Foley's, Dayton Hudson, Belk
and JC Penney's, and to a lesser extent in specialty store chains, such as Wet
Seal and Journey's. Gross profit as a percentage of sales decreased from 37% in
1998 to 35% in 1999, primarily as a result of a higher markdowns experienced in
the first quarter of 1999. Operating expenses increased to $5,856,000 in 1999
from $828,000 in 1998. Increases in sales and operating expenses are
attributable to a full year of operations ("l.e.i Wholesale" - was launched in
the third quarter of 1998). Income from operations from l.e.i. Wholesale was
$3,834,000 in 1999 compared to income from operations of $455,000 in 1998.

RETAIL DIVISION:

Sales from the Retail Division accounted for $48,630,000 or 30 % and $26,563,000
or 31% of total revenues in 1999 and 1998, respectively. The increase in Retail
Division sales is primarily due to the Company's opening of thirteen additional
Steve Madden retail stores and three additional outlet stores in 1999. Same
store sales for the year ended December 31, 1999 increased by 26% over the same
period of 1998. This increase in same store sales was driven by the
strengthening of the boot classification, the addition of the slipper
classification (known as the "Fuzzy"), the timely conversion of our warm weather
stores, EDI basic replenishment and the addition of our West Coast warehouse
facility. Also, increases in same store sales were driven by strengthening of
the Company's buying and store support staff, a newly revised compensation

26


package and a stronger marketing effort that included Mall posters, radio
promotion and in-store events. Also, during the first quarter of 1999, the
Company completed it's internet fulfillment center and expanded the number of
workstations at the Long Island City offices dedicated to Internet sales.
Revenues from the internet store increased by 700% to $1,200,000 in 1999 from
$150,000 in 1998. As the Company offers additional styles through its web site
at WWW.STEVENMADDEN.COM, business continues to grow. The Company signed an
agreement with America Online, to sell footwear and apparel through AOL's new
shopping destination, Shop @ AOL. The site for apparel went live in mid August
and the site for footwear went live at the end of September. Since going live,
the Company's web site has experienced a 153% growth in hits and a 14% growth in
unique users. The increase in Gross profit as a percentage of sales from 55% in
1998 to 56% in 1999 was due to the high margin classification such as boots and
slippers and strong upfront marketing plans. Selling, general and administrative
expenses for the Retail Division increased to $21,106,000 in 1999 from
$11,751,000 in 1998. This increase is due to increases in payroll and related
expenses, occupancy, printing, computer and depreciation expenses as a result of
opening thirteen additional stores and three outlet stores during 1999. Income
from operations from the retail division was $5,910,000 in 1999 compared to
income from operations of $2,741,000 in 1998.

ADESSO-MADDEN DIVISION:

Adesso-Madden, Inc., a wholly owned subsidiary of the Company, generated
commission revenues of $2,560,000 for the year ended December 31, 1999 which
represents a decrease from the commission revenues of $2,679,000 in 1998. This
decrease was primarily due to the closing of certain key accounts and a shift to
purchasing the l.e.i. brand from their private label brand by accounts such as
JC Penny, Sears and Mervyns. However, in the fourth quarter private label
division revenue increased by 31% to $702,000 in 1999 compared to $535,000 in
1998. The increase in sales in the fourth quarter due to the addition of new
accounts and an increase in reorders from existing customers. Also,
Adesso-Madden, continues to expand its business by introducing additional styles
in Jordache footwear, a trademark licensed by the Company, in Kmart and Target.
The first shipments of Jordache footwear were delivered in July 1999. Operating
expenses increased to $1,679,000 in 1999 from $1,332,000 in 1998 due to
increases in occupancy, payroll and payroll related expenses. Income from
operations from Adesso-Madden was $881,000 in 1999 compared to income from
operations of $1,347,000 in 1998.

YEAR ENDED DECEMBER 31, 1998 VS. YEAR ENDED DECEMBER 31, 1997

CONSOLIDATED:

Sales for the year ended December 31, 1998 were $85,783,000 or 45% higher than
the $59,311,000 recorded in the comparable period of 1997. The increase in sales
is due to several factors including additional wholesale accounts, increased
reorders, EDI size replenishment, increased retail sales due to the opening of
twelve additional retail stores and three outlet stores during 1998. As a result
of additional distribution, management feels that "Steve Madden" as a brand name
has increased in popularity nationwide. In turn, increased sales have enabled
the Company to expand its advertising and in store concept efforts, all of which
have contributed to the continuing increase in sales. Also, the Company's new

27


l.e.i. Wholesale Division ("l.e.i. Wholesale") was launched in the third quarter
of 1998 shipping to department stores throughout the country. l.e.i. Wholesale
generated revenue of $3,483,000 for the six month period ended December 31,1998.

Cost of sales as a percentage of sales decreased 1% from 59% in 1997 to 58% in
1998. Increased sales volume has allowed the Company to purchase in larger
volume, resulting in a lower cost per pair. Gross profit as a percentage of
sales increased 1% from 41% in 1997 to 42% in 1998. This increase was due to
balanced sourcing, inventory management, EDI replenishment and the increase in
retail sales.

Selling, general and administrative (SG&A) expenses increased by 35% to
$29,949,000 in 1998 from $22,262,000 in 1997. The increase in SG&A is due
primarily to a 43% increase in payroll, bonuses and related expenses from
$8,358,000 in 1997 to $11,948,000 in 1998. Additionally, the Company focused its
efforts on advertising and marketing by increasing those expenses by 48% from
$1,698,000 in 1997 to $2,515,000 in 1998. The increase in the number of retail
outlets and expanded office facilities resulted in an increase in occupancy,
telephone, utilities, computer, printing/supplies and depreciation expenses by
102% from $3,264,000 in 1997 to $6,593,000 in 1998.

Income from operations for 1998 was $9,214,000 which represents an increase of
$4,588,000 or 99% over the income from operations of $4,626,000 in 1997. Net
income increased by 102% to $5,447,000 in 1998 from $2,700,000 in 1997.

WHOLESALE DIVISIONS:

Sales from the Steve Madden Wholesale Division ("Madden Wholesale"), accounted
for $49,891,000 or 58% and $38,487,000 or 65% of total sales in 1998 and 1997,
respectively. Cost of sales as a percentage of sales increased from 61% in 1997
to 63% in 1998 due the changing product mix in Madden Wholesale in 1998 compared
to 1997. In 1997, sneakers, which were shipped at a higher margin, are not an
important classification in 1998. Gross profit as a percentage of sales
decreased from 39% in 1997 to 37% in 1998 due to the same reason mentioned
above. Operating expenses increased by 9%, from $13,348,000 in 1997 to
$14,549,000 in 1998. This increase is due to an increase in payroll and payroll
related expenses principally due to the hiring of additional management
personnel and an increase in occupancy expenses due to additional warehouse
space needed for expanding EDI size replenishment inventory. Madden Wholesale
income from operations for the Year ended December 31, 1998 was $4,735,000
compared to income from operations of $1,883,000 for the Year ended December 31,
1997.

Sales from the Diva Acquisition Corp. Wholesale Division ("Diva Wholesale")
which markets the "David Aaron" brand name in footwear accounted for $5,846,000
or 7%, and $6,447,000 or 11%, of total sales in 1998 and 1997, respectively. The
Company believes that the decrease in sales is primarily due to the introduction
of a new management team in the first quarter of 1998 for Diva and the
implementation of certain modifications to Diva's business which the Company

28


hopes will enhance operations in the future. Cost of sales as a percentage of
sales has increased from 63% in 1997 to 76% in 1998 in Diva Wholesale, primarily
as a result of a higher markdowns experienced in the second and third quarters
of 1998. Gross profit as a percentage of sales decreased from 37% in 1997 to 24%
in 1998 due to the same reason mentioned above. Operating expenses decreased by
33% from $2,207,000 in 1997 to $1,489,000 in 1998 due to decreases in
administrative payroll, selling and designing expenses. Loss from operations
from Diva was $64,000 in 1998 compared to income from operations of $154,000 in
1997.

The Company's new l.e.i. Wholesale Division ("l.e.i. Wholesale") commenced
shipping to department stores throughout the country in third quarter of 1998.
l.e.i. Wholesale generated revenue of $3,483,000 for the six month period ended
December 31, 1998 and there have been substantial product reorders in early
1999.

RETAIL DIVISION:

Sales from the Retail Division accounted for $26,563,000 or 31% and $13,249,000
or 22% of total revenues in 1998 and 1997, respectively. The increase in Retail
Division sales is primarily due to the Company's opening of twelve additional
retail stores and three outlet stores during 1998 all of which generated
aggregate sales of $5,725,000. Same store sales for the year ended December 31,
1998 increased by 4% over the same period of 1997. This increase in same store
sales is due to EDI basic replenishment, expansion of product assortment within
classifications such as sandals, and the Company's continued focus on testing
new product. Gross profit as a percentage of sales has increased by 1% from 54%
in 1997 to 55% in 1998. Selling, general and administrative expenses for the
Retail Division increased to $11,751,000 or 44% of sales in 1998 from $5,501,000
or 42% of sales in 1997. This increase is due to increases in payroll and
related expenses, occupancy, printing, computer and depreciation expenses as a
result of opening twelve additional stores and three outlet stores during the
year ended December 31, 1998 and the addition of a retail warehouse. Income from
operations from the retail division was $2,741,000 in 1998 compared to income
from operations of $1,605,000 in 1997.

ADESSO-MADDEN DIVISION:

Adesso-Madden, Inc., a wholly owned subsidiary of the Company, generated
commission revenues of $2,679,000 for the year ended December 31, 1998 which
represents an increase of $489,000 or 22% over the commission revenues of
$2,190,000 in 1997 due to having additional accounts. Adesso-Madden arranged for
the shipment of over $34 million of shoes at first cost to the mid-tier and mass
channels of distribution including stores such as JC Penneys, Target, Famous
Footwear, MelDisco and Walmart. Operating expenses increased by 10% from
$1,206,000 in 1997 to $1,332,000 in 1998 due to increases in sales commissions,
payroll and payroll related expenses. Income from operations from Adesso-Madden
was $1,347,000 in 1998 compared to income from operations of $984,000 in 1997.

29


LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of $48,076,000 at December 31, 1999 which
represents an increase of $14,449,000 in working capital from December 31,1998.
The increase in working capital is primarily due to an increase in profitability
and proceeds received from exercise of stock options.

The Company's customers consist principally of department stores and specialty
stores, including shoe boutiques. Presently, the Company's Wholesale Division
sells approximately sixty percent (60%) of its products to department stores,
including Federated Department Stores (Bloomingdales, Bon Marche, Burdines,
Macy's and Rich's), May Department Stores (Famous Barr, Filene's, Foley's,
Hecht's, Kaufmann's, Meier & Frank, Lord & Taylor and Robinsons May), Dillard's,
Dayton-Hudson and Nordstorm approximately forty percent (40%) to specialty
stores, including Journey's, Wet Seal and The Buckle and catalog retailers,
including Victoria's Secret and Fingerhut. Federated Department Stores and May
Department Stores presently account for approximately twenty one percent (21%)
and fifteen percent (15%) of the Company's Wholesale Division sales,
respectively.

OPERATING ACTIVITIES

During the year ended December 31, 1999, cash provided by operating activities
was $22,908,000. Uses of cash arose principally from an increase in factored
accounts receivable of $3,062,000 and an increase in inventory of $2,187,000.
Cash was provided principally by an increase in accounts payable and accrued
expenses of $6,120,000, an increase in income tax payable of $4,957,000 and net
income of $11,466,000.

The Company has lease agreements for office, warehouse, and retail space,
expiring at various times through 2010. Future obligations under these lease
agreements total approximately $36,107,000.

The Company has employment agreements with various officers currently providing
for aggregate annual salaries of approximately $1,600,000, subject to annual
bonuses and annual increases as may be determined by the Company's Board of
Directors. In addition, as part of the employment agreements, the Company is
committed to pay incentive bonuses based on income before interest, depreciation
and taxes to certain officers.

The Company continues to increase its supply of products from foreign
manufacturers, the majority of which are located in Brazil, China and Mexico.
Although the Company has not entered into long-term manufacturing contracts with
any of these foreign companies, the Company believes that a sufficient number of
alternative sources exist outside of the United States for the manufacture of
its products if current suppliers need to be replaced. In addition, because the
Company deals with U.S. currency for all transactions and intends to continue to
do so, the Company believes there should be no foreign exchange considerations.

30


INVESTING ACTIVITIES

During the year ended December 31, 1999, the Company used cash of $4,752,000 to
make leasehold improvements on new retail stores, warehouse space and office
space and to acquire computer equipment.

FINANCING ACTIVITIES

During the year ended December 31, 1999, the Company received $5,264,000 from
the exercise of stock options.

LICENSE AGREEMENTS

As of January 1, 1999, an affiliate of Jordache became the Company's new
jeanswear and sportswear licensee and the first shipments of Steve Madden
sportswear and jeanswear collections were delivered in June 1999. As of December
31, 1999, the Company had eight license partners covering ten product
categories. The Company is exploring additional licensing opportunities.

In addition, as of January 1, 1999, the Company entered into a license agreement
with the Jordache pursuant to which the Company was granted the exclusive
license to use the Jordache trademark on women and girls footwear in the mass
channels of distribution, such as Walmart. The first shipments of Jordache
footwear were delivered in July 1999.

INFLATION

The Company does not believe that inflation has had a material adverse effect on
sales or income during the past several years. Increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See financial statements following Item 14 of this Annual Report on
Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.


31


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF THE REGISTRANT.

The names and ages of the directors and executive officers of the
Company are set forth below:

NAME AGE POSITION(S) WITH THE COMPANY

Steven Madden 42 Chairman of the Board
and Chief Executive Officer

Rhonda Brown 44 President, Chief Operating Officer
and Director

Arvind Dharia 50 Chief Financial Officer, Director
and Secretary

John Basile 48 Executive Vice President and Director

Gerald Mongeluzo 59 President of Adesso-Madden, Inc.

Mark Jankowski 39 President of Steven Madden Retail, Inc.

Robert Schmertz 36 President of Shoe Biz, Inc.

Joseph Masella 51 President of l.e.i. Wholesale Division
and Stevies, Inc.

Les Wagner 59 Vice President - Real Estate
of Steven Madden Retail, Inc.
and Director

Charles Koppelman 59 Director

John L. Madden 52 Director

Peter Migliorini 51 Director




BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS

STEVEN MADDEN has been since the Company's inception, the Chairman of
the Board, Chief Executive Officer and President. In 1980, Mr. Madden joined
L.J. Simone, a domestic footwear manufacturer, as an Account Executive. At that
time, L.J. Simone had annual sales of approximately $800,000. Mr. Madden was
promoted to Sales Manager and Director of Product Development and was

32


instrumental in the company's growth to $28 million in annual sales. After
leaving L.J. Simone in 1988, Mr. Madden joined M.C.M. Footwear, where he
commenced the design, development and marketing of the "Souliers" line of
footwear for women. In 1990, Mr. Madden founded the Company.

RHONDA J. BROWN has been the President of the Company since February
2000, Chief Operating Officer of the Company since July 1996 and a director of
the Company since November 1996. Prior to joining the Company, Ms. Brown served
as President and Chief Executive Officer of Icing, Inc. from May 1995 to
December 1995. Previously, from August 1992 to December 1994, Ms. Brown served
as Merchandise President of Macy's East, a division of R.H. Macy & Co., Inc.
From July 1988 to July 1992. Ms. Brown served as Senior Vice-President and
General Merchandise Manager to Lord & Taylor, a division of the May Company. Ms.
Brown attended the American University, receiving a BS in Marketing and Public
Communications in 1976.

ARVIND DHARIA has been the Chief Financial Officer of the Company since
October 1992 and a Director since December 1993. From December 1988 to September
1992, Mr. Dharia was Assistant Controller of Millennium III Real Estate Corp.

JOHN BASILE has been the Director of Operations of the Company since
June 1994 and the Company's Executive Vice President since January 1998. Mr.
Basile has been a director of the Company since November 1996. From 1990 to
1994, Mr. Basile was Executive Vice President of Cougar U.S.A. responsible for
the United States Division of Susan Shoes of Canada. Previously, Mr. Basile was
a Sales Manager at Bellini Imports from 1980 to 1990.

GERALD MONGELUZO has been President of Adesso-Madden, Inc., a wholly
owned subsidiary of the Company, since September 1995. Previously, Mr. Mongeluzo
was the founder and President of Adesso Shoes, Inc., a buying agent of private
label shoes. From 1987 through 1991, Mr. Mongeluzo was the President of the
Prima Barabaro Division of Cells Enterprise, Inc. Mr. Mongeluzo founded Prima
Shoes, Inc., a buying agent of private label shoes, and served as President from
1974 to 1987.

MARK JANKOWSKI has been the President of Steve Madden Retail, Inc.
since February 1999. Previously, Mr. Jankowski was the Company's Vice President
of Product Development from 1995 to 1999. From 1980 to 1995, Mr. Jankowski held
several posts at Edison Brothers including Head of Buying.

ROBERT SCHMERTZ has been the President of Shoe Biz, Inc., a subsidiary
of Steve Madden Retail Inc. since May 1998. Before joining the Company, Mr.
Schmertz was President of Daniel Scott Inc. from November 1995 to May 1998.
Previously, Mr. Schmertz was the East Coast Sales Manager for Impo International
from January 1993 through November 1995. From April 1990 to December 1992, Mr.
Schmertz served as a sales representative for Espirit de Corp. based in San
Fransciso, California. In June 1987, Mr. Schmertz entered the R.H. Macy & Co.
Inc. Executive Training Program and became an Associate Buyer for Women's Junior
Footwear in May 1989.

33


JOE MASELLA has been President of l.e.i. Division since July 1998 and
Vice President-Sales of Adesso-Madden since October 1995. In February 2000, Mr.
Masella was also named as the President of Stevies, Inc. From 1992 to 1995, Mr.
Masella served as General Manager-Far East Division of US Shoe Co. From 1983 to
1992, Mr. Masella was the President of T.A. Associates, a buying agent of
branded and private label footwear, which was acquired by US Shoe in 1995.

LES WAGNER has been Vice President-Real Estate for Steven Madden
Retail, Inc. since April 1999 and a director of the Company since October 1996.
From 1993 to 1996, Mr. Wagner served as the President of Baker/Leeds Shoe Store,
a Division of Edison Brothers Stores, Inc. Mr. Wagner has served in a number of
other capacities for Baker/Leeds from 1963 to 1993 which included, General
Merchandise Manager from 1989 to 1993; Vice President Real Estate Northeast Area
from 1988 to 1989; and President, Gussini Discount Shoe Division from 1987 to
1988. Mr. Wagner attended Harvard University, completing the Advanced Management
Program (AMP 100).

CHARLES KOPPELMAN has been a director of the Company of the Company
since June 1998. Since February 4, 1998, Mr. Koppelman has been the Chairman and
Chief Executive Officer of CAK Universal Credit Corp., a joint venture created
with Prudential Securities to provide financing to the entertainment, sports and
licensing industries. From 1988 to 1997, Mr. Koppelman served as the Chairman
and Chief Executive Officer of EMI Capital Music, N.A.

JOHN L. MADDEN has been a Director of the Company since the Company's
inception. Since April 1998, Mr. Madden has owned and run a Branch office of
Tradeway Securities Group, Inc. in Florida. From May 1996 through December 1996,
Mr. Madden formed JLM Consultants, Inc. which acted as a Branch office for
several broker-dealers. From May 1994 to May 1996, Mr. Madden served as Vice
President of Investments for GKN Securities, Inc. From August 1993 to April
1994, Mr. Madden was employed by Biltmore Securities as Managing Director and
registered sales representative. From April 1992 until August 1993, Mr. Madden
was associated with GKN Securities, Inc. as a Senior Account Executive. Mr.
Madden is the brother of Steven Madden, the Company's Chairman of the Board and
Chief Executive Officer.

PETER MIGLIORINI has been a Director of the Company since October 1996.
From 1994 to present, Mr. Migliorini has served as Sales Manager for Greschlers,
Inc., a major supply company located in Brooklyn, New York. From 1987 to 1994
Mr. Migliorini served as Director of Operations for Mackroyce Group. Mr.
Migliorini has previously served in a number of capacities, ranging from
Assistant Buyer to Chief Planner/Coordinator for several shoe companies
including Meldico Shoes, Perry Shoes, and Fasco Shoes.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and

34


reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

Except as set forth below, to the Company's knowledge, based solely on
its review of the copies of such reports furnished to the Company during the
year ended December 31, 1999, all Section 16(a) filing requirements applicable
to its officers and directors and greater than ten percent beneficial owners
were satisfied.

To the Company's knowledge, Messrs. Jankowski, Schmertz and Masella
inadvertently failed to file timely Form 3's as a result of their appointment as
officers of the Company, and subsequently, Form 4's with respect to changes in
their beneficial ownership.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated herein by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Incorporated herein by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Incorporated herein by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934.

PART IV

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

(A)(1) FINANCIAL STATEMENTS

The following consolidated financial statements of Steven Madden, Ltd.
and subsidiaries are included in Item 8:

Consolidated Balance Sheets--December 31, 1999 and 1998
Consolidated Statements of Operations--Years ended December 31, 1999
1998 and 1997.
Consolidated Statements of Changes in Stockholder's Equity--Years ended
December 31, 1999, 1998 and 1997.

35


Notes to Financial Statements.

(a)(2) FINANCIAL STATEMENT SCHEDULES

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

(b) REPORTS ON FORM 8-K

(1) None.

(c) EXHIBITS.

Exhibits

3.01* Certificate of Incorporation of the Company.

3.02* By-Laws of the Company.

4.01* Specimen Certificate for shares of Common Stock.

10.01* Amended Employment Agreement between the Company and Steven Madden, as
amended.

10.02* Employment Agreement of John Basile.

10.04* Employment Agreement of Rhonda Brown.

21.01 Subsidiaries of Registrant.

23.01 Consent of Richard A. Eisner & Company, LLP.

* Previously filed with the Securities and Exchange Commission.

36


STEVEN MADDEN, LTD. AND SUBSIDIARIES


CONTENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS

Independent auditors' report F-2

Balance sheets as of December 1999 and 1998 F-3

Statements of operations for the years ended
December 31 1999, 1998 and 1997 F-4

Statements of changes in stockholders' equity for
the years ended December 31, 1999, 1998 and 1997 F-5

Statements of cash flows for the years ended
December 31, 1999, 1998 and 1997 F-6

Notes to financial statements F-7




INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Steven Madden, Ltd.
New York, New York


We have audited the accompanying consolidated balance sheets of Steven Madden,
Ltd. and subsidiaries as of December 31, 1999, and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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 financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Steven Madden, Ltd.
and subsidiaries as of December 31, 1999 and 1998, and the consolidated results
of their operations and their consolidated cash flows for each of the years in
the three-year period ended December 31, 1999 in conformity with generally
accepted accounting principles.


Richard A. Eisner & Company, LLP

New York, New York
February 16, 2000


F-2


STEVEN MADDEN, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


DECEMBER 31,
--------------------------
1999 1998
----------- -----------

ASSETS
Current assets:
Cash and cash equivalents $37,361,000 $14,642,000
Investments 257,000 499,000
Accounts receivable - net of allowances of $886,000 and $462,000 1,207,000 924,000
Due from factor - net of allowances of $624,000 and $351,000 12,146,000 9,357,000
Inventories 10,158,000 7,971,000
Prepaid expenses and other current assets 867,000 2,987,000
Deferred taxes 800,000 534,000
----------- -----------

Total current assets 62,796,000 36,914,000

Property and equipment, net 11,114,000 8,991,000
Deferred taxes 1,612,000 293,000
Deposits and other 269,000 247,000
Cost in excess of fair value of net assets acquired - net of accumulated
amortization of $436,000 and $297,000 2,344,000 2,483,000
----------- -----------

$78,135,000 $48,928,000
=========== ===========

LIABILITIES

Current liabilities:
Current portion of capital leases $ 116,000 $ 106,000
Accounts payable 6,542,000 1,981,000
Accrued expenses 2,528,000 969,000
Income tax payable 4,957,000
Accrued bonuses 577,000 231,000
----------- -----------

Total current liabilities 14,720,000 3,287,000

Deferred rent 777,000 385,000
Capital leases, less current portion 203,000 296,000
----------- -----------

Commitments, contingencies and other (Note I) 15,700,000 3,968,000
----------- -----------
STOCKHOLDERS' EQUITY

Preferred stock - $.0001 par value, 5,000,000 shares authorized; none issued
Common stock - $.0001 par value, 60,000,000 shares authorized, 11,797,793
and 10,940,643 shares issued and outstanding 1,000 1,000
Additional paid-in capital 42,906,000 36,601,000
Retained earnings 22,722,000 11,256,000
Unearned compensation (1,279,000) (1,661,000)
Treasury stock at cost - 345,204 and 270,204 shares (1,915,000) (1,237,000)
----------- -----------

62,435,000 44,960,000
----------- -----------

$78,135,000 $48,928,000
=========== ===========

SEE NOTES TO FINANCIAL STATEMENTS
F-3



STEVEN MADDEN, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
------------ ----------- -----------

Net sales $163,036,000 $85,783,000 $59,311,000
Cost of sales 94,536,000 49,893,000 34,744,000
------------ ----------- -----------

Gross profit 68,500,000 35,890,000 24,567,000
Commission and licensing fee income 3,367,000 3,273,000 2,321,000
Operating expenses (52,946,000) (29,949,000) (22,262,000)
------------ ----------- -----------

Income from operations 18,921,000 9,214,000 4,626,000

Other income (expenses):
Interest income 909,000 380,000 312,000
Interest expense (90,000) (235,000) (339,000)
------------ ----------- -----------

Income before provision for income taxes 19,740,000 9,359,000 4,599,000
Provision for income taxes 8,274,000 3,912,000 1,899,000
------------ ----------- -----------

NET INCOME $ 11,466,000 5,447,000 $ 2,700,000
============ =========== ===========

BASIC INCOME PER SHARE $ 1.06 $ 0.58 $ 0.33
============ =========== ===========

DILUTED INCOME PER SHARE $ .92 $ 0.50 $ 0.30
============ =========== ===========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC
INCOME PER SHARE
10,831,250 9,436,798 8,064,604
EFFECT OF POTENTIAL COMMON SHARES FROM EXERCISE OF
OPTIONS AND WARRANTS 1,634,102 1,546,303 848,462
------------ ----------- -----------

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED
INCOME PER SHARE 12,465,352 10,983,101 8,913,066
============ =========== ===========

SEE NOTES TO FINANCIAL STATEMENTS



SEE NOTES TO FINANCIAL STATEMENTS F-4



STEVEN MADDEN, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY



Common Stock Additional
---------------------- Paid-in Retained
Shares Amount Capital Earnings
---------- ------ ----------- -----------

BALANCE - DECEMBER 31, 1996 7,833,594 $1,000 $17,769,000 $ 3,109,000
Exercise of stock options 487,000 1,339,000
Common stock issued in connection with purchase
of subsidiary 108,479 809,000
Compensation in connection with issuance of stock options 39,000
Tax benefit from exercise of options 420,000
Net income 2,700,000
Unearned compensation relating to issuance of 1,345,000
stock options
Amortization of unearned compensation 384,000
---------- ------ ----------- -----------

BALANCE - DECEMBER 31, 1997 8,429,073 1,000 21,721,000 5,809,000
Exercise of stock options, units and warrants net of costs
of $60,000 2,447,050 13,345,000
Common stock issued in connection with acquisition 64,520 667,000
Compensation in connection with issuance of stock options
to a consultant 14,000
Tax benefit from exercise of options 198,000
Net income 5,447,000
Unearned compensation relating to issuance of stock options 656,000
Amortization of unearned compensation
Common stock purchased for treasury
---------- ------ ----------- -----------

BALANCE - DECEMBER 31, 1998 10,940,643 1,000 36,601,000 11,256,000
Exercise of stock options and warrants 857,150 5,264,000
Tax benefit from exercise of options 275,000
Compensation in connection with issuance of stock options
to a director 766,000
Net income 11,466,000
Amortization of unearned compensation
Common stock purchased for treasury
---------- ------ ----------- -----------

Balance - December 31, 1999 11,797,793 $1,000 $42,906,000 $22,722,000
========== ====== =========== ===========


Treasury Stock Total
Unearned --------------------- Stockholders
Compensation Shares Amount Equity
------------ ------- ----------- -----------

BALANCE - DECEMBER 31, 1996 $ (320,000) 101,800 $ (457,000) $20,102,000
Exercise of stock options 1,339,000
Common stock issued in connection with purchase 809,000
of subsidiary
Compensation in connection with issuance of stock options 39,000
Tax benefit from exercise of options 420,000
Net income 2,700,000
Unearned compensation relating to issuance of (1,345,000) 0
stock options 384,000 384,000
Amortization of unearned compensation ----------- ------- ----------- -----------


BALANCE - DECEMBER 31, 1997 (1,281,000) 101,800 (457,000) 25,793,000
Exercise of stock options, units and warrants net of costs
of $60,000 13,345,000
Common stock issued in connection with acquisition 667,000
Compensation in connection with issuance of stock options
to a consultant 14,000
Tax benefit from exercise of options 198,000
Net income 5,447,000
Unearned compensation relating to issuance of stock options (656,000)
Amortization of unearned compensation 276,000 276,000
Common stock purchased for treasury 168,404 (780,000) (780,000)

BALANCE - DECEMBER 31, 1998 (1,661,000) 270,204 (1,237,000) 44,960,000
Exercise of stock options and warrants 5,264,000
Tax benefit from exercise of options 275,000
Compensation in connection with issuance of stock options
to a director 766,000
Net income 11,466,000
Amortization of unearned compensation 382,000 382,000
Common stock purchased for treasury 75,000 (678,000) (678,000)
------------ ------- ----------- ------------

Balance - December 31, 1999 $ (1,279,000) 345,204 $(1,915,000) $ 62,435,000
============ ======= =========== ============

SEE NOTES TO FINANCIAL STATEMENTS

F-5


STEVEN MADDEN, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------

Cash flows from operating activities:
Net income 11,466,000 $ 5,447,000 $ 2,700,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Compensatory stock options 766,000 14,000 39,000
Depreciation and amortization 2,950,000 1,357,000 774,000
Deferred taxes (1,585,000) (426,000) 50,000
Deferred compensation 382,000 276,000 384,000
Tax benefit from exercise of options 275,000 198,000 420,000
Provision for doubtful accounts and chargebacks 757,000 228,000 664,000
Deferred rent expense 392,000 385,000
Changes, net of acquisitions, in:
Accounts receivable (767,000) (9,000) (1,269,000)
Due from factor (3,062,000) (4,552,000) 41,000
Inventories (2,187,000) (2,716,000) (2,324,000)
Prepaid expenses and other assets 2,098,000 717,000 (680,000)
Accounts payable and accrued expenses 6,120,000 386,000 1,447,000
Accrued bonuses 346,000 (362,000) 160,000
Income tax payable 4,957,000 111,000 (1,000)
------------ ------------ ------------
Net cash provided by operating activities 22,908,000 1,054,000 2,405,000
------------ ------------ ------------

Cash flows from investing activities:

Purchase of property and equipment (4,752,000) (4,017,000) (3,686,000)
Acquisition of lease rights (150,000) (242,000) (235,000)
Purchases of investment securities (257,000) (499,000) (1,991,000)
Maturity of investment securities 499,000 1,991,000
Payments in connection with acquisition of business (35,000)
------------ ------------ ------------

Net cash used in investing activities (4,660,000) (2,802,000) (5,912,000)
------------ ------------ ------------

Cash flows from financing activities:
Proceeds from options, units and warrants exercised - net 5,264,000 13,345,000 1,339,000
Purchase of treasury stock (678,000) (780,000)
Payments of lease obligations (115,000) (62,000) (96,000)
------------ ------------ ------------
Net cash provided by financing activities 4,471,000 12,503,000 1,243,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 22,719,000 10,755,000 (2,264,000)
Cash and cash equivalents - beginning of year 14,642,000 3,887,000 6,151,000
------------ ------------ ------------

Cash and cash equivalents - end of year $ 37,361,000 $ 14,642,000 $ 3,887,000

Supplemental disclosures of noncash investing and financing activities:

Acquisition of leased assets $ 32,000 $ 358,000
Common stock issued in payment of acquisition note and
additional acquisition cost $ 809,000
Common stock issued in connection with acquisition $ 667,000

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 90,000 $ 235,000 $ 339,000
Income taxes $ 3,886,000 $ 3,902,000 $ 1,351,000


F-6


STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1] ORGANIZATION:

Steven Madden, Ltd. was incorporated on July 9, 1990, in the state of New
York and reincorporated in the state of Delaware on November 10, 1998.
The Company is engaged primarily in the business of designing,
wholesaling and retailing women's shoes. Revenues are generated
predominately through the sale of the Company's brand name merchandise
and certain licensed product. See Note J for operating segment
information.

[2] PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of Steven
Madden, Ltd. and its wholly owned subsidiaries (collectively referred to
as the "Company"). All significant intercompany balances and transactions
have been eliminated.

[3] USE OF ESTIMATES:

The preparation of 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. Actual results could differ from those
estimates.

[4] CASH AND CASH EQUIVALENTS:

Cash equivalents at December 31, 1999 and 1998, amounted to approximately
$33,557,000 and $9,592,000, respectively, and consist of money market
funds, certificates of deposit and commercial paper. The Company
considers all highly liquid instruments with an original maturity of
three months or less to be cash equivalents.

[5] INVESTMENTS:

Investments held at December 31, 1999 consist of marketable equity
securities which are stated at quoted market price. Investments at
December 31, 1998, consist primarily of government securities and
corporate commercial paper with maturities of less than one year and are
stated at amortized cost which approximates market value.

[6] INVENTORIES:

Inventories, which consist of finished goods, are stated at the lower of
cost (first-in, first-out method) or market.

[7] PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost. Depreciation is computed
utilizing the straight-line method based on estimated useful lives
ranging from two to ten years. Leasehold improvements are amortized
utilizing the straight-line method over the shorter of their estimated
useful lives or the lease term. Depreciation and amortization include
amounts relating to property and equipment under capital leases.

F-7


STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[7] PROPERTY AND EQUIPMENT: (CONTINUED)

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. The impairment
loss is measured by comparing the fair value of the assets to their
carrying amount.

[8] COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED:

Cost in excess of fair value of net assets acquired relates to the
acquisitions of Diva International, Inc. and Daniel Scott, Inc. (Note B)
and is being amortized over 20 years.

[9] NET INCOME PER SHARE:

Basic income per share is based on the weighted average number of common
shares outstanding during the year. Diluted income per share reflects the
potential dilution assuming common shares were issued upon the exercise
of outstanding options and warrants and the proceeds thereof were used to
purchase outstanding common shares.

[10] ADVERTISING COSTS:

The Company expenses costs of print, radio and billboard advertisements
as of the first date the advertisements take place. Advertising expense
included in operating expenses amounted to $5,046,000 in 1999, $2,515,000
in 1998 and $1,698,000 in 1997. Prepaid advertising, which is included in
prepaid expenses and other current assets in the accompanying financial
statements, amounted to $896,000 at December 31, 1998 and includes barter
credits received in exchange for merchandise in a prior year. The Company
has utilized these credits in 1999, and there is no prepaid advertising
at December 31, 1999.

[11] FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying value of the Company's financial instruments approximate
fair value due to their short-term nature or their underlying terms.

[12] STOCK-BASED COMPENSATION:

The Company has elected to continue to account for its stock-based
compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting
for Stock Issued to Employees". Under the provisions of APB No. 25,
compensation arising from the grant of stock options is measured as the
excess, if any, of the quoted market price of the Company's common stock
at the date of the grant over the amount an employee must pay to acquire
the stock.

F-8

STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998


NOTE B - ACQUISITIONS

On May 1, 1998, the Company purchased certain assets from and assumed certain
liabilities of Daniel Scott, Inc. which operated one retail outlet store under
the name Shoe Biz located in Mineola, N.Y. in exchange for 64,520 shares of
common stock. The acquisition was recorded at a total cost of approximately
$703,000, including related expenses, of which $635,000 was allocated to cost in
excess of fair value of the identifiable net assets acquired. The acquisition
was accounted for as a purchase and accordingly, the results of operations of
the acquired entity were included in the consolidated statements of operations
from the date of acquisition. The pro forma results for 1998 and 1997, assuming
this acquisition had been made at the beginning of 1997, would not be materially
different from reported results.

NOTE C - PROPERTY AND EQUIPMENT

The major classes of assets and accumulated depreciation and amortization are as
follows:


December 31,
-------------------------------
1999 1998
--------------- -------------

Leasehold improvements $ 11,427,000 $ 8,196,000
Machinery and equipment 628,000 474,000
Furniture and fixtures 1,399,000 710,000
Computer equipment 2,461,000 1,636,000
Equipment under capital lease 249,000 217,000
--------------- -------------
16,164,000 11,233,000
Less accumulated depreciation and amortization (5,050,000) (2,242,000)
--------------- -------------
Property and equipment - net $ 11,114,000 $ 8,991,000
=============== =============

NOTE D - DUE FROM FACTOR

Under the terms of a factoring agreement, the Company may request advances from
the factor up to 80 percent of aggregate receivables purchased by the factor at
an interest rate of prime minus 1%. The Company also pays a fee equal to .70% of
the gross invoice amount of each receivable purchased. In addition, the factor
charges an annual unused line fee of .25% of the average daily unused portion of
the maximum credit line which is $15,000,000. The Company sells and assigns a
substantial portion of its receivables, principally without recourse, to the
factor. The factor assumes the credit risk of all assigned accounts approved by
it, but maintains liens on all trade receivables (whether or not assigned) and
the goods represented thereby. These transfers are recognized as sales of
receivables.

NOTE E - STOCK OPTIONS

The Company established various stock option plans under which options to
purchase shares of common stock may be granted to employees, directors,
officers, agents, consultants and independent contractors. The plans provide
that the option price shall not be less than the fair market value of the common
stock on the date of grant and that no portion of the option may be exercised

F-9


STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998


beyond ten years from that date. No incentive stock option can be granted for
more than five years to a stockholder owning 10% or more of the Company's
outstanding common stock. Options granted under the plans during the three years
ended December 31, 1999 vest on date of grant or up to three years from such
date.

NOTE E - STOCK OPTIONS (CONTINUED)

In June 1999, the Company adopted the 1999 Stock Plan under which the maximum
number of shares to which awards may be granted is initially 400,000 shares.
Terms of the 1999 Stock Plan are not materially different from the various
existing stock option plans.

Through December 31, 1999, options had been granted for the maximum number of
shares for which options were available under the plans and as of such date no
shares were available for the granting of future options under the plans.

In addition to options granted under the stock options plans, in March 1995, the
Company issued options to purchase 1,000,000 shares of its common stock to a
company wholly owned by the Company's Chief Executive Officer and a stockholder.
The options were subsequently transferred to the President. The options which
are fully exercisable, have an exercise price of $1.75 and an exercise period of
10 years. Unearned compensation was recorded in the amount of $575,000, which
represented the difference between the exercise price and the fair value of the
stock on the date of grant, and is classified as a component of stockholders'
equity. The unamortized portion was charged to operations in 1997 in connection
with the President's amended employment agreement.

In connection with the amended employment agreement, in 1997, the Company issued
the President options to purchase 500,000 shares of its common stock. The
options, which vested in August 1998, have an exercise price of $3.31 and an
exercise period of 10 years. Unearned compensation was recorded in the amount of
$1,345,000 which represents the difference between the exercise price and the
fair value of the stock on the date of grant, and is classified as a component
of stockholders' equity. The unearned compensation is being amortized over the
ten-year term of the amended agreement.

Activity relating to stock options during the three years ended December 31,
1999, including the options described in Note I[1], follows:


1999 1998 1997
-------------------- -------------------- ---------------------
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------

Outstanding at January 1 2,968,000 $ 5.16 2,300,000 $ 4.54 1,718,000 $ 3.93
Granted 617,000 9.57 1,070,000 7.07 1,153,000 4.70
Exercised (857,000) 6.14 (222,000) 5.55 (487,000) 2.75
Cancelled (8,000) 6.14 (180,000) 7.44 (84,000) 4.67
--------- --------- ---------
Outstanding at December 31 2,720,000 5.85 2,968,000 5.16 2,300,000 4.54
========= ========= =========
Exercisable 2,515,000 5.48 2,530,000 4.79 1,297,000 4.53
========= ========= =========


F-10


STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998


NOTE E - STOCK OPTIONS (CONTINUED)

The following table summarizes information about stock options at December 31,
1999:


Options Outstanding Options Exercisable
---------------------------------------- ----------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Number Life Exercise Number Exercise
Range of Exercise Price Outstanding (in Years) Price Exercisable Price
----------------------- ----------- ----------- -------- ----------- --------

$1.50 to $3.50 960,000 6.3 $ 2.48 960,000 $ 2.48
$5.50 to $6.00 685,000 7.8 5.73 685,000 5.73
$6.50 to $7.97 648,000 8.4 7.49 648,000 7.49
$9.13 to $10.83 210,000 9.0 10.26 210,000 10.26
$11.81 to $12.00 217,000 9.7 11.97 12,000 12.00
--------- ---------
5.85 5.48
2,720,000 2,515,000
========= =========


As set forth in Note A[12], the Company applies APB No. 25 in accounting for its
stock option incentive plans and, accordingly, recognizes compensation expense
for the difference between the fair value of the underlying common stock and the
grant price of the option at the date of grant. Pro forma information regarding
net income and earnings per share is required by Statement of Financial
Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock-Based
Compensation" and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS 123. For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options vesting period. Substantially all options granted in
1999, 1998 and 1997 vested on date of grant, and accordingly, the estimated fair
value of such options were charged to expense in the year of grant for pro forma
disclosures. The Company's pro forma information follows:

1999 1998 1997
------------ ------------ ------------
Net income:
As reported $ 11,466,000 $ 5,447,000 $ 2,700,000
Pro forma 7,380,000 $ 2,619,000 $ 504,000
Basic income per share:
As reported $ 1.06 $ .58 $ .33
Pro forma $ .68 $ .28 $ .06
Diluted income per share:
As reported $ .92 $ .50 $ .30
Pro forma $ .52 $ .24 $ .06

F-11



STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998


NOTE E - STOCK OPTIONS (CONTINUED)

The weighted average fair value of options granted in 1999, 1998 and 1997 was
approximately $6.62, $4.57 and $3.25, respectively, using the Black-Scholes
option-pricing model with the following assumptions:

1999 1998 1997
----------- ----------- -----------
Dividend yield 0 0 0
Volatility 61% 79% 56%
Risk free interest rate 5.75 - 6.03% 4.22 - 5.57% 5.80 - 6.17%
Expected life in years 4 3 to 5 3 to 5


NOTE F - WARRANTS

In connection with its initial public offering, the Company granted to the
underwriter an option to purchase an aggregate of 150,000 units exercisable for
four years commencing December 10, 1995 (one year after the effective date) at
an exercise price of $5.80 per unit. Each unit consisted of one share of common
stock, one Class A warrant and one Class B warrant. During the year ended
December 31, 1998 120,000 units were exercised and the Class A and Class B
warrants issued in connection with the units were also exercised. In connection
therewith, the Company received proceeds of $1,926,000.

During July 1998, the Board of Directors of the Company approved the redemption
of all of the Company's outstanding Class B warrants. Warrant holders had until
the close of business on August 13, 1998 to exercise their Class B warrants for
the purchase of shares of common stock at an exercise price of $5.50 per share.
Unexercised Class B warrants were redeemable on August 14, 1998 at $.05 for each
outstanding Class B warrant. The Company issued 1,859,690 shares of its common
stock resulting from the exercise of Class B warrants and received proceeds of
approximately $10,228,000. The Company redeemed 15,310 Class B warrants not
exercised.

The Company also had outstanding 150,000 Class C warrants issued in connection
with a bridge financing which entitled the holder to purchase one share of
common stock at a price of $15.00 per share. The Class C warrants expired on
December 10, 1998.

F-12


STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998


NOTE G - LEASES

[1] CAPITAL LEASES:

The Company leases certain equipment under capital leases. Future minimum
lease payments consist of the following:

2000 $ 152,000
2001 145,000
2002 52,000
2003 14,000
-----------
Total minimum lease payments 363,000
Less amounts representing interest 44,000
-----------
Present value of minimum lease payments 319,000
Less current maturities 116,000
-----------
Capital lease obligation, less current maturities $ 203,000
===========

[2] OPERATING LEASES:

The Company leases office, showroom, warehouse and retail facilities
under noncancelable operating leases with terms expiring at various times
through 2010. Future minimum annual lease payments under noncancelable
operating leases consist of the following at December 31, 1999:

2000 $ 4,803,000
2001 4,874,000
2002 4,776,000
2003 4,441,000
2004 4,144,000
Thereafter 13,069,000
-----------
$36,107,000
===========

A majority of the retail store leases provide for contingent rental
payments if gross sales exceed certain targets. In addition, many of the
leases contain rent escalation clauses to compensate for increases in
operating costs and real estate taxes. Rent expense for the years ended
December 31, 1999, 1998 and 1997 was approximately $5,870,000, $3,561,000
and $1,434,000, respectively. Included in such amounts are contingent
rents of $122,000, $82,000 and $85,000 in 1999, 1998 and 1997,
respectively.

Pursuant to certain leases, rent expense charged to operations differs
from rent paid because of scheduled rent increases. Accordingly, the
Company has recorded deferred rent payable. Rent expense is calculated by
allocating total rental payments, including those attributable to
scheduled rent increases, on a straight-line basis, over the lease term.

F-13


STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

NOTE H - INCOME TAXES

The income tax provision consists of the following:

1999 1998 1997
------------- ------------- ----------
Current:
Federal $ 7,285,000 $ 3,211,000 $1,318,000
State and city 2,574,000 1,127,000 531,000
------------- ------------- ----------
9,859,000 4,338,000 1,849,000
------------- ------------- ----------
Deferred:
Federal (1,167,000) (346,000) (16,000)
State and city (418,000) (80,000) 66,000
------------- ------------- ----------
(1,585,000) (426,000) 50,000
------------- ------------- ----------
$ 8,274,000 $ 3,912,000 $1,899,000
============= ============= ==========

A reconciliation between taxes computed at the federal statutory rate and the
effective tax rate is as follows:


DECEMBER 31,
---------------------
1999 1998 1997
----- ----- -----

Income taxes at federal statutory rate 34.0% 34.0% 34.0%
State income taxes - net of federal income tax benefit 8.6 7.9 7.7
Nondeductible items .3 .1 3.7
Net operating loss carryforward benefit (.4)
Other (1.0) (.1) (3.8)
---- ---- ----
Effective rate 41.9% 41.9% 41.2%
==== ==== ====


The Company applies the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to reverse.

The components of deferred tax assets and liabilities are as follows:

DECEMBER 31,
----------------------------
1999 1998
------------- -----------
Deferred tax assets:
Depreciation $ 482,000 $ 43,000
Accounts receivable allowances 619,000 333,000
Inventory 482,000 201,000
Nondeductible compensation 510,000 94,000
Deferred rent 319,000 156,000
------------- -----------
Net deferred tax asset $ 2,412,000 $ 827,000
============= ===========
F-14



STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

NOTE I - COMMITMENTS, CONTINGENCIES AND OTHER


[1] EMPLOYMENT AGREEMENTS:

The Company has an employment agreement with its Chief Executive Officer
which was amended in February 2000 to extend the term through December
2009. The employment agreement provides for salary commitments of
approximately $4,780,000 over the next ten years. Additionally, the
agreement provides for a discretionary bonus in cash, capital stock or
other property as the board may determine from time to time. The prior
agreement provided for a bonus plan based on graduated rates at specified
levels of net revenue.

During 1998 and 1997, the Company entered into three and four year
employment agreements with various executives which provide for aggregate
annual salaries of $1,210,000, subject to increases. With respect to
certain executives, the agreements provide for bonuses based upon
earnings, as defined. In connection with one agreement, the Company
granted options to one executive to purchase 250,000 shares of the
Company's common stock at $7.50 per share. The market value of the stock
at the date of grant was $10.125 per share. The Company recorded
approximately $656,000 as unearned compensation relating to such options,
of which approximately $254,000 and $148,000 was charged to operations
during the years ended December 31, 1999 and 1998, respectively.

[2] LETTERS OF CREDIT:

At December 31, 1999 and 1998, the Company had open letters of credit for
the purchase of imported inventories of approximately $3,163,000 and
$3,565,000, respectively.

[3] PENDING LITIGATION:

(a) Magnum Fashions, Inc.:

On or about May 25, 1999, Magnum Fashions, Inc. ("Magnum") and WK
Maxy Industries, Ltd.. ("WK") commenced an arbitration proceeding
against the Company. In the claim filed as part of the
arbitration, Magnum alleged that it was fraudulently induced to
enter into a license agreement, dated as of February 1, 1997, with
the Company pursuant to which Magnum licensed the Company's "Steve
Madden" trademark for handbags and related products. WK alleged
that it was fraudulently induced into providing a guaranty of
Magnum's obligations under the license. Based on this and other
allegations, Magnum and WK have sought to be released from their
financial obligations to the Company under the license and
guaranty, respectively. Magnum is also seeking damages that it has
estimated to be in excess of $5,000,000.

On July 7, 1999, the Company submitted its answer to the claim and
filed a counterclaim. In addition to denying the claims asserted
by Magnum and WK, the Company asserted a claim against Magnum and
WK for the balance of the minimum royalty due under the license.
The Company also asserted additional claims against Magnum and WK
based on improper sales made during the term of the license and
improper liquidation of its inventory following termination of the
licenses. Magnum and WK have denied the counterclaims.

The arbitration is in the preliminary stages. The Company believes
that Magnum and WK's claims are without merit and intends to
vigorously contest the arbitration.

F-15


STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

NOTE I - COMMITMENTS, CONTINGENCIES AND OTHER

[3] PENDING LITIGATION:

(b) Lee N' Gi:

On or about October 27, 1999, the Company commenced an action
against Lee N' Gi, the exclusive marketing and distribution agent
for Magnum, in which it claimed that Lee N' Gi had wrongfully
induced Magnum to breach its obligation under the aforementioned
license between the Company and Magnum. The Company is seeking
damages of $3,000,000.

On or about December 14, 1999, Lee N' Gi served an answer denying
the allegations and counterclaimed that the Company had breached
or wrongfully terminated the license to its detriment. Lee N' Gi
seeks damages of $2,000,000 on its counterclaim. The Company
answered the counterclaim denying the allegations. The action is
in the preliminary stages. The Company believes that the Lee N' Gi
counterclaim is without merit and intends to vigorously contest
this matter.

(c) Ooga Associated Corp.:

In an action commenced on or about March 13, 1998, the Company and
Stav Efrat were sued by Ooga Associated Corp. ("Ooga"), a design
and construction firm previously engaged by the Company to design
and construct certain of the Company's retail shoe stores. On
October 22, 1998, the Court orally dismissed Ooga's breach of
contract claims and on January 7, 1999, the Court suspended the
action based on the failure of Ooga to be present for a mandatory
court conference. The action was subject to being revived upon
application by Ooga within a one-year period. Ooga did not revive
such action within the one year.

[4] CONCENTRATIONS:

The Company maintains cash and cash equivalents with various major
financial institutions which at times are in excess of the amount
insured.

During the year ended December 31, 1999, the Company purchased
approximately 44%, 24% and 19% of their inventory from suppliers in
China, Brazil and Mexico, respectively.

During the year ended December 31, 1998, the Company purchased
approximately 41% of their inventory from several suppliers in Brazil and
Mexico. Purchases are made in United States dollars.

Sales to two customers amounted to 15% and 10% of net sales and amounts
receivable at year end from these customers represented 22% and 14% of
accounts receivable in 1999, respectively.

Sales to one customer represented approximately 13% and 11% of net sales
and amounts receivable at year end from such customer represented 11% and
13% of accounts receivable in 1998 and 1997, respectively. Sales to such
customers are included in the wholesale segment (see Note J).

F-16


STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

[5] VALUATION AND QUALIFYING ACCOUNTS:

The following is a summary of the allowance for doubtful accounts related
to accounts receivable and allowance for chargebacks related to the
amount due from factor for the years ended December 31, 1999, 1998 and
1997:


1999 1998 1997
------------- ----------- ------------

Balance at beginning of year $ 813,000 $ 686,000 $ 325,000
Charged to expense 757,000 228,000 664,000
Uncollectible accounts written off, net of recoveries (60,000) (101,000) (303,000)
------------- ----------- ------------

Balance at end of year $ 1,510,000 $ 813,000 $ 686,000
============= =========== ============


NOTE J - OPERATING SEGMENT INFORMATION

The Company's reportable segments are primarily based on methods used to
distribute its products. The wholesale and retail segments derive revenues from
sales of women's footwear. The wholesale segment, through sales to department
and specialty stores, and the retail segment through operation of its own retail
stores, derive revenues from sales of branded women's footwear. In addition,
commencing in 1997, the wholesale segment began a licensing program that
extended the Steve Madden brand to accessories and ready-to-wear apparel. The
other segment represents activities of a subsidiary which earns commissions for
serving as a buying agent to mass-market merchandisers, shoe chains and other
off-price retailers with respect to their purchase of private label shoes.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on profit or loss from operations before interest income and interest

F-17

STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

expense and before income taxes. Following is information for the Company's
reportable segments:


WHOLESALE RETAIL OTHER CONSOLIDATED
------------ --------------- ------------- --------------

Year ended December 31, 1999:
Net sales to external customers (a) $114,406,000 $ 48,630,000 $ 163,036,000
Commissions and licensing fees 807,000 $ 2,560,000 3,367,000
Operating earnings 12,130,000 5,910,000 881,000 18,921,000
Depreciation and amortization 1,244,000 1,703,000 3,000 2,950,000
Other significant noncash items:
Deferred compensation 382,000 382,000
Deferred rent 8,000 384,000 392,000
Provision for doubtful accounts 733,000 24,000 757,000
Segment assets (b) 61,713,000 13,500,000 2,922,000 78,135,000
Capital expenditures 974,000 3,810,000 4,784,000

Year ended December 31, 1998:

Net sales to external customers (a) 59,221,000 26,562,000 85,783,000
Commissions and licensing fees 594,000 $ 2,679,000 3,273,000
Operating earnings 5,126,000 2,741,000 1,347,000 9,214,000
Depreciation and amortization 516,000 837,000 4,000 1,357,000
Other significant noncash items:
Deferred compensation 276,000 276,000
Deferred rent 47,000 336,000 2,000 385,000
Provision for doubtful accounts 228,000 228,000
Segment assets (b) 33,731,000 14,663,000 534,000 48,928,000
Capital expenditures 550,000 3,467,000 4,017,000

Year ended December 31, 1997:

Net sales to external customers (a) 44,934,000 13,249,000 1,128,000 59,311,000
Commissions and licensing fees 129,000 2,192,000 2,321,000
Operating earnings 2,037,000 1,605,000 984,000 4,626,000
Depreciation and amortization 371,000 401,000 2,000 774,000
Other significant noncash items:
Deferred compensation 384,000 384,000
Provision for doubtful accounts 664,000 664,000
Segment assets (b) 20,424,000 8,341,000 512,000 29,277,000
Capital expenditures 998,000 3,038,000 8,000 4,044,000

(a) Attributed to the United States, based on the location in which the sale
originated.

(b) All long-lived assets, consisting of property and equipment and cost in
excess of fair value of net assets acquired, are located in the United
States.

F-18

STEVEN MADDEN, LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

Note K - Quarterly Results of Operations (unaudited)

The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 and 1998 (000's omitted):


March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1999:

Revenues $ 26,731 $ 38,056 $ 48,963 $ 49,286
Cost of sales 15,789 21,888 28,962 27,897
Commissions and licensing fees 691 802 896 978
Net income 1,411 2,364 3,448 4,243
Net income per share:
Basic 0.13 0.22 0.32 0.38
Diluted 0.12 0.19 0.27 0.33

1998:
Revenues $ 16,511 $ 18,733 $ 23,991 $ 26,548
Cost of sales 9,485 11,200 13,908 15,300
Commissions and licensing fees 764 779 992 738
Net income 773 881 1,880 1,913
Net income per share:
Basic 0.09 0.10 0.19 0.18
Diluted 0.08 0.08 0.17 0.17


F-19



SIGNATURE

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.

Dated: New York, New York
March 27, 2000

STEVEN MADDEN, LTD.

By: /s/ STEVEN MADDEN
------------------------------------
Steven Madden
Chairman of the Board
and Chief Executive Officer

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

Signature Title Date
- --------- ----- ----

/s/ STEVEN MADDEN Chairman of the Board March 27, 2000
- ------------------------- and Chief Executive Officer
Steven Madden


/s/ RHONDA BROWN President, Chief Operating Officer March 27, 2000
- ------------------------- and Director
Rhonda Brown


/s/ JOHN BASILE Executive Vice President March 27, 2000
- ------------------------- and Director
John Basile


/s/ ARVIND DHARIA Chief Financial Officer March 27, 2000
- ------------------------- and Director
Arvind Dharia


/s/ CHARLES KOPPELMAN Director March 27, 2000
- -------------------------
Charles Koppelman


/s/ JOHN L. MADDEN Director March 27, 2000
- -------------------------
John L. Madden


/s/ PETER MIGLIORINI Director March 27, 2000
- --------------------------
Peter Migliorini


/s/ LES WAGNER Vice President - Real Estate March 27, 2000
- -------------------------- of Steven Madden Retail, Inc.
Les Wagner and Director