UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2002
- --------------------------------------------------------------------------------

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

For the transition period from ____________________ to _____________________

Commission File Number 0-23702
-------

STEVEN MADDEN, LTD.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)

Delaware 13-3588231
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

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
- --------------------------------------------------------------------------------

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 and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [ ]

Class Outstanding as of May 9, 2002
- ------------ -----------------------------
Common Stock 12,408,116

STEVEN MADDEN, LTD.
FORM 10-Q
QUARTERLY REPORT
March 31, 2002

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements:

Consolidated Balance Sheets....................................... 3

Consolidated Statements of Operations............................. 4

Consolidated Statements of Cash Flows............................. 5

Notes to condensed Consolidated
Financial Statements............................................ 6

ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 10

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings................................................. 22

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Consolidated Balance Sheets
(in thousands)

March 31, December 31,
2002 2001
--------- ---------
(unaudited)

ASSETS
Current assets:
Cash and cash equivalents $ 33,186 $ 50,179
Marketable securities 511
Accounts receivable - net of allowances of $291 and $257 2,588 2,072
Due from factor - net of allowances of $1,443 and $1,387 36,287 22,783
Inventories 15,608 15,818
Prepaid expenses and other current assets 1,348 836
Prepaid taxes 5,136 7,911
Deferred taxes 1,223 1,223
--------- ---------

Total current assets 95,887 100,822

Marketable securities 5,703
Property and equipment, net 15,616 15,707
Deferred taxes 3,019 3,019
Deposits and other 302 248
Cost in excess of fair value of net assets acquired - net of accumulated
amortization of $714 2,066 2,066
--------- ---------

$ 122,593 $ 121,862
========= =========

LIABILITIES
Current liabilities:
Current portion of lease payable $ 42 $ 43
Accounts payable 7,543 6,836
Accrued expenses 4,230 10,898
Accrued bonuses 674 412
--------- ---------

Total current liabilities 12,489 18,189

Deferred rent 1,353 1,299
Lease payable, less current portion 14
--------- ---------

13,842 19,502
--------- ---------

Contingencies (Note D)

STOCKHOLDERS' EQUITY
Common stock - $.0001 par value, 60,000 shares authorized, 12,408
and 12,194 outstanding 1 1
Additional paid-in capital 62,806 60,643
Retained earnings 54,975 50,881
Unearned compensation (1,040) (1,174)
Treasury stock at cost - 1,245 shares (7,991) (7,991)
--------- ---------

108,751 102,360
--------- ---------

$ 122,593 $ 121,862
========= =========

See notes to financial statements

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)

Three Months Ended
March 31,
--------------------
2002 2001
-------- --------

Net sales:
Wholesale $ 47,835 $ 38,303
Retail 18,776 15,092
-------- --------

66,611 53,395
-------- --------

Cost of sales:
Wholesale 31,529 24,613
Retail 8,541 6,701
-------- --------

40,070 31,314
-------- --------

Gross profit 26,541 22,081
Commission and licensing fee income 1,244 1,134
Operating expenses (20,932) (17,415)
-------- --------

Income from operations 6,853 5,800
Interest income, net 204 501
-------- --------

Income before provision for income taxes 7,057 6,301
Provision for income taxes 2,964 2,651
-------- --------

Net income $ 4,093 $ 3,650
======== ========

Basic income per share $ .33 $ .33
======== ========

Diluted income per share $ .30 $ .29
======== ========

Weighted average common shares outstanding - basic 12,352 11,160
Effect of dilutive securities - options and warrants 1,188 1,247
-------- --------

Weighted average common shares outstanding - diluted 13,540 12,407
======== ========

See notes to financial statements

STEVEN MADDEN, LTD. AND SUBSIDIARIES

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

Three Months Ended
March 31,
--------------------
2002 2001
-------- --------

Cash flows from operating activities:
Net income $ 4,093 $ 3,650
Adjustments to reconcile net income to net cash used in operating activities:
Issuance of compensatory stock options 110
Depreciation and amortization 802 781
Deferred compensation 462 32
Provision for bad debts 90 (161)
Deferred rent expense 54 62
Changes in:
Accounts receivable (550) 1,020
Due from factor (13,560) (11,856)
Inventories 210 (520)
Prepaid expenses and other assets 2,213 8
Accounts payable and accrued expenses (5,702) (3,784)
-------- --------

Net cash used in operating activities (11,888) (10,658)
-------- --------

Cash flows from investing activities:
Purchase of property and equipment (711) (603)
Purchase of marketable securities (6,214)
-------- --------

Net cash used in investing activities (6,925) (603)
-------- --------

Cash flows from financing activities:
Proceeds from options and warrants exercised 1,835 1,680
Repayment of lease obligations (15) (24)
-------- --------

Net cash provided by financing activities 1,820 1,656
-------- --------

Net decrease in cash and cash equivalents (16,993) (9,605)
Cash and cash equivalents - beginning of period 50,179 35,259
-------- --------

Cash and cash equivalents - end of period $ 33,186 $ 25,654
======== ========

See notes to financial statements

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
March 31, 2002

NOTE A - BASIS OF REPORTING

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, such
statements include all adjustments (consisting only of normal recurring items)
which are considered necessary for a fair presentation of the financial position
of Steven Madden, Ltd. and subsidiaries (the "Company") as of March 31, 2002,
and the results of their operations and cash flows for the three-month period
then ended. The results of operations for the three-month period ended March 31,
2002 are not necessarily indicative of the operating results for the full year.
It is suggested that these financial statements be read in conjunction with the
financial statements and related disclosures for the year ended December 31,
2001 included in the Annual Report of Steven Madden, Ltd. on Form 10-K.

NOTE B - INVENTORIES

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

NOTE C - NET INCOME PER SHARE OF COMMON STOCK

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.

NOTE D - NEW ACCOUNTING STANDARDS

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets, SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. It also specifies the types of acquired
intangible assets that are required to be recognized and reported separately
from goodwill. SFAS No. 142 requires that goodwill and intangibles with
indeterminate lives no longer be amortized, but instead tested for impartment.
SFAS No. 142 is required to be applied starting with fiscal years beginning
after December 15, 2001, with early application permitted in certain
circumstances. The Company adopted SFAS No. 142 in 2002 and accordingly no
amortization expense has been recorded for the quarter ended March 31, 2002.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
March 31, 2002

NOTE E - PENDING LITIGATION

[1] Indictment:

On June 20, 2000, Steven Madden, the Company's former Chairman and Chief
Executive Officer, was indicted in the United States District Courts for
the Southern District and Eastern District of New York. The indictments
alleged that Mr. Madden engaged in securities fraud and money laundering
activities. In addition, the Securities and Exchange Commission filed a
complaint in the United States District Court for the Eastern District of
New York alleging that Mr. Madden violated Section 17(a) of the Securities
Exchange Act of 1934, as amended. On May 21, 2001, Steven Madden entered
into a plea agreement with the U.S. Attorney's Office, pursuant to which he
pled guilty to four of the federal charges filed against him. In addition,
Mr. Madden reached a separate settlement agreement with the Securities and
Exchange Commission regarding the allegations contained in its complaint.
As a result, Mr. Madden resigned as the Company's Chief Executive Officer
and as a member of the Company's Board of Directors effective July 1, 2001.
Mr. Madden has agreed to serve as the Company's Creative and Design Chief,
a non-executive position. On April 4, 2002, Mr. Madden was sentenced in the
United States District Court for the Southern District of New York to
forty-one (41) months imprisonment in connection with two of the federal
charges to which he pled guilty. On May 3, 2002, Mr. Madden was sentenced
in the United States District Court for the Eastern District of New York to
forty-one (41) months imprisonment in connection with the remaining two
charges to which he pled guilty. The sentences will run concurrently. Under
the settlement agreement with the Securities and Exchange Commission, Mr.
Madden has agreed to not serve as an officer or director of a publicly
traded company for 7 years. Neither the indictments nor the Securities and
Exchange Commission complaint allege any wrongdoing by the Company or its
other officers and directors.

In December 2001, the Company purchased a loss mitigation policy to cover
costs arising out of lawsuits related to the June 2000 federal indictment
of Steve Madden, the Company's former Chief Executive Officer. The policy
covers the Company's anticipated damages and legal costs in connection with
such lawsuits. The Company is obligated to pay for damages and costs in
excess of the policy limits. The cost of the policy was $6,950,000.

[2] Class action litigation:

Between June and August 2000 several class action lawsuits were commenced
in the United States District Court for the Eastern District of New York
against the Company, Steven Madden personally, and, in some of the actions,
the Company's then President and its Chief Financial Officer.

On December 8, 2000, the court consolidated these actions and appointed a
lead plaintiff. On October 31, 2001, the plaintiffs served a second
consolidated amended class action complaint.

The amended complaint generally alleges that the Company and the individual
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 and Rule 10b-5 promulgated thereunder by issuing false and
misleading statements, and failing to disclose material adverse information
relating, among other things, to certain matters and allegations concerning
Mr. Madden. The plaintiff seeks an unspecified amount of damages, costs and
expenses on behalf of the plaintiff and all other purchasers of the
Company's common stock during the period June 21, 1997 through June 20,
2000. In January 2002, motions to dismiss the complaint were fully briefed.
Since that time, a settlement in principle of these actions has been
reached, subject to execution of definitive settlement documentation
notices to class members, a hearing and approval by the District Court. The
tentative settlement is within the limits of insurance coverage described
above.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
March 31, 2002

NOTE E - PENDING LITIGATION (CONTINUED)

[3] Shareholder derivative actions

On or about September 26, 2000, a putative shareholder derivative action
was commenced in the United States District Court for the Eastern District
of New York, captioned Herrera v. Steven Madden and Steven Madden, Ltd., 00
CV 5803 (JG). The Company is named as a nominal defendant in the action.
The complaint seeks to recover alleged damages on behalf of the Company
from Mr. Madden arising from his June 2000 indictment and to require him to
disgorge certain profits, bonuses and stock option grants he received. On
January 3, 2001, plaintiff filed an Amended Shareholder's Derivative
Complaint. On February 2, 2001, both the Company and Mr. Madden filed
motions to dismiss the Amended Complaint because of plaintiff's failure to
make a pre-litigation demand upon the Company's board of directors. On
October 1, 2001, plaintiff filed a Second Amended Complaint. On November 2,
2001, the Company filed a motion to dismiss this pleading on grounds that
plaintiff had failed to make a pre-litigation demand upon the Company's
board of directors. On February 7, 2002, the Magistrate Judge filed a
report recommending that the Company's motion to dismiss be denied. The
Company filed its objections to the report on March 4, 2002. On March 22,
2002, the District Judge entered an order adopting the Magistrate Judge's
report and recommendation in full. Since that time, an agreement in
principle has been reached to resolve all claims in this action, subject to
execution of definitive documentation, such notice to the Company's
shareholders (if any) as may be required by the District Court, and
approval by the District Court. The Company believes, after consultation
with counsel, that its defense costs and certain attorneys fees in
connection with this action will be subject to coverage by the Company's
insurance as supplemented by the loss mitigation policy described above.

On or about November 28, 2001, a purported shareholder derivative complaint
was filed in the United States District Court for the Eastern District of
New York, captioned Herrera v. Karson, et al., 00 CV 7868. Named as
defendants therein are the Company (as nominal defendant) and certain of
the Company's present and/or former directors. The complaint alleges that
the individual defendants breached their fiduciary duties to the Company in
connection with a decision by the Board of Directors of the Company to
enter into an employment agreement with Mr. Steven Madden in or about May
2001. The complaint seeks declaratory and other equitable relief, as well
as an unspecified amount of compensatory damages, costs and expenses. On or
about February 1, 2002, plaintiff filed an Amended Shareholder Derivative
Complaint (the "Amended Complaint"). The Amended Complaint contains
substantially the same allegations and names the same defendants as the
original complaint. Since that time, an agreement in principle has been
reached to resolve all claims in this action, subject to execution of
definitive documentation, such notice to the Company's shareholders (if
any) as may be required by the District Court, and approval by the District
Court. The Company believes, after consultation with counsel, that its
defense costs and certain attorneys fees in connection with this action
will be subject to coverage by the Company's insurance as supplemented by
the loss mitigation policy described above.

[4] SEC investigation:

In March 2001, the Company became aware that the SEC issued a formal order
of investigation with respect to trading in the Company's securities. The
SEC is investigating possible securities law violations. Certain officers
and directors of the Company sold shares of the Company's common stock
prior to Mr. Madden's indictment in June 2000, as previously disclosed on
Form 4's filed with the SEC. The ultimate effects of this matter, if any,
cannot reasonably be determined at this time.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Financial Statements
March 31, 2002

NOTE E - PENDING LITIGATION (CONTINUED)

[5] Other Actions:

On or about September 17, 2001, an action was commenced against the Company
in the Supreme Court, Queens County, captioned Mitch Stewart v. Steven
Madden, Ltd. Mr. Stewart is a former independent contractor for the
Company. The complaint seeks damages of approximately $1.3 million for
breach of contract. On December 20, 2001, the Company answered the
complaint, denying the allegations and asserting various affirmative
defenses. On January 25, 2002, the plaintiff filed a motion for partial
summary judgement, which is pending. On April 4, 2002, the Company filed a
motion for partial summary judgement, which is also pending. The Company
believes that it has substantial defenses to the claims asserted in the
lawsuit.

On or about November 29, 2001, an action was commenced against the Company
for breach of contract in the United States District Court, Eastern
District of Texas, captioned Lina Enterprises v. Steven Madden, Ltd. Lina
is a former independent contractor for the Company. The complaint seeks
damages for breach of contract. The complaint does not specify the amount
of damages being sought, but alleges that they are greater than $75,000. On
March 13, 2002, the Company filed a motion to dismiss the complaint. On
April 4, 2002, the plaintiff cross-moved for summary judgement. The Company
believes that it has substantial defenses to the claims asserted in the
lawsuit.

On or about January 22, 2002, an action was commenced against the Company
in the United States District Court for the District of Oregon, captioned
Adidas America, Inc. and Adidas Salomon AG v. Steven Madden, Ltd. and Steve
Madden Retail, Inc. The complaint seeks injunctive and unspecified monetary
damages for trademark infringement, trademark dilution, unfair competition
and deceptive trade practices. The Company believes that it has substantial
defenses to the claims asserted in the lawsuit.

ITEM 2.
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 Sales
-----------------------
Three Months Ended
------------------
March 31
--------
($ in thousands)

Consolidated: 2002 2001
- ------------ ---- ----

Net Sales $66,611 100% $53,395 100%
Cost of Sales 40,070 60 31,314 59
Other Operating Income 1,244 2 1,134 2
Operating Expenses 20,932 31 17,415 33
Income from Operations 6,853 10 5,800 11
Interest and Other Income Net 204 0 501 1
Income Before Income Taxes 7,057 11 6,301 12
Net Income 4,093 6 3,650 7

Percentage of Net Sales
-----------------------
Three Months Ended
------------------
March 31
--------
($ in thousands)

By Segment 2002 2001
---- ----

WHOLESALE DIVISIONS:
- -------------------

Steven Madden, Ltd.
- -------------------
Net Sales $22,881 100% $23,076 100%
Cost of Sales 15,545 68 14,668 64
Other Operating Income 321 1 222 1
Operating Expenses 6,003 26 6,307 27
Income from Operations 1,654 7 2,323 10

l.e.i. Footwear:
- ---------------
Net Sales $11,575 100% $ 9,745 100%
Cost of sales 7,501 65 6,336 65
Operating Expenses 2,778 24 1,873 19
Income from Operations 1,296 11 1,536 16

Madden Mens:
- -----------
Net Sales $ 7,449 100% $ 910 100%
Cost of sales 4,703 63 591 65
Operating Expenses 1,401 19 359 40
Income (Loss) from Operations 1,345 18 (40) (4)

Diva Acquisition Corp:
- ---------------------
Net Sales $ 2,485 100% $ 1,779 100%
Cost of sales 1,646 66 1,243 70
Operating Expenses 535 22 387 22
Income from Operations 304 12 149 8

Stevies Inc.:
- ------------
Net Sales $ 3,445 100% $ 2,793 100%
Cost of sales 2,134 62 1,775 64
Other Operating Income 9 0 104 4
Operating Expenses 745 22 565 20
Income from Operations 575 17 557 20

STEVEN MADDEN RETAIL INC.:
- -------------------------

Net Sales $18,776 100% $15,092 100%
Cost of Sales 8,541 45 6,701 44
Operating Expenses 8,942 48 7,572 50
Income from Operations 1,293 7 819 5

Percentage of Net Sales
-----------------------
Three Months Ended
------------------
March 31
--------
($ in thousands)

By Segment (Continued)

ADESSO MADDEN INC.: 2002 2001
- ------------------ ---- ----
(FIRST COST)

Other Operating Revenue $ 914 100% $ 808 100%
Operating Expenses 528 58 352 44
Income from Operations 386 42 456 56

RESULTS OF OPERATIONS
($ in thousands)
Three months Ended March 31, 2002 vs. Three Months Ended March 31, 2001

Consolidated:
- ------------

Sales for the three-month period ended March 31, 2002 were $66,611 or 25% higher
than the $53,395 in the comparable period of 2001. The increase in sales was due
to several factors, including (i) a 719% increase in sales from the Madden Mens
Wholesale Division ("Madden Mens Wholesale"), (ii) a 40% increase in sales from
the Diva Acquisition Corp. Wholesale Division ("Diva Wholesale") (iii) a 24%
increase in sales from Steven Madden Retail Division, (iv) a 23% increase in
sales from the Stevies Wholesale Division ("Stevies Wholesale"), (v) a 19%
increase in sales from the l.e.i. Wholesale Division ("l.e.i. Wholesale"), and
(vi) an increase in public awareness with respect to the Company's brands.

Consolidated gross profit as a percentage of sales decreased from 41% in 2001 to
40% in 2002. The decrease was primarily attributable to two factors. At both
wholesale and retail, a "broad and shallow" assortment strategy was adopted,
wherein open to buy dollars were reserved for in-season performing product.
Higher cost of goods as well as increased airfreight expenses were associated
with reacting to this strategy as the Company elected to produce more goods in
USA and Europe. This resulted in the Company accepting lower first quarter gross
margins in exchange for lesser inventory exposure. Also, impacting the Company's
first quarter gross margins was the level of promotional activities in the first
quarter of 2002.

Selling, general and administrative (SG&A) expenses increased to $20,932 in 2002
from $17,415 in 2001. The increase in SG&A expenses was due primarily to a 30%
increase in payroll, officers' bonuses and payroll-related expenses from $6,485
in 2001 to $8,447 in 2002. Also, selling, designing and licensing costs
increased by 44% from $2,612 in 2001 to $3,770 in 2002. This was 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 expanded corporate office
facilities resulted in an increase in occupancy, telephone, utilities, computer
supplies and depreciation expenses by 15% from $3,486 in 2001 to $3,999 in 2002.

Income from operations for 2002 was $6,853, which represents an increase of
$1,053 or 18% over the income from operations of $5,800 in 2001. Net income
increased to $4,093 in 2002 from $3,650 in 2001.

Wholesale Divisions:
- -------------------

Sales from the Steve Madden Women's Wholesale Division ("Madden Wholesale")
accounted for $22,881 or 34%, and $23,076 or 43%, of total sales in 2002 and
2001, respectively. Gross profit as a percentage of sales decreased from 36% in
2001 to 32% in 2002. The decrease was primarily attributable to two factors. At
both wholesale and retail, a "broad and shallow" assortment strategy was
adopted, wherein open to buy dollars were reserved for in-season performing
product. Higher cost of goods as well as increased airfreight expenses were
associated with reacting to this strategy as the Company elected to produce more
goods in USA and Europe. This resulted in the Company accepting lower first
quarter gross margins in exchange for lesser inventory exposure. Also, impacting
the Company's wholesale first quarter gross margins was the level of promotional
activities in the first quarter of 2002. Operating expenses decreased to $6,003
in 2002 from $6,307 in 2001 due to decreases in advertising and marketing
expenses. Madden Wholesale income from operations decreased to $1,654 in 2002
compared to income from operations of $2,323 in 2001.

Sales from l.e.i. Wholesale accounted for $11,575 or 17%, and $9,745 or 18%, of
total sales in 2002 and 2001, respectively. The increase in sales was driven by
the sales of key styles including closed toe fashion casuals and fresh spring
dress sandals. Gross profit as a percentage of sales remained the same in 2001
and 2002. Operating expenses increased to $2,778 in 2002 from $1,873 in 2001 due
to increases in payroll and payroll-related expenses. Additionally, selling and
designing expenses increased due to an increase in sales in the current period.
Income from operations for l.e.i. Wholesale was $1,296 in 2002 compared to
income from operations of $1,536 in 2001.

Sales from Madden Mens Wholesale accounted for $7,449 or 11%, and $910 or 2%, of
total sales in 2002 and 2001, respectively. The increase in sales was driven by
the sales of key styles including euro casual and sport-active looks. Gross
profit as a percentage of sales increased from 35% in 2001 to 37% in 2002 due to
changes in product mix and balanced sourcing. Operating expenses increased to
$1,401 in 2002 from $359 in 2001 due to increases in payroll and payroll-related
expenses. Additionally, selling and designing expenses increased due to an
increase in sales in the current period. Income from operations for Madden Mens
Wholesale was $1,345 in 2002 compared to a loss from operations of $40 in 2001.

Sales from Diva Wholesale accounted for $2,485 or 4%, and $1,779 or 3%, of total
sales in 2002 and 2001, respectively. The increase in sales was driven by the
sales of key styles including pointy toe dress shoes as well as sport active
shoes. Gross profit as a percentage of sales increased from 30% in 2001 to 34%
in 2002 due to changes in product mix and balanced sourcing. Operating expenses
increased to $535 in 2002 from $387 in 2001 due to increases in payroll and
payroll-related expenses. Additionally, selling and related expenses increased
due to an increase in sales in the current period. Income from operations for
Diva Wholesale was $304 in 2002 compared to income from operations of $149 in
2001.

Sales from Stevies Wholesale, accounted for $3,445 or 5%, and $2,793 or 5%, of
total sales in 2002 and 2001, respectively. This increase in sales was primarily
due to the growth in accounts such as Kids "R" Us and Nordstrom. Gross profit as
a percentage of sales increased from 36% in 2001 to 38% in 2002 due to changes
in product mix and balanced sourcing. Operating expenses increased to $745 in
2002 from $565 in 2001 due to increases in payroll and payroll-related expenses.
Additionally, selling and designing expenses increased due to an increase in
sales in the current period. Income from operations for Stevies Wholesale was
$575 in 2002 compared to income from operations of $557 in 2001.

Retail Division:
- ---------------

Sales from the Retail Division accounted for $18,776 or 28% and $15,092 or 28%
of total sales in 2002 and 2001, respectively. This increase in sales was due to
the increase in the number of Steve Madden retail stores as well as an increase
in comp store sales. During year 2001, the Company closed two of its least
productive stores. As of March 31, 2002, there were 73 retail stores compared to
65 stores as of March 31, 2001. Same store sales for the quarter ended March 31,
2002 increased 14% over the same period 2001. This increase was achieved through
a timely early transition to spring products and delivering fresh products to
its stores early and replenishing in season. Gross profit as a percentage of
sales decreased from 56% in 2001 to 55% in 2002 due to greater promotional
activity at retail this quarter. Operating expenses for the Retail Division
increased to $8,942 or 48% of sales in 2002 from $7,572 or 50% of sales in 2001.
This increase in dollars was due to increases in payroll and payroll-related
expenses and occupancy expenses as a result of opening additional stores since
March 31, 2001. Income from operations for the Retail Division was $1,293 in
2002 compared to income from operations of $819 in 2001.

Adesso-Madden Division:
- ----------------------

Adesso-Madden, Inc. generated commission revenues of $914 for the three-month
period ended March 31, 2002, which represents a 13% increase over commission
revenues of $808 during the same period in 2001. This increase was primarily due
to the growth in accounts such as Walmart and Target and the addition of
children's products to the assortment mix. Operating expenses increased to $528
in 2002 from $352 in 2001 due to increases in payroll and payroll-related
expenses. Income from operations for Adesso-Madden was $386 in 2002 compared to
income from operations of $456 in 2001.

LICENSE AGREEMENTS

Revenues from licensing increased to $330 in the first quarter of 2002 from $326
in 2001. As of March 31, 2002, the Company had six license partners covering six
product categories for its Steve Madden brand. Also, as of March 31, 2002, the
Company had three license partners covering three product categories for its
Stevies brand. The product categories include handbags, hosiery, sunglasses,
eyewear, belts and outerwear.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of $83,398 at March 31, 2002 compared to $62,917
in working capital at March 31, 2001, representing an increase of $20,481, which

was primarily due to the Company's net income and proceeds received from the
exercise of options.

Under the terms of a factoring agreement with Capital Factors, Inc., the Company
is permitted to draw down 80% of its invoiced receivables at an interest rate of
two points below the Prime Rate (as defined in such agreement). The agreement
with Capital Factors was renewed as of December 31, 2001 for an additional one
year term. Capital Factors maintains a lien on all of the Company's inventory
and receivables and assumes the credit risk for all assigned accounts approved
by it.

OPERATING ACTIVITIES

During the three month period ended March 31, 2002, cash used for operating
activities was $11,888. Uses of cash arose principally from an increase in
factored accounts receivable of $13,560 and a decrease in accounts payables and
accrued expenses of $5,702. Cash was provided principally by net income of
$4,093 and a decrease in prepaid expenses and other assets of $2,213.

The Company leases office, showroom, warehouse and retail facilities under
non-cancelable operating leases with terms expiring at various times through
2012. Future minimum annual lease payments under non-cancelable operating leases
consist of the following at March 31:

2002 $ 7,172,000
2003 6,835,000
2004 6,752,000
2005 6,346,000
2006 6,329,000
Thereafter 17,292,000
------------

$ 50,726,000
============

The Company has employment agreements with four key executives and its Creative
and Design Chief as of March 31, 2002 providing for aggregate annual salaries of
approximately $1,725 subject to annual bonuses and annual increases as may be
determined by the Company's Board of Directors. In addition, as part of four of
the employment agreements, the Company is committed to pay incentive bonuses
based on income before interest, depreciation and taxes.

A significant portion of the Company's products are supplied from foreign
manufacturers, the majority of which are located in Brazil, China, Italy and
Spain. Although the Company has not entered into any 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, the Company currently makes approximately ninety-five percent (95%) of
its purchases in U.S. dollars.

CAPITAL IMPROVEMENT ACTIVITIES

During the three month period ended March 31, 2002, the Company used cash of
$711 primarily for leasehold improvements to its corporate office space and for
a new point of sale computer system for the retail stores.

FINANCING ACTIVITIES

During the three month period ended March 31, 2002, the Company received $1,835
from the sale of its common stock in connection with the exercise of stock
options.

OTHER CONSIDERATIONS

Dependence on Key Personnel. Although the Company has strengthened its senior
management team, the Company is dependent, in particular, upon the services of
Steven Madden, its current Creative and Design Chief and former Chairman and
Chief Executive Officer. On June 20, 2000, Mr. Madden was indicted in the United
States District Courts for the Southern District and Eastern District of New
York. The indictments alleged that Mr. Madden engaged in securities fraud and
money laundering activities. In addition, the Securities and Exchange Commission
filed a complaint in the United States District Court for the Eastern District
of New York alleging that Mr. Madden violated Section 17(a) of the Securities
Exchange Act of 1934, as amended. On May 21, 2001, Steven Madden entered into a
plea agreement with the U.S. Attorney's Office, pursuant to which he pled guilty
to four of the federal charges filed against him. In addition, Mr. Madden
reached a separate settlement agreement with the Securities and Exchange
Commission regarding the allegations contained in its complaint. As a result,
Mr. Madden resigned as the Company's Chief Executive Officer and as a member of
the Company's Board of Directors effective July 1, 2001. Mr. Madden has agreed
to serve as the Company's Creative and Design Chief, a non-executive position.
On April 4, 2002, Mr. Madden was sentenced in the United States District Court
for the Southern district of New York to forty-one (41) months imprisonment in
connection with two of the federal charges to which he pled guilty. On May 3,
2002, Mr. Madden was sentenced in the United States District Court for the
Eastern District of New York to forty-one (41) months imprisonment in connection
with the remaining two charges to which he pled guilty. The sentences will run
concurrently. Under the settlement agreement with the Securities and Exchange
Commission, Mr. Madden has agreed to not serve as an officer or director of a
publicly traded company for 7 years. Neither the indictments nor the Securities
and Exchange Commission complaint allege any wrongdoing by the Company or its
other officers and directors.

The Company maintains a key person life insurance policy on Mr. Madden with
coverage in the amount of $10,000,000. The Company has an employment contract
with Mr. Madden that expires on June 30, 2011. Under the terms of his employment
contract, if Mr. Madden is terminated for other than cause, death or total
disability, the Company will be required to pay the remaining base salary due
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 $200,000
non-accountable expense account payable in monthly installments; however, the
Company is not required to pay this non-accountable expense allowance for any
month that Mr. Madden is not actively engaged in the duties of Creative and
Design Chief. If, during the period commencing 120 days prior to a change of
control and ending on the first anniversary of a change of control, Mr. Madden's
employment is terminated by the Company (other than for cause) or by Mr. Madden
for good reason, Mr. Madden will be entitled to receive a lump sum payment equal
to three times his compensation for the preceding 12-month period ending
December 31st.

The Company believes that Mr. Madden is integral to attracting talented shoe
designers. Since Mr. Madden is involved in many material creative aspects of the
Company's business, there can be no assurance that a suitable replacement for

Mr. Madden could be found if he was unable to perform services for the Company.
As a consequence, the loss of Mr. Madden 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 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 markdown requests from customers could
have a material adverse effect on the Company's business, financial condition
and results of operations.

The industry in which the Company operates is 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 fashion-oriented nature of the Company's industry and
the rapid changes in customer preferences leave the Company vulnerable to an
increased risk of inventory obsolescence. Thus, 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 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 sales. Presently, the Company sells
approximately sixty-two percent (62%) of its products at wholesale to department
stores, including Federated Department Stores (Bloomingdale's, Bon Marche,
Burdines, Macy's and Rich's), Dillard's, Nordstrom, Marshall Field's and May
Department Stores (Famous Barr, Filene's, Foley's, Hecht's, Kaufmann's, Meier &
Frank, Lord and Taylor and Robinsons May) and approximately thirty-eight (38%)
percent of its products at wholesale to specialty stores, including shoe
boutiques. The Company's largest customers, May Department Stores, Federated
Department Stores, and Nordstrom, account for approximately twenty-one percent
(21%), eighteen percent (18%) and eleven percent (11%) 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
customers. Therefore, a decision by Federated Department Stores, May Department
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.
Pursuant to the Factoring Agreement between Capital Factors and the Company,
Capital Factors currently assumes the credit risk related to approximately 95%
of the Company's accounts receivables. 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 three month
period ended March 31, 2002, approximately 85% of the Company's products were
purchased from sources outside the United States, including China, Brazil, Italy
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 condition 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 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,
Skechers, Nike and Guess, may 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),
Stevies, Steve Madden Mens 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 approximately eight to ten (8-10) Steve Madden retail
stores in 2002. 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 to 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 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 be significantly impacted by
(i) the opening of new retail stores and (ii) the introduction of new products.
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
and 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 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 effect on the Company's business, financial condition and
results of operations.

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 effect on the Company's
business, financial condition and results of operations.

Outstanding Options. As of April 30, 2002, the Company had outstanding options
to purchase an aggregate of approximately 2,032,000 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.

Part II

ITEM 1. LEGAL PROCEEDINGS.

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

On June 20, 2000, Steven Madden, the Company's former Chairman and Chief
Executive Officer, was indicted in the United States District Courts for the
Southern District and Eastern District of New York. The indictments alleged that
Mr. Madden engaged in securities fraud and money laundering activities. In
addition, the Securities and Exchange Commission filed a complaint in the United
States District Court for the Eastern District of New York alleging that Mr.
Madden violated Section 17(a) of the Securities Exchange Act of 1934, as
amended. On May 21, 2001, Steven Madden entered into a plea agreement with the
U.S. Attorney's Office, pursuant to which he pled guilty to four of the federal
charges filed against him. In addition, Mr. Madden reached a separate settlement
agreement with the Securities and Exchange Commission regarding the allegations
contained in its complaint. As a result, Mr. Madden resigned as the Company's
Chief Executive Officer and as a member of the Company's Board of Directors
effective July 1, 2001. Mr. Madden has agreed to serve as the Company's Creative
and Design Chief, a non-executive position. On April 4, 2002, Mr. Madden was
sentenced in the United States District Court for the Southern District of New
York to forty-one (41) months imprisonment in connection with two of the federal
charges to which he pled guilty. On May 3, 2002, Mr. Madden was sentenced in the
United States District Court for the Eastern District of New York to forty-one
(41) months imprisonment in connection with the remaining two charges to which
he pled guilty. The sentences will run concurrently. Under the settlement
agreement with the Securities and Exchange Commission, Mr. Madden has agreed to
not serve as an officer or director of a publicly traded company for 7 years.
Neither the indictments nor the Securities and Exchange Commission complaint
allege any wrongdoing by the Company or its other officers and directors.

In December 2001, the Company purchased a loss mitigation policy to cover costs
arising out of lawsuits related to the June 2000 federal indictment of Steve
Madden, the Company's former Chief Executive Officer. The policy covers the
Company's anticipated damages and legal costs in connection with such lawsuits.
The Company is obligated to pay for damages and costs in excess of the policy
limits. The cost of the policy was $6,950,000.

Class Action:
- ------------

Between June and August 2000, eight putative securities fraud class action
lawsuits were commenced in the United States District Court for the Eastern
District of New York against the Company, Steven Madden and, in five of the
actions, Rhonda J. Brown (the former President and a former director of the
Company) and Arvind Dharia. These actions are captioned: Wilner v. Steven
Madden, Ltd., et al., 00 CV 3676 (filed June 21, 2000); Connor v. Steven Madden,
et al., 00 CV 3709 (filed June 22, 2000); Blumenthal v. Steven Madden, Ltd., et
al., 00 CV 3709 (filed June 23, 2000); Curry v. Steven Madden, Ltd., et al., 00
CV 3766 (filed June 26, 2000); Dempster v. Steven Madden Ltd., et al., 00 CV

3702 (filed June 30, 2000); Salafia v. Steven Madden, Ltd., et al., 00 CV 4289
(filed July 24, 2000); Fahey v. Steven Madden, Ltd., et al., 00 CV 4712 (filed
August 11, 2000); Process Engineering Services, Inc. v. Steven Madden, Ltd., et
al., 00 CV 5002 (filed August 22, 2000). By Order dated December 8, 2000, the
Court consolidated these eight actions, appointed Process Engineering, Inc.,
Michael Fasci and Mark and Libby Adams as lead plaintiffs and approved their
selection of lead counsel. On or about February 26, 2001, Plaintiffs filed a
Consolidated Amended Complaint. On or about October 31, 2001, plaintiffs filed a
Second Consolidated Amended Class Action Complaint. The pleading names the
Company, Steven Madden, Rhonda J. Brown and Arvind Dharia as defendants. It
principally alleges that the Company and the individual defendants violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated under the 1934 Act by issuing false and misleading statements, and
failing to disclose material adverse information, generally relating to matters
arising from Mr. Madden's June 2000 indictment. The plaintiffs seek an
unspecified amount of damages, costs and expenses on behalf of themselves and
all other purchasers of the Company's common stock during the period June 21,
1997 through June 20, 2000. On November 30, 2001, all of the defendants served
motions to dismiss the Consolidated Amended Complaint. The motions were fully
briefed on January 14, 2002. Since that time, a settlement in principle of these
actions has been reached, subject to execution of definitive settlement
documentation, notice to class members, a hearing and approval by the District
Court. The tentative settlement is within the limits of the Company's insurance
coverage.

Shareholder Derivative Actions:
- ------------------------------

On or about September 26, 2000, a putative shareholder derivative action was
commenced in the United States District Court for the Eastern District of New
York, captioned Herrera v. Steven Madden and Steven Madden, Ltd., 00 CV 5803
(JG). The Company is named as a nominal defendant in the action. The complaint
seeks to recover alleged damages on behalf of the Company from Mr. Madden
arising from his June 2000 indictment and to require him to disgorge certain
profits, bonuses and stock option grants he received. On January 3, 2001,
plaintiff filed an Amended Shareholder's Derivative Complaint. On February 2,
2001, both the Company and Mr. Madden filed motions to dismiss the Amended
Complaint because of plaintiff's failure to make a pre-litigation demand upon
the Company's board of directors. On October 1, 2001, plaintiff filed a Second
Amended Complaint. On November 2, 2001, the Company filed a motion to dismiss
this pleading on grounds that plaintiff had failed to make a pre-litigation
demand upon the Company's board of directors. On February 7, 2002, the
Magistrate Judge filed a Report recommending that the Company's motion to
dismiss be denied. The Company filed its objections to the Report on March 4,
2002. On March 22, 2002, the District Judge entered an order adopting the
Magistrate Judge's report and recommendation in full. Since that time, an
agreement in principle has been reached to resolve all claims in this action,
subject to execution of definitive documentation, such notice to the Company's
shareholders (if any) as may be required by the District Court, and approval by
the District Court. The Company believes, after consultation with counsel, that
its defense costs and certain attorneys fees in connection with this action will
be subject to coverage by the Company's insurance as supplemented by the loss
mitigation policy described above.

On or about November 28, 2001, a purported shareholder derivative complaint was
filed in the United States District Court for the Eastern District of New York,
captioned Herrera v. Karson, et al., 00 CV 7868. Named as defendants therein are
the Company (as nominal defendant) and certain of the Company's present and/or
former directors. The complaint alleges that the individual defendants breached
their fiduciary duties to the Company in connection with a decision by the Board
of Directors of the Company to enter into an employment agreement with Mr.
Steven Madden in or about May 2001. The complaint seeks declaratory and other
equitable relief, as well as an unspecified amount of compensatory damages,
costs and expenses. On or about February 1, 2002, plaintiff filed an Amended
Shareholder Derivative Complaint (the "Amended Complaint"). The Amended
Complaint contains substantially the same allegations and names the same
defendants as the original complaint. Since that time, an agreement in principle
has been reached to resolve all claims in this action, subject to execution of
definitive documentation, such notice to the Company's shareholders (if any) as
may be required by the District Court, and approval by the District Court. The
Company believes, after consultation with counsel, that its defense costs and
certain attorneys fees in connection with this action will be subject to
coverage by the Company's insurance as supplemented by the loss mitigation
policy described above.

SEC Investigation:
- -----------------

On March 14, 2001, the Company became aware that the Securities and Exchange
Commission had issued a formal order of investigation with respect to trading in
the Company's securities.

Other Actions:
- -------------

On or about September 17, 2001, an action was commenced against the Company in
the Supreme Court, Queens County, captioned Mitch Stewart v. Steven Madden, Ltd.
Mr. Stewart is a former independent contractor for the Company. The complaint
seeks damages of approximately $1.3 million for breach of contract. On December
20, 2001, the Company answered the complaint, denying the allegations and
asserting various affirmative defenses. On January 25, 2002, the plaintiff filed
a motion for partial summary judgement, which is pending. On April 4, 2002, the
Company filed a motion for partial summary judgement, which is also pending. The
Company believes that it has substantial defenses to the claims asserted in the
lawsuit.

On or about November 29, 2001, an action was commenced against the Company for
breach of contract in the United States District Court, Eastern District of
Texas, captioned Lina Enterprises v. Steven Madden, Ltd. Lina is a former
independent contractor for the Company. The complaint seeks damages for breach
of contract. The complaint does not specify the amount of damages being sought,
but alleges that they are greater than $75,000. On March 13, 2002, the Company
filed a motion to dismiss the complaint. On April 4, 2002, the plaintiff
cross-moved for summary judgement. The Company believes that it has substantial
defenses to the claims asserted in the lawsuit.

On or about January 22, 2002, an action was commenced against the Company in the
United States District Court for the District of Oregon, captioned Adidas
America, Inc. and Adidas Salomon AG v. Steven Madden, Ltd. and Steve Madden
Retail, Inc. The complaint seeks injunctive and unspecified monetary damages for
trademark infringement, trademark dilution, unfair competition and deceptive
trade practices. The Company believes that it has substantial defenses to the
claims asserted in the lawsuit.

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.

STEVEN MADDEN, LTD.

/s/ ARVIND DHARIA
-----------------------
Arvind Dharia
Chief Financial Officer

DATE: May 13, 2002