<PAGE>   1

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

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

                                    FORM 10-K

(X)      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the fiscal year ended August 27, 2000.

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

                             COMMISSION FILE NUMBER
                                    333-67975

                                  ALBECCA INC.
             (Exact name of Registrant as specified in its charter)

                 GEORGIA                                        39-1389732
      (State or Other Jurisdiction                           (I.R.S. Employer
                   of                                         Identification
            Incorporation or                                     Number)
              Organization)

             3900 STEVE REYNOLDS BOULEVARD, NORCROSS, GEORGIA 30093
                    (Address of Principal Executive Offices)
                                 (770) 279-5210

            Securities registered pursuant Section 12(b) of the Act:
                                      None

            Securities registered pursuant Section 12(g) of the Act:
                                      None




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 has
required to file such report(s), and (2) has been subject to such filing
requirements during 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 of this
Form 10-K. [ ]

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                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                   PAGE
<S>        <C>                                                                                     <C>

                                     PART I
Item 1.    Business                                                                                  3
Item 2.    Properties                                                                                7
Item 3.    Legal Proceedings                                                                         7
Item 4.    Submission of Matters to a Vote of Security Holders                                       7

                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters                     7
Item 6.    Selected Consolidated Financial Data                                                      7
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations     9
Item 7A    Quantitative and Qualitative Disclosure About Market Risk                                17
Item 8.    Consolidated Financial Statements and Supplementary Data                                F-1
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     18

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant                                       18
Item 11.   Executive Compensation                                                                   19
Item 12.   Security Ownership of Certain Beneficial Owners and Management                           21
Item 13.   Certain Relationships and Related Transactions                                           21

                                     PART IV

Item 14.   Exhibits, Financial Statement Schedule and Reports on Form 8-K                           22

           Signatures                                                                               25
</TABLE>


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                                     PART I

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995

    This document contains statements that constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. In
addition, forward-looking statements may be made orally or in press releases,
conferences, reports or otherwise, in the future by or on behalf of the Company.
When used in this document, the words, "anticipates," "intends," "plans,"
"believes," "estimates," "expects" and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors, which may cause actual
results, performance or achievement of Albecca Inc. and its subsidiaries
("Albecca" or the "Company") to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Particular risks and uncertainties facing the Company at the present
include political and economic uncertainty throughout the world; whether profit
improvement efforts can be successfully implemented; increased competition in
the Company's businesses; the cost of closing certain plants and selling certain
business units; the success of new marketing programs; continued softness in
international markets; the strong dollar which increases the cost of the
Company's products in foreign markets resulting in limiting the Company's
ability to increase prices; competitive implications and price transparencies
related to the Euro conversion; changing buying patterns affecting the Company's
consumer business; the Company's ability to integrate business acquisitions; the
Company's ability to develop and manufacture new and existing products
profitably; market acceptance of existing and new products; changes in retail
distribution channels and purchasing practices; the Company's ability to
rationalize its product lines; the Company's ability to maintain good relations
with its team members; and the ability to retain and hire quality team members.
In addition, the Company is subject to risks and uncertainties facing its
industry in general, including changes in business and political conditions and
the economy in general in both foreign and domestic markets; slower growth in
the Company's markets; financial market changes including increases in interest
rates and fluctuations in foreign exchange rates; unanticipated problems or
costs associated with the transition of European currencies to the common Euro
currency; a slowing in housing starts; inability to raise prices of products due
to market conditions in certain markets; changes in market demographics; actions
of competitors; seasonal factors in the Company's industry; unforeseen
litigation; government actions.

    The Company wishes to caution readers not to place undue reliance on any
forward-looking statements and to recognize that the statements are not
predictions of actual future results. Actual results could differ materially
from those anticipated in the forward-looking statements and from historical
results, due to the risks and uncertainties described above, as well as others
not now anticipated. The foregoing statements are not exclusive and further
information concerning the Company and its businesses, including factors that
potentially could materially affect the Company's financial results, may emerge
from time to time. It is not possible for management to predict all risk factors
or to assess the impact of such risk factors on the Company's business.


ITEM 1.  BUSINESS


GENERAL

    Albecca primarily does business under the Larson-Juhl name. Albecca designs,
manufactures and distributes a complete line of high quality, branded custom
framing products, including wood and metal moulding, matboard, foamboard, glass,
equipment and other framing supplies. Albecca's principal brands include the
"Larson-Juhl Classic Collection" and the "Craig Ponzio Signature Collection."
For over 100 years, Albecca has been designing, manufacturing and distributing
custom framing products that enhance the aesthetic qualities of prints,
paintings, drawings and other art and memorabilia.

    The Company is incorporated under the laws of the State of Georgia. Its
principal executive offices are located at 3900 Steve Reynolds Boulevard,
Norcross, Georgia 30093, and its telephone number is (770) 279-5210.

HISTORY

    Craig Ponzio, Albecca's Chairman, President, Chief Executive Officer and
principal shareholder joined Larson Picture Frame, Inc. in 1973 and purchased
that company in 1981. In 1988, Larson Picture Frame, Inc. acquired Juhl-Pacific
Corporation creating Larson-Juhl.

SEGMENTS



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    Today the industry in North America includes approximately 20,000 retail
custom frame storefronts and over 300 manufacturers and distributors of custom
framing products. Independent and franchise custom framers currently account for
over 90% of custom framing sales in North America. The remaining sales are
principally generated by custom framing departments of craft chains.

    Outside North America, Albecca estimates there are over 20,000 retail custom
frame storefronts and over 500 manufacturers and distributors of custom framing
products. Albecca estimates that sales to retail custom framers in 2000 were
approximately $1.2 billion in North America. The Company's fiscal year 2000
sales to customers in North America were $237.3 million and $120.9 million for
all other international customers.

PRODUCTS

    Albecca designs, manufactures and distributes a complete line of quality
branded custom framing products, including wood and metal moulding, matboard,
foamboard, glass, equipment and other framing supplies. This product offering
allows Albecca to be a complete source supplier to retail custom framers.
Albecca offers over 8,000 branded products in North America and over 10,000
additional branded products in the rest of the world. Of Albecca's worldwide
products, over 6,000 are branded custom frame wood moulding products.

MARKETING

    Albecca markets its products to retail custom frame shops principally
through Albecca-employed sales representatives, catalogs, advertisements in
trade magazines and attendance at industry trade shows. Albecca also markets to
consumers by advertising in widely distributed magazines that Albecca considers
influential among consumers and decorators, as well as through the use of direct
mail materials and in-store promotional displays. These advertisements generally
focus on Albecca's image and the introduction of new premium branded products.
Through educational seminars and consultations by Albecca's sales team, Albecca
also provides technical, marketing and other business advice both to established
retail custom framers and to prospective customers establishing new retail
custom framing businesses.

COMPETITION

    Albecca competes with over 300 North American and over 500 international
manufacturers and distributors of custom framing products. Albecca is one of the
largest manufacturers and distributors of wood moulding in North America. The
principal manufacturers of metal moulding are Nielsen & Bainbridge and Cardinal
Aluminum Company, which primarily supply their products to custom framers
through distributors. Albecca believes it is one of the largest metal moulding
customers of both companies. The principal manufacturers of matboard are
Crescent Cardboard Company and Nielsen & Bainbridge which primarily supply their
products to custom framers through distributors. Albecca believes it is the
largest single matboard customer of both companies.

    Albecca competes primarily on the basis of product design and quality,
on-time delivery, inventory availability and service. Albecca believes its
principal competitive strengths are: leadership in design and premium branded
products for the custom framing industry; a wide variety of custom framing
products; a direct sales force regularly visiting retail custom framers to
introduce new products and assist with in-store merchandising; and
strategically-located manufacturing/distribution centers for rapid, efficient
response to customers. Albecca experiences competition from smaller,
regionally-focused distributors of framing products.

    In the broader sense, Albecca competes in the larger home decorating market,
where consumers may forego custom framing and choose ready-made picture frames
or framed art works, and in the larger wholesale contract framing market, where
wholesale picture framers produce framed art works in volume for large accounts
such as hotels or office complexes. Albecca believes that other home furnishing
items such as furniture, floor and wall coverings and window treatments compete
with custom framing for consumer dollars.

DISTRIBUTION

DISTRIBUTION IN NORTH AMERICA

    The Company sells its products through direct sales personnel of
approximately 100 sales representatives and associates. Albecca's sales
representatives update customers on Albecca's product lines, advise customers on
framing design and provide information on more effective merchandising, design
and selling techniques. Sales representatives are employed by Albecca and
compensated



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principally by salary, with commission and bonus components available based on
sales and other performance criteria.

    Albecca distributes its products in North America through 28 distribution
centers. The number and location of these distribution centers make Albecca the
only manufacturer with a broad-based North American distribution network.
Albecca's Chicago and Los Angeles distribution centers also serve as
distribution hubs that receive and process container-size deliveries of
Albecca's products and ship smaller quantities of products, generally weekly, to
the other distribution centers based on customer demand.

INTERNATIONAL DISTRIBUTION

    Outside North America, Albecca has relied to date on the distribution
systems in place for the companies it has acquired, and is in the process of
integrating and rationalizing these systems. Albecca's goal for its
international operations is to develop a fast, user-friendly order-fulfillment
system that operates through a logistical network similar to the one existing in
North America. In order to realize this goal, Albecca has developed a central
distribution center (relocated to The Netherlands during fiscal 2000) to improve
response to European framers as well as to better control distribution costs.

TRADEMARKS

    Albecca uses a number of trademarks to distinguish its brands, principally,
Larson-Juhl, Clark and Artique. Albecca has registered or applied for
registration of these trademarks in the U.S. and Canada and in numerous
countries in Europe, Asia and elsewhere. Mr. Ponzio has granted Albecca a
perpetual right to use the name "Craig Ponzio" to identify and brand Albecca's
premium custom framing products. Albecca regards its trademarks and other
proprietary rights as valuable assets in the marketing of its products, and on a
worldwide basis, seeks to protect them against infringement. There can be no
assurance that the actions taken by Albecca 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
Albecca's products as violative of the trademarks and other proprietary rights
of others. 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.
Albecca also regards its moulding designs as critical to the success of its
marketing efforts, and seeks to protect those designs before their introduction
to the marketplace. However, after such introduction, there are no practical
means to prevent others from copying or imitating such designs or specific
design elements.

RAW MATERIALS AND SUPPLIERS

    Albecca's manufacturing and sourcing staff oversees manufacturing and
production, negotiates purchases of raw materials and researches and identifies
new suppliers and third-party manufacturers. Albecca separately negotiates with
suppliers for the purchase of required raw materials in accordance with
Albecca's specifications and limits its exposure to holding excess raw material
inventory by purchasing quantities based on demand. Albecca believes that its
policy of limiting commitments for purchases reduces its exposure to excess
inventory and obsolescence. Albecca is not responsible for procuring raw
materials used by its third-party manufacturers.

    Wood, the principal raw material used in Albecca's manufacturing processes,
is purchased from a variety of suppliers in the U.S., Canada, Asia and Africa as
kiln-dried blanks or as raw lumber that is then dried by Albecca. The primary
types of wood used by Albecca are North American oak and ash, as well as
European pine. Albecca has long-standing relationships with many of its
suppliers and has experienced only limited difficulty in satisfying its raw
materials requirements. Although the loss of any supplier may have an adverse
effect on Albecca's short-term operating results, Albecca believes it could
replace suppliers without having a material adverse effect on Albecca.

    Although Albecca produces a portion of wood moulding in Albecca-owned
manufacturing plants, the majority of the wood moulding sold by Albecca is
produced by third-party manufacturers. Albecca does not have supply contracts
with any of these suppliers. However, as an industry leader in design, and as
one of the largest distributors of wood moulding to retail custom framers,
Albecca has developed close working relationships with many of these third-party
manufacturers who produce Albecca's proprietary products to its designs and
specifications. Many of these manufacturers have devoted a significant amount of
their capacity to the production of Albecca's products. Besides wood moulding,
Albecca does not manufacture any other products. Instead, it purchases them from
numerous other manufacturers and distributors. Albecca works with one
manufacturer to produce its proprietary line of Clark metal moulding. Albecca is
the only purchaser of metal picture frame moulding from this manufacturer.
Albecca also works with one manufacturer to produce its Artique brand of
matboard. Albecca generally does not have supply contracts with these suppliers,
but relationships with these suppliers to date have been satisfactory.




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<PAGE>   6

MANUFACTURING

    Albecca's products are manufactured according to plans prepared each year
which reflect prior years' experience, current industry trends, economic
conditions and Albecca's estimates of a particular line's performance. The
Company estimates that it manufactures approximately 40% of its wood moulding in
its facilities worldwide. Each plant manufactures its own unique lines specific
to the decorative tastes and designs of that region. In addition to moulding
manufacturing plants, Albecca has plants manufacturing pre-assembled frames in
Europe and in the U.S.

    The following lists Albecca's manufacturing facilities:

                                                              Number of
Country                          Products                    facilities
------------------------------   -----------------------    ------------
Austria..........................Mouldings                            1
Canada...........................Mouldings                            1
Czech Republic...................Mouldings and Frames                 2
Finland..........................Moudlings                            1
France...........................Mouldings                            1
Italy............................Mouldings                            1
Netherlands......................Frames                               1
Sweden...........................Mouldings                            1
United States (1)................Mouldings and Frames                 1
                                                           ------------
Total                                                                10


(1) Albecca's U.S. manufacturing is currently being performed in its newly
    constructed facility in Ashland, Wisconsin. The new facility consolidates
    and replaces two older facilities. Management anticipates that these
    replaced facilities will be disposed of during fiscal 2001.

CUSTOMERS

    In North America, Albecca's target customers are the approximately 20,000
custom framing retail storefronts that serve middle to upper income consumers.
To date, Albecca has served approximately 90% of these retail storefronts.
Outside North America, Albecca targets the over 20,000 retail custom frame
storefronts and home decorating centers.

    Albecca manages its credit and collection functions regionally in the U.S.
Outside of the U.S., credit and collection functions are managed separately in
each country in which Albecca operates. Albecca extends credit based on an
evaluation of the customer's financial condition and history with Albecca.
Albecca monitors credit levels on an ongoing basis to minimize credit risk.
Albecca does not factor its accounts receivable.

    No single customer or affiliated group of customers represented over 10% of
the net sales of the Company in fiscal year 1998, 1999, or 2000.

ALBECCA TEAM MEMBERS -- OUR EMPLOYEES

    At August 27, 2000, Albecca had approximately 2,200 full-time team members,
or employees, of which approximately 1,630 were in operations, 300 were in sales
and marketing and 270 were in corporate and general administrative positions. In
certain European countries in which Albecca operates, Albecca's relationships
with its team members are as mandated by such countries' laws or covered by
social legislation governing employment practices. Management believes that
Albecca's labor relationships are satisfactory and no material labor cost
increases are anticipated.

ENVIRONMENTAL MATTERS

    Albecca is subject to various federal, state, local and foreign
environmental laws and regulations relating to the handling and management of
certain chemicals used and generated in manufacturing its products. Albecca
believes that its operations currently



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comply in all material respects with these laws and regulations. Based on the
annual costs incurred by Albecca over the past several years, management does
not believe that compliance with these laws and regulations will have a material
adverse effect upon Albecca's business, financial condition and results of
operations. Albecca believes, however, that it is reasonably likely that the
trend in environmental litigation and regulation will continue to be toward
stricter standards. Such changes in the law and regulations may require Albecca
to make additional capital expenditures which, while not presently estimable
with certainty, are not currently expected to have a material adverse effect on
Albecca's business, financial condition and results of operations.


ITEM 2.  PROPERTIES

    Albecca's principal executive offices are located in a 65,000 square foot
office building in Norcross, Georgia. The headquarters building houses
administrative offices as well as a light manufacturing and distribution center.
This building is owned by L-J Properties Inc., a company owned by Messrs.
Ponzio, Trimarco and McKenzie, each of whom is an executive officer of Albecca.
Mr. Ponzio is also a director of Albecca. Albecca's lease for this facility
terminates in August 2001 and the annual rent for fiscal 2001 will be $.8
million. See "Certain Relationships and Related Transactions."

    Albecca has recently constructed a new manufacturing facility in Ashland,
Wisconsin containing approximately 125,000 square feet of space. This facility
is used in the manufacture of moulding, ready-made frames and corner samples and
consolidates and replaces two older facilities which had 112,000 square feet of
space. These manufacturing facilities will be disposed of during fiscal 2001.
There are 23 other light manufacturing and distribution centers located
throughout the U.S., providing approximately 640,000 square feet of space. These
facilities vary in size from approximately 5,100 to 83,900 square feet. Of
these, all are leased except the Denver, Colorado location with 18,500 square
feet of space and the Waldorf, Maryland location with 45,000 square feet of
space, which are owned. In Canada, the Company leases five locations, four of
which are distribution centers; the fifth holds administrative offices, a
manufacturing facility and a distribution center. The Canadian facilities total
approximately 160,000 square feet.

    Outside of North America, there are 35 locations in Europe, Asia and
Australia. These facilities house administrative offices, distribution and light
manufacturing centers, and factories and provide approximately 956,000 square
feet of space. Of these facilities, 14 are owned and the remainder are leased.
They vary in size from less than 1,000 square feet to over 108,000 square feet.

    Albecca believes that its properties and facilities are adequate for its
current needs. Albecca does not anticipate any material difficulty in replacing
such facilities or securing new facilities.


ITEM 3.  LEGAL PROCEEDINGS

    Albecca is a party from time to time in actions incidental to its business.
Albecca believes that any currently pending proceedings are of a routine nature
and will not, individually or in the aggregate, have a material adverse effect
upon Albecca.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Not applicable.


                                     PART II


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

    Not applicable.


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data is qualified by reference
to, and should be read in conjunction with, the consolidated financial
statements and the related notes thereto and other financial information
included elsewhere in this report, as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Albecca ends its
fiscal year on the last Sunday in August. The information as of and for the
fiscal years ended August 25, 1996, August 31, 1997, August 30, 1998, August



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29, 1999 and August 27, 2000 is derived from the audited consolidated financial
statements. Fiscal year 1997 was a 53-week year. All other fiscal years
presented were 52-week years. Historical results are not necessarily indicative
of the results to be expected in the future.

<TABLE>
<CAPTION>
                                                                                    FISCAL YEAR
                                                      -----------------------------------------------------------------------
                                                         1996           1997           1998          1999           2000
                                                      ------------   ------------  -------------  ------------   ------------
<S>                                                     <C>            <C>            <C>           <C>            <C>
Statement of Operations Data:                                                  (Dollars in thousands)
Net sales                                               $ 300,788      $ 354,058      $ 381,137     $ 384,183      $ 358,187
Cost of sales                                             173,964        200,750        217,094       220,565        199,874
                                                      ------------   ------------  -------------  ------------   ------------
  Gross profit                                            126,824        153,308        164,043       163,618        158,313
Operating expenses                                         96,595        117,707        129,820       137,652        113,057
Restructuring charges                                           -              -          2,262         1,491          1,361
Impairment of goodwill                                          -              -              -             -          4,997
                                                      ------------   ------------  -------------  ------------   ------------
  Operating income                                         30,229         35,601         31,961        24,475         38,898
Net loss (gain) on dispositions of businesses                   -              -              -         4,136           (969)
Cost of cancelled initial public equity offering                -              -          1,273             -              -
Interest income                                                 -              -           (116)       (2,254)        (4,587)
Interest expense                                            6,846          9,722         11,949        26,163         24,265
Provision for income taxes                                  3,679          3,243          4,021         2,204          3,654
Minority interest                                             300            146            471           318            298
Extraordinary gain on repurchase of debt, net of tax            -              -              -        (1,331)        (5,833)
                                                      ------------   ------------  -------------  ------------   ------------
     Net income (loss)                                   $ 19,404       $ 22,490       $ 14,363      $ (4,761)      $ 22,070
                                                      ============   ============  =============  ============   ============
OTHER DATA:
Net cash provided by operating activities                $ 30,640       $ 22,150       $ 17,452      $ 13,645       $ 39,180
Net cash (used in) provided by investing activities       (38,099)       (22,514)       (35,633)      (10,116)        21,506
Net cash provided by (used in) financing
  activities                                                8,282          1,504         67,658       (22,857)       (73,754)
Adjusted EBITDA (1)                                        35,531         42,486         46,404        35,165         47,925
Adjusted EBITDA margin                                      11.8%          12.0%          12.2%          9.2%          13.4%
Depreciation and amortization                             $ 5,302        $ 6,885        $ 8,213       $ 9,153        $ 8,010
Capital expenditures                                        5,461          7,746          8,378         5,948          8,810
CREDIT DATA:
Total interest expense less amortization of bond costs                                                              $ 23,852
Ratio of Adjusted EBITDA to net cash interest expense (3)                                                               2.5x
Ratio of total debt less cash and cash equivalents to
  Adjusted EBITDA                                                                                                        3.1
Ratio of earnings to fixed charges (2) (3)                    4.5            3.7            2.6           1.0            2.0
Pro forma ratio of earnings to fixed charges (4)                                            1.2
BALANCE SHEET DATA:
Cash and cash equivalents                                 $ 4,363        $ 5,301       $ 54,884      $ 35,058       $ 23,321
Working capital                                            39,456         43,302         95,632        75,690         63,275
Total assets                                              190,168        208,689        305,922       266,558        191,095
Total debt                                                 93,062        108,726        262,769       239,800        170,182
Shareholders' equity (deficit)                             35,343         37,313        (25,644)      (33,933)       (29,877)
</TABLE>


----------

(1) Adjusted EBITDA is defined as operating income plus depreciation,
    amortization excluding amortization of bond issue costs, restructuring
    charges and adjusted for certain infrequent or nonrecurring items. For
    purposes of the table above, Adjusted EBITDA presented for the year ended
    August 27, 2000 excludes restructuring charges of $1,361,000, an impairment
    charge to goodwill of $4,997,000, and reversals of previously provided
    reserves, recorded as a reduction of operating expenses, of $4,928,000. Of
    these items, $513,000 are net non-cash items. The $4,928,000 of reversals of
    previously provided reserves include those discussed more fully in Note 8 of
    the notes to the consolidated financial statements as well as $640,000 for
    settlement of open obligations under the terminated employer benefit plan
    and the $449,000 reversal of accrued compensation, as more fully discussed
    in Note 13 of the notes to the consolidated financial statements in the
    Company's fiscal 2000 third quarter Form 10-Q. Amortization of debt issuance
    costs was $413,000.

(2) Earnings for this computation does not include the gain or loss on the
    disposition of businesses.

(3) Net cash interest expense and fixed charges are net of $4,587,000 of
    interest income earned during the year.

(4) Fixed charges for purposes of this calculation are adjusted to give effect
    to the proceeds and related uses of the notes as if the notes had been
    issued at the beginning of the period presented.


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

    The following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" and Albecca's consolidated financial
statements and the related notes thereto which are included elsewhere in this
report. In this Management's Discussion and Analysis of Financial Condition and
Results of Operations, all references to Albecca's international operations
include all of Albecca's operations outside of the U.S. Albecca uses a 52-53
week fiscal year ending on the last Sunday in August. Accordingly, fiscal years
1998, 1999 and 2000 ended on August 30, 1998, August 29, 1999 and August 27,
2000 respectively. When reading Management's Discussion and Analysis of
Financial Condition and Results of Operations in conjunction with the
consolidated financial statements and the notes to the consolidated financial
statements, please refer to Cautionary Statement For Purposes of the "Safe
Harbor" Provisions of the Private Securities Litigation Reform Act of 1995
located in Part I.


OVERVIEW

    Albecca's net sales consist primarily of sales of branded custom framing
products to independent retail custom framers and franchise operations. With
operations in 15 countries, Albecca's net sales are geographically diversified.
U.S. customers accounted for 48.7%, 51.3% and 59.9% of net sales in 1998, 1999
and 2000. Albecca has grown internally as well through the acquisition of 39
other manufacturers and distributors of custom framing products since 1988. Of
these acquisitions, Albecca completed six in 1998 and one in 1999 and has
increased its interest in a previous acquisition during 1999 and 2000. Albecca
divested itself of operations in South Africa, Greece and New Zealand in 1999;
disposed of its Mersch and Brio entities in 2000 (which served the hyper-market
and "Do-It-Yourself" segments of the framing industry); sold its Belgian
operations in 2000; as well as restructured its operations in the U.K., Sweden
and the U.S. in 1998 through 2000.

    Albecca's cost of sales for manufactured goods consists primarily of the
cost of raw materials, which is primarily lumber, direct labor and the overhead
associated with the manufacturing processes. Albecca's cost of sales for
products purchased for resale primarily consists of the cost of the product and
the related freight costs. The cost of Albecca's sampling program, through which
it provides moulding samples to retail custom framers, is also included in cost
of sales. Costs associated with its sampling program are comprised of the direct
materials, labor, overhead and freight associated with the production of samples
or the actual cost for the purchase of these samples. The costs of these samples
are expensed upon shipment of the samples to the customer. Albecca's operating
expenses include the expenses associated with Albecca's customer service,
marketing, selling, distribution processes and general and administrative
support.

    Albecca is an S corporation and several of its subsidiaries are classified
as either partnerships or single member entities. Each is treated as a
pass-through entity under the Internal Revenue Code. They are not subject to
federal and certain state income taxes. As a result, the related taxable income
is included in the tax returns of the shareholders and members of the respective
companies. The Company makes distributions to shareholders to pay their income
tax obligations due to the Company's status as an S corporation. The provision
for income taxes included in the accompanying consolidated financial statements
primarily relates to certain state and foreign income taxes, as well as federal
taxes payable on the gain from disposition of one of the Company's non-U.S.
subsidiaries in fiscal 2000. In connection with the offering of $200 million of
10.75% senior subordinated notes in 1998, Albecca distributed $60.0 million of
previously undistributed S Corporation earnings to its shareholders. Albecca
intends to continue to make distributions to its shareholders to pay their
income tax obligations as a result of Albecca's status as an S corporation.

    Through June 25, 1998, Albecca and Larson-Juhl International LLC were owned
and controlled by the same shareholders. Effective June 26, 1998, the members of
Larson-Juhl International LLC contributed their respective equity interests to
Albecca whereby Larson-Juhl International LLC became a wholly owned subsidiary
of Albecca. The merger of these entities that are under common control has been
treated in a manner similar to a pooling-of-interests, and as such, the
financial statements have been restated to include the financial statements of
Larson-Juhl International LLC for all periods presented.

    During May 2000, Albecca acquired the remaining interest in its Italian
subsidiary for approximately $1.9 million. Goodwill of approximately $1.9
million was recorded in connection with the acquisition.

    During October 1998, the Company acquired all of the outstanding stock of a
distributor of custom framing products in Canada and increased its interest in
its Italian subsidiary, for aggregate consideration of approximately $3.6
million in cash. Goodwill and other intangible assets of approximately $3.3
million were recorded in connection with the acquisitions.



                                       9
<PAGE>   10

    During April 1998, Albecca acquired all of the outstanding stock of a U.S.
distributor of custom framing products for approximately $9.9 million in cash.
Goodwill and other intangible assets of approximately $8.4 million were recorded
in connection with the acquisition.

RESULTS OF OPERATIONS

    The following table sets forth certain consolidated statements of operations
data as a percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>
                                                        1998          1999           2000
                                                    -----------   -----------   ------------
<S>                                                 <C>           <C>           <C>
Net sales                                                100.0  %      100.0  %       100.0 %
Cost of sales                                             57.0          57.4           55.8
                                                    -----------   -----------   ------------
  Gross profit                                            43.0          42.6           44.2
Operating expenses                                        34.1          35.8           31.6
Restructuring charges                                      0.6           0.4            0.4
Impairment of goodwill                                       -             -            1.4
                                                    -----------   -----------   ------------
  Operating income                                         8.3           6.4           10.8
Net loss (gain) on dispositions of businesses                -           1.1           (0.3)
Cost of cancelled initial public equity offering           0.3             -              -
Interest income                                              -          (0.6)          (1.3)
Interest expense                                           3.1           6.8            6.8
                                                    -----------   -----------   ------------
Income (loss) before provision for  income taxes,
  minority interest, and extraordinary gain                4.9          (0.9)           5.6
Provision for income taxes                                 1.1           0.6            1.0
Minority interest                                          0.1           0.1            0.1
                                                    -----------   -----------   ------------
Income (loss) before extraordinary gain                    3.7          (1.6)           4.5
Extraordinary gain on repurchase of debt, net of tax         -           0.3            1.6
                                                    -----------   -----------   ------------
     Net income (loss)                                     3.7  %       (1.3) %         6.1 %
                                                    ===========   ===========   ============
     Adjusted EBITDA                                      12.2  %        9.2  %        13.4 %
                                                    ===========   ===========   ============
</TABLE>

2000 Compared to 1999

    Net Sales. Net sales were $358.2 million in 2000 compared to $384.2 million
in 1999. This decrease is primarily the result of the sale and disposition of
two international businesses during 2000, the sale of the South African
operations at the end of 1999, a decline in sales in certain foreign locations,
and unfavorable changes in foreign currency exchange rates. The sales decline
was partially offset by the growth in sales of Albecca's lines of premium
branded products in the U.S. and the expansion of Albecca's operations in Japan.
Currency fluctuations in 2000 decreased net sales by $7.8 million, primarily due
to a strengthening of the U.S. dollar against major European currencies. U.S.
net sales increased 8.7% in 2000 from 1999 and, on a constant currency basis,
international net sales decreased 18.9% in the same period. The increase in U.S.
net sales primarily resulted from increased sales to independent custom framing
retailers. The decrease in international net sales resulted primarily from the
sale of the Mersch and Brio businesses, the closure of the United Kingdom -
Northampton facility in 2000, the sale of the South African operations at the
end of 1999, and a decrease in sales in Canada, Australia, and The Netherlands,
partially offset by an increase in sales in Japan.

         Cost of Sales. Cost of sales were $199.9 million in 2000 compared to
$220.6 million in 1999. This decrease is primarily a result of decreased net
sales. In the U.S., gross profit margin increased to 47.4% in 2000 from 45.4% in
1999. This increase was primarily the result of an increase in sales of branded
products, a decrease in the sales of products of previously acquired businesses
with lower gross profit margins, favorable currency exchange rate movements in
certain supplier markets, and steps taken in the previous year by management to
address its non-performing U.S. acquisition-related inventory. International
gross profit margin decreased to 39.5% in 2000 from 39.6% in 1999 primarily due
to the increase in inventory reserves related to disposed entities, and the
decrease in gross margin in Canada due to sales of acquisition-related inventory
and a change in product mix, partially offset by an increase in value-added
sales in Japan.

         Operating Expenses. Operating expenses were $113.1 million in 2000
compared to $137.7 million in 1999. The decrease in operating expenses is
primarily a result of the sale and disposition of two international businesses
during 2000 and sale of the South African operations at the end of fiscal 1999,
a decrease in



                                       10
<PAGE>   11

operating expenses in Canada, Australia, and Sweden due to relocation or
consolidation of locations, a decrease in duplicative acquisition related
expenses and gains in efficiencies at the U.S. acquisition locations, and the
reversals of previously provided reserves as more fully described in Note 8 of
the notes to the consolidated financial statements and Note 13 of the notes to
the consolidated financial statements in the Company's fiscal 2000 third quarter
Form 10-Q, partially offset by an increase in operating expenses associated with
the expansion of the Company's operations in Japan. In the U.S., operating
expenses as a percentage of sales decreased to 26.6% in 2000 from 33.3% in 1999.
This decrease was primarily due to the decrease in operating expenses associated
with the 1998 acquisitions and the reversals of previously provided reserves as
more fully described in Note 8 of the notes to the consolidated financial
statements and Note 13 of the notes to the consolidated financial statements in
the Company's fiscal 2000 third quarter Form 10-Q. International operating
expenses as a percentage of net sales increased to 38.9% in 2000 from 38.5% in
1999. This increase in operating expenses as a percentage of sales is primarily
due to the decrease in net sales in The Netherlands and Finland, partially
offset by improved operating expenses in Canada, Australia and Sweden.

     Restructuring Charges. In May 2000, the Company initiated a restructuring
plan related to the closure of its United Kingdom - Northampton operation and
recorded a charge to operations of approximately $.9 million. Management made
the decision to close this operation following a series of under-performing
quarters, at which time management determined that the Company's resources, both
financial and managerial, could be more effectively invested in operations with
a greater potential return. This charge included severance costs for 37 team
members approximating $.2 million, a $.3 million write-down of property, plant
and equipment to its estimated net realizable value, $.2 million of lease
termination costs and $.2 million of other exit costs including post-closure
maintenance and administrative costs. The $.2 million of lease termination costs
represented the Company's estimated future obligations under the existing lease
commitments of the closed facility, net of estimated recoverable costs through
subleasing.

    During August 2000, additional costs of approximately $.5 million relating
to the closure of the United Kingdom - Northampton operation were identified.
This charge included additional severance costs of $.1 million related to an
employment contract not previously identified, an additional $.2 million
write-down of property, plant and equipment due to a redetermination of the
estimated net realizable value, and $.2 million of additional lease termination
costs and other exit costs related to a reevaluation of the period required to
find a sub-tenent for the building. During fiscal 2000, cash payments relating
to the closure of the United Kingdom - Northampton operation were made in the
amount of $.2 million, primarily for severance and lease termination payments.

    As of August 27, 2000, the Company continued to sell existing assets and
collect existing accounts receivable through its United Kingdom - Arqadia Ltd.
operations. No team members remained at the facility. Management anticipates the
restructuring plan will be completed prior to the end of fiscal 2001.

    During fiscal 2000, the Company reversed the remaining restructuring
reserves of approximately $.1 million related to its U.S. duplicate facility and
United Kingdom - plastic moulding manufacturing operations restructuring plans.

    During fiscal 2000, cash payments relating to the Company's closure of its
duplicate facility in Sweden totaled approximately $.2 million, primarily for
severance payments. Also during fiscal 2000, the Company made cash payments of
approximately $.1 million for severance and other exit costs associated with
closure of its operations in New Zealand, Greece and its U.S. duplicate
facility.

    Albecca expects any remaining components of its fiscal 1998, 1999 and 2000
restructuring plans to be completed by the end of fiscal year 2001.

    Albecca believes that the 1998, 1999 and 2000 restructuring plans will not
have a material impact on future operations, financial condition or liquidity of
the Company.

   Impairment of Goodwill. In October 1997, the Company acquired Robert F.
deCastro, Inc. ("deCastro") a distributor of products in the pre-framed art and
the custom framing markets. Since the acquisition, the demand in the markets for
the deCastro product line has dramatically decreased or ceased. As a result,
during fiscal 2000, management determined to redirect its effort from pre-framed
art and to focus its energies and resources, both financial and managerial, on
the custom picture framing market. The Company determined that the estimated
future undiscounted cash flows of the deCastro product line were below the
carrying value of the associated long-lived assets, primarily consisting of
goodwill. Accordingly, during fiscal 2000, the Company adjusted the carrying
value of deCastro's unamortized goodwill to its estimated fair value of
approximately $.2 million, resulting in a non-cash impairment charge of
approximately $5.0 million. The estimated fair value of goodwill was based on
anticipated future cash flows discounted at a rate commensurate with the risk
involved.

    Sale and Disposition of Entities. In June 2000, the Company sold its Brio
operations, a manufacturer and supplier of readymade frames and framing supplies
to large "Do-It-Yourself" stores in Europe. This decision was based on
management's decision to focus its energies and resources, both financial and
managerial, on the European custom picture framing market. The



                                       11
<PAGE>   12
transaction was concluded on May 31, 2000, resulting in cash proceeds of
approximately $14.0 million. The Company recorded a gain on the sale of the Brio
operations of approximately $3.9 million.

    The sales agreement required Brio to maintain a minimum level of working
capital through the closing date as supported by a closing balance sheet audit,
which has not yet been completed. As such, the preliminary estimated gain is
subject to adjustment pending the final results of the audit. In addition, the
sale agreement requires the Company to repurchase any receivables and inventory
on hand at the date of sale which remain uncollected or unsold six and twelve
months, respectively, after the closing date of the transaction. The Company
believes it has adequately reserved for this contingency. Brio's nine-month
sales and operating income for fiscal 2000 were approximately $16.1 million and
$.9 million, respectively. In the opinion of management, the disposition of Brio
will not have a material impact on the future operations or financial position
of the Company.

    In January 2000, Albecca made a decision to dispose of its investment in its
Mersch entities, a manufacturer and supplier of readymade frames to large
European discount stores, located in Germany and France. This decision was based
on management's continued initiative to focus its energies and resources, both
financial and managerial, on the European custom picture framing market. On
January 31, 2000, Albecca finalized the sale of its Mersch entities for cash
proceeds of approximately $16.3 million. Approximately $12.5 million of the
proceeds was used to repay long-term liabilities retained by the Company. The
loss on the disposition of the Mersch entities, recorded during fiscal 2000, was
approximately $3.0 million.

    In addition, the sale agreements required the Mersch entities to maintain a
minimum level of working capital through the closing date as supported by a
closing balance sheet audit, which has not yet been agreed to by the respective
parties. The Company recorded its best estimate of the net working capital
shortfall, based upon preliminary results of the closing balance sheet audit as
part of the total $3.0 million loss on the sale.

    The Mersch entities' five month sales and operating income for fiscal 2000
were approximately $10.0 million and $.04 million, respectively. In the opinion
of management, the disposition of the Mersch entities will not have a material
impact on the future operations or financial position of the Company.

    In August 2000, the Company sold its Erijko Belgium operations for cash
proceeds of less than $.1 million. This decision was based on management's
decision to focus its energies and resources, both financial and managerial, on
operations with a greater potential return. In the opinion of management, the
disposition of Erijko Belgium will not have a material impact on the future
operations or financial position of the Company.

    Interest Income. Interest income was $4.6 million in 2000 compared to $2.3
million in 1999. The increase resulted primarily from the interest income
associated with the Company's repurchase of its senior subordinated notes.

    Interest Expense. Interest expense was $24.3 million in 2000 compared to
$26.2 million in 1999. The decrease in interest expense is primarily due to the
reduction of debt associated with the sales of the Mersch and Brio businesses,
and the Company's continued focus on reducing its outstanding debt.

    Extraordinary Gain on Repurchase of Debt. Consistent with its stated
objective of using a portion of its cash to lower its debt, including its senior
subordinated notes, during the year Albecca repurchased $39.8 million of its
senior subordinated notes. The debt repurchase resulted in an extraordinary gain
of $5.8 million, net of applicable state taxes of $.2 million.

    Adjusted EBITDA. Adjusted EBITDA is defined as operating income plus
depreciation, amortization excluding amortization of bond issuance costs,
restructuring charges and certain infrequent or non-recurring items. For the
reasons set forth above, adjusted EBITDA was $47.9 million in 2000 compared to
$35.2 million in 1999. Adjusted EBITDA for the year ended August 27, 2000
excludes restructuring charges of $1.4 million, an impairment charge to goodwill
of $5.0 million, offset by reversals of previously provided reserves of $4.9
million. Adjusted EBITDA for the year ended August 29, 1999 excludes
restructuring charges of $1.5 million and net infrequent and non-recurring items
of $.4 million.


1999 Compared to 1998

    Net Sales. Net sales were $384.2 million in 1999 compared to $381.1 million
in 1998. This increase is primarily the result of internal growth, the impact of
one acquisition of a distributor of custom framing products completed in May
1998, and the expansion of Albecca's lines of premium branded products, offset
by changes in foreign currency exchange rates, a decrease in sales to framing
departments of craft chains, a decrease in second year sales retention, and a
sales decline related to the closure of the United Kingdom plastic moulding
manufacturing facility. Currency fluctuations in 1999 decreased net sales by
$1.3 million, primarily due to a



                                       12
<PAGE>   13

strengthening of the U.S. dollar against the Canadian Dollar and South African
Rand, partially offset by a weakening dollar against the French Franc, German
Mark, and the Dutch Guilder. U.S. net sales increased 6.2% in 1999 from 1998
and, on a constant currency basis, international net sales decreased 3.7% in the
same period. The increase in U.S. net sales primarily resulted from the impact
of one of the acquisitions of a distributor of custom framing products completed
in May 1998, and an estimated $8.5 million increase in sales to independent
custom framing retailers, offset by an estimated $1.7 million decrease in sales
to framing departments of craft chains and a decrease in the second year sales
retention related to the three acquisitions completed in the beginning of 1998.
The decrease in international net sales resulted primarily due to the closure of
the United Kingdom plastic moulding manufacturing facility, a one-time sale to a
customer in The Netherlands that occurred in fiscal 1998 and did not recur in
1999, and the integration of the duplicative Swedish facilities.

    Cost of Sales. Cost of sales were $220.6 million in 1999 compared to $217.1
million in 1998. This increase is primarily a result of increased net sales and
the increase in the reserves for slow moving inventory at specific foreign
locations. In the U.S., gross profit margin decreased to 45.4% in 1999 from
46.0% in 1998. This decrease was primarily the result of lower gross profit
margins on products sold by acquired businesses and a 20.0% increase in the cost
of the U.S. sampling program resulting from a continued strong pace of premium
moulding line introductions and the expansion of the independent retailer custom
framing customer base. International gross profit margin decreased to 39.6% in
1999 from 40.2% in 1998, primarily due to the increase in the reserves of $1.9
million for slow moving inventory in the United Kingdom, Australia, France, and
The Netherlands locations recorded in fiscal 1999, higher product costs in
Canada due to the product mix of its 1998 and 1999 acquisitions, and duplicate
manufacturing costs related to the facilities in Sweden, offset by improved
product mix. The Company is continuing to evaluate its sales and asset
management focus to ensure that its investments are strategically aligned with
the Company's focus on core products to core customers within core geographic
markets, as more fully described in Item 1 of this document. As a result, during
1999, the Company recorded these additional inventory reserves, as described
above, to address potentially slow moving and excess inventory that are not part
of the Company's overall core business strategy.

    Operating Expenses. Operating expenses were $137.7 million in 1999 compared
to $129.8 million in 1998. The increase in operating expenses is primarily the
result of the additional operating expenses associated with one of the U.S.
acquisitions completed in May 1998, of approximately $3.0 million, and increased
operating expenses in The Netherlands and Australia. In the U.S., operating
expenses as a percentage of sales increased to 33.3% in 1999 from 32.1% in 1998.
This increase was primarily due to increased operating expenses associated with
the May 1998 acquisition and the delay in fully integrating this acquisition as
well as decreased sales retention from previous acquisitions. International
operating expenses as a percentage of net sales increased to 38.5% in 1999 from
35.9% in 1998. This increase in operating expenses as a percentage of sales is
primarily due to the decrease in net sales associated with the closure of the
United Kingdom manufacturing facility, the integration of the Company's Canadian
acquisition and increased operating expenses in The Netherlands and Australia,
partially offset by improved operating expenses in Sweden.

    Restructuring Charges. During fiscal 1999, an additional reserve of $.1
million was recorded for uncollectable accounts receivable related to the 1998
Greece restructuring plan. These amounts have been included in operating
expenses in the accompanying consolidated statement of operations for the year
ended August 29, 1999. After consultation with the Company's attorneys, this
amount was deemed necessary for accounts that were previously estimated to be
collectable. In addition, an additional restructuring charge of $.1 million was
recorded primarily for additional post-closure maintenance and other
administrative costs associated with the operations in Greece that were not
previously identified. As of August 29, 1999, one of the original 14 team
members remained to sell existing assets and collect existing accounts
receivable. During fiscal 1999, cash payments related to the closure of
facilities in Greece were made in the amount of approximately $.2 million for
severance costs and other exit costs.

    In May 1999, the Company initiated a restructuring plan related to one of
its facilities in Sweden and recorded a charge to operations of $1.1 million.
Management made the decision to close this operation in Sweden because the
facilities were deemed to be duplicative. This charge included severance costs
for 25 team members approximating $.3 million, a $.7 million write-down of the
owned facility to the estimated realizable value on the future sale of the
building, $.1 million for inventory reserves related to inventory outside of the
location's core operating focus, and other exit costs, including post-closure
maintenance and administration costs of $.05 million. The inventory reserve was
included in cost of goods sold in the accompanying consolidated statement of
operations for the year ended August 29, 1999. As of August 29, 1999, 15 of the
original 25 team members remained at the facility to fill open orders, sell
remaining assets, collect accounts receivable and prepare the facility for the
closure. The facility had been sold prior to the end of the fiscal year,
however, physical possession was not transferred until February 2000. During
fiscal 1999, the Company paid cash of approximately $.2 million for the closure
of its facility in Sweden, primarily relating to severance costs.


    Additionally in March 1999, the Company initiated a plan to close its
operations located in New Zealand, and recorded a charge to



                                       13
<PAGE>   14

operations of $.4 million related to this closure. The plan to close the
operation in New Zealand was adopted following a series of under-performing
quarters, at which time management determined that the Company's resources, both
financial and managerial, could be more effectively invested in operations with
a greater potential return. These costs primarily consist of $.05 million in
severance costs for 9 team members, $.1 million for the write-down of machinery
and equipment to its net realizable value for its future sale, $.1 million of
inventory reserves related to product that will not be transferred to other
locations within the Company, $.1 million in additional reserves for accounts
receivable deemed uncollectable, and $.1 million of other exit costs, including
lease terminations, post-closure maintenance and other administrative costs. The
reserves for inventory and accounts receivable have been included as components
of cost of goods sold and operating expenses, respectively, in the accompanying
consolidated statement of operations for the year ended August 29, 1999. As of
August 29, 1999, one of the 9 original team members remained to sell existing
assets and collect existing accounts receivable. During fiscal 1999, cash
payments related to the closure of the distribution facility in New Zealand
totaled approximately $.1 million. These payments were primarily for other exit
costs.

    During fiscal 1999, Albecca incurred additional restructuring charges of $.1
million related to its fiscal 1998 U.S. restructuring plan. These costs were
associated with travel costs incurred of approximately $.1 million directly
related to the integration of the closed U.S. duplicate facilities into other
existing facilities as well as labor and other related costs of approximately
$.04 million incurred during the process of relocating property and equipment to
other existing facilities and $.01 million relating to other post closure and
administrative costs. During 1999, Albecca paid amounts aggregating
approximately $.3 million related to the restructurings, including approximately
$.1 million related to travel costs and labor costs incurred in association with
the integration of the duplicate facilities, approximately $.1 million
associated with severance and other termination benefits paid to team members
and approximately $.04 million associated with lease termination fees.

    With respect to the closure of Albecca's plastic moulding manufacturing
operations in the United Kingdom, as of August 29, 1999, all 59 team members had
been terminated. The owned facility had been sold, however, and the leased
facility was subleased subsequent to the end of fiscal 1999. All material events
associated with the restructuring plan have been completed. During fiscal 1999,
cash payments related to the closure of the U.K. plastic moulding manufacturing
operations totaled approximately $.5 million. These payments were primarily for
lease termination and other exit costs due to the fact that the building had not
yet been sublet.

    Sale of Operations in South Africa. In July 1999, Albecca sold its
investment in its operations in South Africa for cash of $.2 million and a
non-interest bearing note of $.5 million due in three annual equal payments
concluding in fiscal 2002. Management determined that its resources, both
financial and managerial, would be more effectively invested in operations with
a greater potential return. The loss on the sale of the operations in South
Africa was approximately $4.1 million. The eleven-month sales revenue and
operating income for fiscal 1999 related to the South Africa operations were
approximately $8.8 million and $.4 million, respectively. In the opinion of
management, the sale of the South African operations will not have a material
impact to the future operations or financial position of the Company.

    Interest Income. Interest income was $2.3 million in 1999 compared to $.1
million in 1998. This interest income resulted largely from the investment of
cash remaining from the Company's senior subordinated debt placement.

    Interest Expense. Interest expense was $26.2 million in 1999 compared to
$11.9 million in 1998. The increase in interest expense is primarily due to an
increase in debt and the amortization of deferred financing costs associated
with the Company's senior subordinated debt placement.

    Extraordinary Gain on Repurchase of Debt. During the year, Albecca
repurchased $11.3 million of its senior subordinated notes. The repurchase
resulted in an extraordinary gain of $1.3 million, net of applicable state taxes
of $.1 million.

    Adjusted EBITDA. Adjusted EBITDA is defined as operating income plus
depreciation, amortization excluding amortization of bond issue costs,
restructuring charges and certain infrequent costs. For the reasons set forth
above, adjusted EBITDA was $35.2 million in 1999 compared to $46.4 million in
1998. Adjusted EBITDA for the year ended August 29, 1999 excludes restructuring
charges of $1.5 million and infrequent and non-recurring costs of $.43 million.
Adjusted EBITDA for the year ended August 30, 1998 excludes restructuring
charges of $2.3 million and infrequent and non-recurring costs of $5.2 million.

LIQUIDITY AND CAPITAL RESOURCES

    Net cash provided by operating activities was $17.5 million, $13.6 million
and $39.2 million in 1998, 1999 and 2000, respectively. Albecca's primary cash
requirements have been to fund working capital, pay principal and interest on
outstanding indebtedness, fund capital expenditures, acquisitions, and
distributions to Albecca's shareholders to pay income taxes as a result of its



                                       14
<PAGE>   15

status as an S corporation. Albecca has generally used internally generated
funds and amounts available under its bank credit facilities as its primary
sources of liquidity. Net cash used in investing activities has primarily been
used for the acquisition of manufacturers and distributors of custom framing
products. Albecca invested $28.1 million for acquisitions in 1998, $3.6 million
for acquisitions in 1999 and $1.9 million for acquisitions in 2000. Net cash
provided by investing activities has primarily been from the disposition of
businesses. Albecca received proceeds of $30.3 million from dispositions in
fiscal 2000.

    Capital expenditures, excluding acquisition costs, were $8.4 million, $5.9
million and $8.8 million in 1998, 1999 and 2000, respectively. Albecca's
historical capital expenditures have been primarily used to expand its
distribution network, enhance management information systems and improve
manufacturing efficiencies. During 2000, Albecca invested approximately $5.6
million in the construction of the Company's new manufacturing plant and related
purchases of equipment in Ashland, Wisconsin. Subsequent to fiscal year end, the
plant is now in full production.

    Net cash provided by financing activities was $67.7 million in 1998,
primarily the result of the $193.2 million of proceeds associated with the
Company's 1998 placement of it senior subordinated notes, less the repayment of
its U.S. senior credit facility and distributions to shareholders. Net cash used
in financing activities increased from $22.9 million in 1999 to $73.8 million in
2000. The increase from 1999 to 2000 is primarily due to the Company's
repurchase of $39.8 million of its senior subordinated notes and debt reduction
of $17.4 million associated with the disposition of the Mersch and Brio
entities.

    At August 27, 2000, Albecca had outstanding indebtedness of approximately
$170.2 million, consisting of $148.9 million in principal amount of the senior
subordinated notes and $21.3 million of other indebtedness. Albecca's primary
sources of liquidity will be cash flow internally generated from operations and
its available cash and cash equivalents of $23.3 million.

    In June 2000, the Company completed an Industrial Revenue Bond placement
through an economic incentive program by the City of Ashland, Wisconsin,
relating to the development of the Company's new manufacturing plant and
purchase of associated equipment. The placement was for $4.6 million, net of
debt issuance costs of $.09 million, of variable interest rate notes with a
weekly adjusting rate, which at closing was 4.37%. Amortization of the bond
indebtedness consists of interest only payments for the first five years and a
subsequent amortization period of fifteen years with varying annual principal
payments ranging from $.2 million to $.4 million. The bonds are secured by a
letter of credit that is collateralized by the new manufacturing plant and a
majority of the related new and existing furniture, machinery and equipment.

    Albecca's foreign subsidiaries have outstanding indebtedness under various
foreign credit facilities, term notes and purchase money financing obligations,
which had an aggregate outstanding balance of $14.6 million as of August 27,
2000. Indebtedness of the foreign subsidiaries is effectively senior to the
senior subordinated notes and the guarantees thereof given by the US
subsidiaries.

    The largest of Albecca's foreign credit facilities is the $7.5 million
credit facility entered into by Larson-Juhl Canada Ltd. to fund its Canadian
operations. Borrowings under the Canadian facility bear interest at rates
ranging from LIBOR plus 0.75% to the Canadian prime rate and became due in
August 2000. The Canadian facility is secured by all of the assets of L-J
Canada. The Canadian facility is subject to certain customary financial and
other covenants, including without limitation:

    (1) financial reporting;

    (2) funded indebtedness to total capitalization ratio;

    (3) leverage ratio;

    (4) tangible net worth; and

    (5) limitations on indebtedness, contingent obligations, liens, loans,
        repayments of intercompany indebtedness, dividends, advances,
        investments, acquisitions, mergers and sale of assets.

    As of August 30, 1998, August 29, 1999 and August 27, 2000, approximately
$0.3 million, $1.7 million, and $1.0 million was outstanding under the Canadian
credit facility, respectively. At the end of fiscal 2000, Albecca was given a
temporary extension of the credit facility and is currently finalizing
negotiations with the lender for a 3-year renewal, on terms substantially
similar to the existing facility.

    Albecca's other foreign revolving credit facilities and term notes include a
series of credit facilities used to finance working capital



                                       15
<PAGE>   16

needs and acquisitions in the respective countries in which Albecca operates.
These facilities range in size from less than $1 million to $2.7 million. The
indebtedness under these facilities generally bears interest at rates ranging
from 3.9% to 9.5% per annum, as of August 27, 2000, and matures on various dates
ranging through September 2017. Certain of these facilities are secured by
assets of the respective borrowers, including accounts receivable, inventory,
property or capital stock, and are generally subject to certain customary
financial and other covenants, including limitations on repayment of
intercompany indebtedness and payment of dividends.

    Total foreign revolving facilities provide Albecca with additional
borrowings of up to $11.6 million as of August 27, 2000.

    As of August 27, 2000, Albecca did not have a bank credit facility in place
to fund its U.S. operations, nor had it entered into any agreements,
commitments, discussions or understandings with respect to such a credit
facility.

    The indenture, under which the senior subordinated notes were issued,
permits Albecca and the subsidiary guarantors to incur additional indebtedness,
including senior debt, subject to certain limitations.

    In connection with Albecca's issuance of senior subordinated notes in 1998,
a distribution of $60.0 million was made to Albecca's shareholders representing
estimated previously undistributed S Corporation earnings accumulated through
July 31, 1998. The proceeds from these notes were used, among other things, to
fund a portion of this distribution. The notes contain certain covenants that
limit, among other things, the ability of Albecca and its subsidiaries to pay
dividends and/or distributions to its shareholders.

    Albecca from time to time reviews and will continue to review acquisition
opportunities as well as changes in the capital markets. If Albecca were to
consummate a significant acquisition or elect to take advantage of favorable
opportunities in the capital markets, Albecca may supplement availability or
revise the terms under its credit facilities or undertake public or private
offerings of equity or debt securities. At present, Albecca has not entered into
any agreements, commitments or understandings with respect to such a credit
facility. Moreover, there can be no assurances that Albecca will be able to
obtain such financing in the amounts or at the times such financing may be
required, or that, if obtained, any such financing would be on acceptable terms.

    Albecca's ability to make scheduled payments of the principal of, or to pay
the interest or liquidated damages, if any, on, or to refinance, its
indebtedness, including the senior subordinated notes, or to fund planned
capital or other expenditures will depend on its future financial or operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond its control.
Based upon the current level of operations, management believes that cash flow
from operations and available cash and cash equivalents will be adequate to meet
Albecca's anticipated future requirements for working capital, scheduled
payments of principal and interest on its indebtedness, including the senior
subordinated notes, capital expenditures, and acquisitions, through the next
twelve months. There can be no assurance that Albecca's business will generate
sufficient cash flow from operations or that future borrowings will be available
in an amount sufficient to enable Albecca to service its indebtedness, including
the senior subordinated notes, or to make anticipated capital and other
expenditures.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities", which requires companies to record
derivative instruments on the balance sheet as assets or liabilities, measured
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting.

    In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133", which delayed the effective date of SFAS 133 by one year to
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an amendment of FASB Statement No. 133", which will be adopted
concurrently with SFAS 133. SFAS 138 amends the accounting and reporting
standards of SFAS 133 for certain derivative instruments and hedging activities
and incorporates decisions made by the FASB related to the Derivatives
Implementation Group process. The Company has adopted the provisions of these
pronouncements effective August 28, 2000. The adoption did not have a material
impact on the Company's consolidated financial statements.


                                       16
<PAGE>   17

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

EXCHANGE RATES

    Albecca is affected by the movement of currencies in the 15 countries in
which it operates. Albecca's results of operations and financial condition may
be adversely affected by fluctuations in foreign currencies and by translations
of the financial statements of Albecca's international operations from local
currencies into U.S. dollars. Albecca addresses this exposure by financing most
funding needs in the applicable foreign currencies. In addition, the exposure is
further mitigated by each of the international operations transacting business
primarily in its local currency.

    The Company does hold some forward foreign currency contracts. These
contracts are primarily in place at the Company's United Kingdom operations and
are used as a hedge against currency risks associated with inventory purchases
and not for trading or speculative purposes. The fair value of the forward
foreign currency exchange contracts is sensitive to changes in foreign currency
exchange rates. As of August 27, 2000, a 10% adverse change in foreign currency
exchange rates from market rates would decrease the fair value of the contracts
by approximately $.4 million. Gains and losses on the foreign currency exchange
are defined as the difference between the above contract rate at its inception
date and the current exchange rate. However, any such gains and losses would
generally be offset by corresponding losses and gains, respectively on the
related hedged asset or liability.

INTEREST RATES

    The Company is exposed to market risk from changes in interest rates. The
Company's primary interest rate risk relates to its long-term debt obligations.
At August 27, 2000, the Company had total long-term debt obligations (including
the current portion of those obligations) of $170.2 million. Of that amount,
$161.6 million was in fixed rate obligations and $8.6 million was in variable
rate obligations. Based on the Company's market risk sensitive instruments (its
variable rate debt) outstanding at August 27, 2000, the Company has determined
that there was no material market risk exposure to the Company's financial
position, results of operations, or cash flows as of such date.


                                       17
<PAGE>   18

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                  ALBECCA INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Financial Statements:

<TABLE>
<S>                                                                                                <C>
    Report of Independent Public Accountants - Arthur Andersen LLP                                 F-2

    Report of the Auditors - BDO Walgemoed CampsObers                                              F-3

    Consolidated Balance Sheets as of August 29, 1999 and August 27, 2000                          F-4

    Consolidated Statements of Operations for each of the three years ended August 30, 1998,       F-5
      August 29, 1999 and August 27, 2000

    Consolidated Statements of Shareholders' Equity (Deficit) for each of the three years ended    F-6
      August 30, 1998, August 29, 1999 and August 27, 2000

    Consolidated Statements of Cash Flows for each of the three years ended August 30, 1998,       F-7
      August 29, 1999 and August 27, 2000

    Notes to Consolidated Financial Statements                                                     F-8
</TABLE>


                                       F-1
<PAGE>   19

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To Albecca Inc.:


We have audited the accompanying consolidated balance sheets of Albecca Inc. (a
Georgia corporation) and subsidiaries as of August 27, 2000 and August 29, 1999,
and the related consolidated statements of operations, shareholders' deficit,
and cash flows for each of the three years in the period ended August 27, 2000.
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 did not audit the financial statements of Larson-Juhl
Netherlands B.V. and subsidiaries, which statements reflect total assets of 6%
at August 27, 2000 and August 29, 1999, and total revenues of 4%, 5% and 5% for
each of the three years in the period ended August 27, 2000. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for those entities, is
based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit 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. Our audits also included examining, on a test basis, evidence
supporting the translation of Larson-Juhl Netherlands B.V.'s financial
statements from Dutch guilders to U.S. dollars and from Part 9, Book 2 of the
Dutch Civil Code to accounting principles generally accepted in the United
States. We believe that our audits and the report of other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Albecca Inc. and subsidiaries as of August 27, 2000
and August 29, 1999, and the results of their operations and their cash flows
for each of the three years in the period ended August 27, 2000, in conformity
with accounting principles generally accepted in the United States.


/s/ ARTHUR ANDERSEN LLP


Atlanta, Georgia
October 30, 2000


                                      F-2
<PAGE>   20

LARSON-JUHL NETHERLANDS B.V.

AUDITORS' REPORT

To the shareholders of Larson-Juhl Netherlands B.V.:

     We have audited the financial statements of Larson-Juhl Netherlands B.V. at
Barneveld, The Netherlands for the three year period ended August 27, 2000.

     The Company's management is responsible for the preparation of these
financial statements. It is our responsibility to form an independent opinion,
based on our audit, on those statements and to report our opinion to you.

     We conducted our audit in accordance with the auditing standards generally
accepted in The Netherlands. 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 audit provides a reasonable basis
for our opinion.

     In our opinion the financial statements for the period August 30, 1999 up
to and including August 27, 2000 and including those for fiscal year 1998 (for
the period September 1, 1997 up to and including August 30, 1998) and the fiscal
year 1999 (for the period August 31, 1998 up to and including August 29, 1999)
as previously audited by us give a true and fair view of the financial position
of the Company as at August 27, 2000 and of the results of its operations and
cash flows for the three years ended August 27, 2000 and have been properly
prepared in accordance with accounting principles generally accepted in The
Netherlands and comply with the financial reporting requirements included in
Part 9, Book 2 of the Dutch Civil Code.

Arnhem, October 12, 2000

BDO Walgemoed CampsObers
Accountants

/s/ BDO Walgemoed CampsObers
Arnhem, The Netherlands



                                      F-3
<PAGE>   21

                                  ALBECCA INC.

                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                          AUGUST 29,        AUGUST 27,
                                                                            1999               2000
                                                                          ---------         ---------
<S>                                                                       <C>               <C>
                             ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                               $  35,058         $  23,321
  Accounts receivable, less allowances for doubtful accounts of
    $5,190 and $5,283 at August 29, 1999 and August 27, 2000                 47,298            36,384
  Inventories                                                                67,620            48,413
  Other current assets                                                        5,057             4,754
                                                                          ---------         ---------
    Total current assets                                                    155,033           112,872
PROPERTY, PLANT AND EQUIPMENT, net                                           53,485            36,692
OTHER LONG-TERM ASSETS                                                       58,040            41,531
                                                                          ---------         ---------
                                                                          $ 266,558         $ 191,095
                                                                          =========         =========

             LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Current maturities of long-term debt                                    $  26,589         $   7,686
  Accounts payable                                                           26,423            17,247
  Accrued liabilities                                                        26,331            24,664
                                                                          ---------         ---------
    Total current liabilities                                                79,343            49,597
                                                                          ---------         ---------
LONG-TERM DEBT, less current maturities (Note 4)                            213,211           162,496
                                                                          ---------         ---------
OTHER LONG-TERM LIABILITIES                                                   7,937             8,879
                                                                          ---------         ---------

SHAREHOLDERS' DEFICIT (Notes 1 and 6)
  Preferred stock, $.01 par value;  50,000,000 shares authorized
    and no shares issued and outstanding at August 29, 1999 and
    August 27, 2000                                                              --                --
  Class A common stock, $0.01 par value; 250,000,000 shares
    authorized, 374,000 shares issued and outstanding at August
    29, 1999 and August 27, 2000                                                  4                 4
  Class B common stock, $0.01 par value; 100,000,000 shares
    authorized, 16,626,000 shares issued and outstanding at August
    29, 1999 and August 27, 2000                                                166               166
  Additional paid-in capital                                                  7,326             7,326
  Accumulated deficit                                                       (33,098)          (23,578)
  Cumulative foreign currency translation adjustment                         (8,331)          (13,795)
                                                                          ---------         ---------
    Total shareholders' deficit                                             (33,933)          (29,877)
                                                                          ---------         ---------
                                                                          $ 266,558         $ 191,095
                                                                          =========         =========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-4
<PAGE>   22

                                  ALBECCA INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       FOR THE YEARS ENDED
                                                             ----------------------------------------
                                                              AUGUST 30,    AUGUST 29,    AUGUST 27,
                                                                 1998          1999          2000
                                                             ------------  ------------  ------------
<S>                                                             <C>           <C>           <C>
Net sales                                                       $381,137      $384,183      $358,187
Cost of sales                                                    217,094       220,565       199,874
                                                             ------------  ------------  ------------
  Gross profit                                                   164,043       163,618       158,313
Operating expenses                                               129,820       137,652       113,057
Restructuring charges (Note 12)                                    2,262         1,491         1,361
Impairment of goodwill (Notes 1 and 13)                                -             -         4,997
                                                             ------------  ------------  ------------
  Operating income                                                31,961        24,475        38,898
Net loss (gain) on dispositions of businesses (Note 12)                -         4,136          (969)
Cost of cancelled initial public equity offering (Note 13)         1,273             -             -
Interest income                                                     (116)       (2,254)       (4,587)
Interest expense                                                  11,949        26,163        24,265
                                                             ------------  ------------  ------------
  Income (loss) before provision for income taxes,
    minority interest and extraordinary gain                      18,855        (3,570)       20,189
Provision for income taxes                                         4,021         2,204         3,654
Minority interest                                                    471           318           298
                                                             ------------  ------------  ------------
Income (loss) before extraordinary gain                           14,363        (6,092)       16,237
Extraordinary gain on repurchase of debt, net of tax (Note 4)          -         1,331         5,833
                                                             ------------  ------------  ------------
Net income (loss)                                               $ 14,363      $ (4,761)     $ 22,070
                                                             ============  ============  ============
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-5
<PAGE>   23

                                  ALBECCA INC.

            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                               Class A               Class B        Additional  Accumulated
                                       Common Stock         Common Stock           Common Stock       Paid-In    Earnings
                                     Shares     Amount     Shares     Amount     Shares     Amount    Capital    (Deficit)
                                  -------------------- ---------------------  --------------------  ----------  -----------
<S>                                <C>          <C>       <C>         <C>      <C>          <C>       <C>         <C>
BALANCE, August 31, 1997           17,000,000   $ 170           -     $ -               -   $   -     $   582     $ 42,408
 Compensation related to non-
  qualified stock options (Note 6)          -       -           -       -               -       -         244            -
 Conversion of common stock
  for Class A and Class B
  common stock                    (17,000,000)   (170)    374,000       4      16,626,000     166           -            -
 Capital contributions (Note 11)            -       -           -       -               -       -       6,500            -
 Net income                                 -       -           -       -               -       -           -       14,363
 Distributions to shareholders              -       -           -       -               -       -           -      (80,800)
 Currency translation adjustment            -       -           -       -               -       -           -            -
                                  ------------  ------  ---------    ----     -----------   -----    --------    ---------
BALANCE, August 30, 1998                    -       -     374,000       4      16,626,000     166       7,326      (24,029)
 Net loss                                   -       -           -       -               -       -           -       (4,761)
 Distributions to shareholders              -       -           -       -               -       -           -       (4,308)
 Currency translation adjustment            -       -           -       -               -       -           -            -
                                  ------------  ------  ---------    ----     -----------   -----    --------    ---------
BALANCE, August 29, 1999                    -       -     374,000       4      16,626,000     166       7,326      (33,098)
 Net income                                 -       -           -       -               -       -           -       22,070
 Distributions to shareholders              -       -           -       -               -       -           -      (12,550)
 Currency translation adjustment            -       -           -       -               -       -           -            -
                                  ------------  ------  ---------    ----     -----------   -----    --------    ---------
BALANCE, August 27, 2000                    -   $   -     374,000     $ 4      16,626,000   $ 166     $ 7,326    $ (23,578)
                                  ============  ======  =========    ====     ===========   =====    ========    =========
</TABLE>

<TABLE>
<CAPTION>
                                      Cumulative
                                       Foreign
                                       Currency
                                     Translation
                                      Adjustment     Total
                                    ------------  ----------
<S>                                    <C>         <C>
BALANCE, August 31, 1997               $ (5,847)   $ 37,313
 Compensation related to non-
  qualified stock options (Note 6)            -         244
 Conversion of common stock
  for Class A and Class B
  common stock                                -           -
 Capital contributions (Note 11)              -       6,500
 Net income                                   -      14,363
 Distributions to shareholders                -     (80,800)
 Currency translation adjustment         (3,264)     (3,264)
                                      ---------   ---------
BALANCE, August 30, 1998                 (9,111)    (25,644)
 Net loss                                     -      (4,761)
 Distributions to shareholders                -      (4,308)
 Currency translation adjustment            780         780
                                      ---------   ---------
BALANCE, August 29, 1999                 (8,331)    (33,933)
 Net income                                   -      22,070
 Distributions to shareholders                -     (12,550)
 Currency translation adjustment         (5,464)     (5,464)
                                      ---------   ---------
BALANCE, August 27, 2000              $ (13,795)  $ (29,877)
                                      =========   =========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-6
<PAGE>   24

                                  ALBECCA INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       FOR THE YEARS ENDED
                                                                           --------------------------------------------
                                                                           AUGUST 30,       AUGUST 29,       AUGUST 27,
                                                                              1998             1999             2000
                                                                           ---------         --------         --------
<S>                                                                        <C>               <C>              <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                        $  14,363         $ (4,761)        $ 22,070
  Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
    Minority interest                                                            471              318              298
    Depreciation and amortization                                              8,213            9,153            8,010
    Compensation related to nonqualified stock options                           244               --               --
    Loss on disposal of property, plant and equipment                             32            1,205            1,981
    Impairment of goodwill                                                        --               --            4,997
    Net loss (gain) on dispositions of businesses                                 --            4,136             (969)
    Extraordinary gain on repurchase of debt (Note 4)                             --           (1,331)          (5,833)
    Changes in operating assets and liabilities:
      Accounts receivable                                                      2,088            1,171           (2,052)
      Inventories                                                                348            3,405           11,784
      Other current assets                                                       748            1,502             (306)
      Accounts payable                                                        (2,436)             165             (688)
      Accrued liabilities                                                     (4,226)             890           (1,984)
      Other                                                                   (2,393)          (2,208)           1,872
                                                                           ---------         --------         --------
        Net cash provided by operating activities                             17,452           13,645           39,180
                                                                           ---------         --------         --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment                                  (8,378)          (5,948)          (8,810)
  Acquisitions of businesses                                                 (28,065)          (3,594)          (1,872)
  Proceeds from sales of property, plant and equipment                           509            2,430            1,517
  Proceeds from dispositions of businesses                                        --              164           30,257
  Changes in other long-term assets                                              301           (3,168)             414
                                                                           ---------         --------         --------
        Net cash (used in) provided by investing activities                  (35,633)         (10,116)          21,506
                                                                           ---------         --------         --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds of senior subordinated notes, net of debt issue costs             193,241               --               --
  Payments for additional debt issue costs                                        --             (516)              --
  Proceeds from revolving credit facilities                                  109,861           24,524           27,112
  Repayments of revolving credit facilities                                 (134,707)         (26,339)         (38,798)
  Proceeds from long-term debt                                                15,676           15,658           11,591
  Repayments of long-term debt                                               (42,113)         (31,876)         (61,109)
  Repayments of notes payable to shareholders                                 (4,000)              --               --
  Distributions to shareholders                                              (70,300)          (4,308)         (12,550)
                                                                           ---------         --------         --------
        Net cash provided by (used in) financing activities                   67,658          (22,857)         (73,754)
                                                                           ---------         --------         --------
EFFECT OF EXCHANGE RATE ON CASH                                                  106             (498)           1,331
                                                                           ---------         --------         --------
NET INCREASE (DECREASE) IN CASH                                               49,583          (19,826)         (11,737)
CASH and cash equivalents, beginning of period                                 5,301           54,884           35,058
                                                                           ---------         --------         --------
CASH and cash equivalents, end of period                                   $  54,884         $ 35,058         $ 23,321
                                                                           =========         ========         ========
SUPPLEMENTAL INFORMATION:
  Interest paid                                                            $  10,983         $ 26,552         $ 24,481
                                                                           =========         ========         ========
  Income taxes paid                                                        $   3,520         $  2,036         $  2,331
                                                                           =========         ========         ========
  Details of acquisitions (Note 2):
    Fair value of assets acquired                                          $ (46,995)        $ (4,599)        $ (1,872)
    Liabilities assumed                                                       18,029              946               --
                                                                           ---------         --------         --------
    Cash paid                                                                (28,966)          (3,653)          (1,872)
    Less cash acquired                                                           901               59               --
                                                                           ---------         --------         --------
        Net cash paid for acquisitions                                     $ (28,065)        $ (3,594)        $ (1,872)
                                                                           =========         ========         ========
NON-CASH FINANCING ACTIVITIES:
  Issuance of notes payable for shareholder distributions (Note 11)        $  10,500         $     --         $     --
                                                                           =========         ========         ========
  Capital contribution of shareholder notes payable (Note 11)              $   6,500         $     --         $     --
                                                                           =========         ========         ========
  Note receivable from sale of operations in South Africa (Note 13)        $      --         $    393         $     --
                                                                           =========         ========         ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-7
<PAGE>   25

                                  ALBECCA INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

    Albecca Inc. (the "Company" or "Albecca," formerly Larson-Juhl Inc.)
primarily does business under the Larson-Juhl name. The Company designs,
manufactures and distributes a complete line of branded custom framing products.
The Company operates in 15 countries, primarily in North America and Europe.

PRINCIPLES OF CONSOLIDATION

    The accompanying consolidated financial statements include the accounts of
Albecca and its subsidiaries. All significant intercompany transactions are
eliminated. Minority interest represents minority shareholders' interests in
certain majority-owned subsidiaries.

COMBINATION AND REORGANIZATION

    Through June 25, 1998, Albecca and Larson-Juhl International LLC were owned
and controlled by the same shareholders. Effective June 26, 1998, the members of
Larson-Juhl International LLC contributed their respective equity interests to
Albecca, whereby Larson-Juhl International LLC became a wholly owned subsidiary
of the Company. The combination has been treated in a manner similar to a
pooling-of-interests, and as such, the accompanying financial statements have
been restated to include the financial statements of Larson-Juhl International
LLC for all periods presented.

FISCAL PERIOD

    The reporting period for the Company and its subsidiaries is either a 52- or
53-week period ending on the last Sunday in August. The Company's fiscal years
ended August 30, 1998, August 29, 1999 and August 27, 2000 were 52-week years.

USE OF ESTIMATES

    The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.

CASH AND CASH EQUIVALENTS

    The Company considers all investments with an original maturity of three
months or less to be cash equivalents.

INVENTORIES

    Inventories consist primarily of finished goods and are stated at the lower
of cost or market. Cost is determined by using the last-in, first-out method for
inventories within the United States (approximately 39.2% and 45.1% of total
inventories at August 29, 1999 and August 27, 2000, respectively) and the
first-in, first-out method for inventories within foreign countries.
Additionally, cost includes materials, direct and indirect labor and
capitalizable overhead. If the first-in, first-out method of valuing inventories
had been used exclusively, inventories of the Company would have been $3,516,000
and $3,206,000 higher at August 29, 1999 and August 27, 2000, respectively.


                                      F-8
<PAGE>   26

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

    Inventories consist of the following (in thousands):

                        AUGUST 29,       AUGUST 27,
                           1999            2000
                         -------          -------
Raw materials            $12,435          $ 6,290
Work in process            2,276            2,127
Finished goods            52,909           39,996
                         -------          -------
                         $67,620          $48,413
                         =======          =======


PROPERTY, PLANT, AND EQUIPMENT

    Property, plant, and equipment are recorded at cost. Depreciation is
provided over the estimated useful lives of the assets (buildings -- 15-40
years, machinery and equipment -- 7-20 years, and furniture and fixtures -- 3-7
years) using primarily the straight-line method.

    Property, plant, and equipment consist of the following (in thousands):

                                      AUGUST 29,       AUGUST 27,
                                         1999             2000
                                       -------          -------

Land and buildings                     $37,848          $29,120
Machinery and equipment                 30,637           24,358
Furniture and fixtures                   9,912            8,863
                                       -------          -------
                                        78,397           62,341
Less accumulated depreciation           24,912           25,649
                                       -------          -------
                                       $53,485          $36,692
                                       =======          =======



    Depreciation expense included in the accompanying consolidated statements of
operations for the years ended August 30, 1998, August 29, 1999 and August 27,
2000 was approximately $6,762,000, $6,637,000 and $5,713,000 respectively.

OTHER LONG-TERM ASSETS

    Goodwill is generally amortized over 40 years using the straight-line
method. Trademarks, trade names, customer lists, and other intangible assets are
stated at cost, less accumulated amortization, and are amortized over 10 to 15
years using the straight-line method. Bond issuance costs are amortized over the
life of the senior subordinated notes (10 years) using the effective interest
method.

    The Company evaluates the recoverability of long-lived assets by measuring
the carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, the assets are adjusted to their
fair values.

    It is the Company's policy to amortize goodwill and other intangible assets
over future periods estimated to be benefited based on relevant factors. The
Company reviews all known factors in evaluating the period of goodwill
amortization. Such factors include the nature of the industry in which the
Company and its acquisitions operate (i.e. a mature industry with relatively
high barriers to entry), the dominant market position of the acquired
businesses, the competitive advantages of the existing distribution networks and
manufacturing processes of the acquired businesses, the existence of strategic
and loyal customer and/or supplier bases, and a solid reputation of the acquired
businesses for the delivery and/or manufacturing of quality products.

    During fiscal year 2000, the Company repurchased $39,820,000 of its 10.75%
senior subordinated notes (Note 4). The repurchase resulted in a reduction of
$1,256,000 of the related capitalized bond issuance costs. During fiscal year
1999, the Company repurchased $11,250,000 of its 10.75% senior subordinated
notes. The repurchase resulted in a reduction of $406,000 of the related
capitalized bond issuance costs.

    As more fully discussed in Note 13, the Company adjusted the carrying value
of the unamortized goodwill related to its Robert F.



                                      F-9
<PAGE>   27

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

deCastro acquisition to its estimated fair value of $192,000, resulting in a
non-cash impairment charge of $4,997,000.

    Other long-term assets consist of the following (in thousands):

                                                 AUGUST 29,       AUGUST 27,
                                                    1999             2000
                                                   -------          -------

Goodwill                                           $46,513          $33,208
Trademarks, tradenames and customer lists            4,547            3,715
Bond issuance costs                                  6,870            5,715
Other                                                6,098            4,594
                                                   -------          -------
                                                    64,028           47,232
Less accumulated amortization                        5,988            5,701
                                                   -------          -------
                                                   $58,040          $41,531
                                                   =======          =======


INCOME TAXES

    Albecca is an S corporation and several of its subsidiaries are classified
as either partnerships or single member entities. Each is treated as a
pass-through entity under the Internal Revenue Code. They are not subject to
federal and certain state income taxes. As a result, the related taxable income
is included in the tax returns of the shareholders and members of the respective
companies. The Company makes distributions to shareholders to pay their income
tax obligations as a result of the Company's status as an S corporation. The
provision for income taxes included in the accompanying consolidated financial
statements primarily relates to certain state and foreign income taxes, as well
as federal tax on the gain from disposition of one of the Company's non-U.S.
subsidiaries in fiscal 2000.

FOREIGN CURRENCY TRANSLATION AND EXPOSURE

    The asset and liability accounts of foreign subsidiaries have been
translated into U.S. dollars at the rate of exchange in effect at each balance
sheet date. Shareholders' equity (deficit) is translated at historical rates.
Resulting translation adjustments are reflected as a separate component of
shareholders' equity (deficit). The accounts of foreign subsidiaries' statements
of operations are translated at the weighted average exchange rate during the
period. Gains or losses on foreign currency transactions are included in income
as incurred and are not material to the Company's statements of operations for
the years presented. The denomination of foreign subsidiaries' account balances
in their local currency exposes the Company to certain foreign exchange rate
risks. The Company addresses the exposure by financing most working capital
needs in the applicable foreign currencies. Management does not believe the
remaining risks to be significant.

    The Company's United Kingdom subsidiary periodically enters into forward
currency exchange contracts to manage its exposure against foreign currency
fluctuations on inventory purchase transactions denominated in foreign
currencies (primarily Italian Lira and U.S. dollars). To qualify as a hedge, a
contract to be hedged must expose the Company to foreign currency exchange rate
risk and the hedging instrument must reduce that exposure. Realized gains and
losses on foreign exchange contracts used as hedges of inventory purchase
transactions are included in the basis of the inventory and are recognized in
income as a component of cost of sales in the period in which the related
inventory is sold. At August 29, 1999 and August 27, 2000, the Company's United
Kingdom subsidiary had (pound)2,540,000 ($4,174,000) and (pound)1,900,000
($3,094,000), respectively, of U.S. dollar forward exchange contracts maturing
in two years or less related to inventory purchase transactions. At August 29,
1999 and August 27, 2000, the Company's United Kingdom subsidiary also held
short-term contracts for the purchase of 862,623,000 Italian Lira ($466,000) and
1,210,256,000 Italian Lira ($564,000), respectively. At August 29, 1999 and
August 27, 2000, deferred gains and losses on foreign exchange contracts were
not material to the consolidated financial statements and realized gains and
losses resulting from foreign exchange contracts were not material to the
Company's results of operations for the years ended August 30, 1998, August 29,
1999 and August 27, 2000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

    The fair value of the Company's long-term debt is estimated based on current
rates offered for debt of similar terms and maturities. Under this method, the
Company's fair value of long-term debt was not significantly different than the
stated value at August 29, 1999 and August 27, 2000.

REVENUE RECOGNITION



                                      F-10
<PAGE>   28

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

    The Company recognizes revenue at the time of shipment of products. In
December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101").
SAB No. 101, as amended, must be adopted no later than the first quarter of
fiscal 2001. The Company does not anticipate any material impact to its
consolidated financial statements as a result of the adoption of SAB No. 101, as
the Company has already been complying with the provisions of the bulletin.

ADVERTISING

    All costs associated with advertising and promoting products are expensed in
the period incurred. The amounts expensed for the years ended August 30, 1998,
August 29, 1999 and August 27, 2000 were approximately $3,784,000, $4,994,000
and $3,138,000, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities", which requires companies to record
derivative instruments on the balance sheet as assets or liabilities, measured
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting.

    In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133", which delayed the effective date of SFAS 133 by one year to
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an amendment of FASB Statement No. 133", which will be adopted
concurrently with SFAS 133. SFAS 138 amends the accounting and reporting
standards of SFAS 133 for certain derivative instruments and hedging activities
and incorporates decisions made by the FASB related to the Derivatives
Implementation Group process. The Company has adopted the provisions of these
pronouncements effective August 28, 2000. The adoption did not have a material
impact on the Company's consolidated financial statements.

RECLASSIFICATIONS

    Certain prior period amounts have been reclassified to conform to the
current period presentation.


2. ACQUISITIONS

    The following acquisitions were accounted for under the purchase method of
accounting, applying the provisions of Accounting Principles Board ("APB")
Opinion No. 16, and as a result, the Company has recorded the tangible and
identifiable intangible assets and liabilities of the acquired businesses at
their estimated fair values with the excess of the purchase price over these
amounts being recorded as goodwill, which generally is amortized over 40 years.
The acquisitions were primarily financed with available cash borrowings under
the Company's former revolving credit facility and other debt instruments (Note
4). The accompanying consolidated financial statements reflect the operations of
the acquired businesses for the periods after their respective dates of
acquisition.

    During March 2000, the Company acquired the outstanding 23% interest in its
Italian subsidiary for $1,872,000 in cash. Goodwill of $1,872,000 was recorded
in connection with this acquisition.

    During October 1998, the Company acquired all of the outstanding stock of a
distributor of custom framing products in Canada and increased its interest in
its Italian subsidiary, for aggregate consideration of $3,594,000 in cash.
Goodwill and other intangible assets of $3,345,000 were recorded in connection
with these acquisitions. These acquisitions did not have a material pro forma
impact on the consolidated financial statements for the year ended August 29,
1999.

    During April 1998, the Company acquired all of the outstanding stock of
Eastern Mouldings, Inc., and Eastern Moulding, Inc., related U.S. distributors
of custom framing products for approximately $9,900,000 in cash. Goodwill and
other intangible assets of approximately $8,400,000 were recorded in connection
with the acquisition. These acquisitions did not have a material pro forma



                                      F-11
<PAGE>   29

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

impact on the consolidated financial statements for the year ended August 30,
1998.


3. ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES

    Accrued liabilities consist of the following (in thousands):

                                           AUGUST 29,       AUGUST 27,
                                              1999             2000
                                          --------------   --------------

Accrued operating expenses                      $ 8,793          $ 6,385
Accrued payroll and benefits                     10,652            9,566
Accrued income taxes                              1,296            2,666
Accrued interest                                  1,109              879
Accrued taxes (other than income)                 1,663            1,386
Other                                             2,818            3,782
                                          --------------   --------------
                                               $ 26,331         $ 24,664
                                          ==============   ==============


    During May 1998, Albecca amended certain bonus arrangements with
shareholders and certain members of management whereby the payment of accrued
amounts aggregating $4,420,000 would be deferred and paid in varying increments
through fiscal 2005. Additionally, during fiscal 2000, amounts approximating
$1,800,000, awarded during fiscal years 1998 and 1999 to certain members of
management, including the majority shareholder, were also deferred.

    Accruals related to these compensation arrangements of $4,334,000 as of
August 29, 1999 and $5,852,000 as of August 27, 2000 are included as a component
of accrued payroll and benefits and other long-term liabilities. During fiscal
2000, the majority shareholder and the Company agreed to pay the portion of this
deferred compensation due the majority shareholder in annual payments of
$500,000 beginning fiscal year 2001 through fiscal year 2009. Interest will
accrue on the unpaid deferred compensation at an annual rate of prime less 1%.


4. LONG-TERM DEBT

    Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                                       AUGUST 29,      AUGUST 27,
                                                                                                          1999            2000
                                                                                                        --------        --------
<S>                                                                                                     <C>             <C>
Industrial revenue bonds, due July 2020, principal paid annually beginning in 2005, variable
  interest paid monthly (4.44% as of August 27, 2000), secured by a letter of credit                    $     --        $  4,600
10.75% senior subordinated notes, due August 2008, interest paid semi-annually
  in arrears on February 15 and August 15 of each year                                                   188,750         148,930
Demand note payable in French Francs, interest paid quarterly at a rate of
  3.6% to 4.0%, secured by a standby letter of credit                                                      3,350              --
Mortgage note due September, 2017, payable in Deutsche Marks,  principal paid semi-annually
  in equal installments,  interest paid quarterly at a rate of 5.2%, secured by certain property           2,917              --
Demand note payable in Dutch Guilders, interest paid  quarterly at a base rate plus 1.25% (6.25%
  as of August  27, 2000) secured by certain accounts receivable,  inventory and property                  3,011           1,298
Other long-term notes, interest payable at a weighted  average rate of 6.2%,
  maturing at various dates through 2017, no individual note exceeding $1,300                             41,772          15,354
                                                                                                        --------        --------
                                                                                                         239,800         170,182
Less current maturities                                                                                   26,589           7,686
                                                                                                        --------        --------
          Long-term portion                                                                             $213,211        $162,496
                                                                                                        ========        ========
</TABLE>


    Certain of the above facilities are subject to restrictive financial
covenants related to adjusted tangible net worth and cash flow, as



                                      F-12
<PAGE>   30

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

defined. Additionally, the notes in foreign currencies above generally restrict
the foreign subsidiary holding the applicable notes from the payment of
dividends or repayments of intercompany loans to Albecca or other subsidiaries.
Certain revolving facilities provide Albecca with additional borrowings of up to
$11,590,000 as of August 27, 2000. Albecca had outstanding letters of credit
totaling $811,000 as of August 27, 2000.

    On August 11, 1998, Albecca issued $200,000,000 of 10.75% senior
subordinated notes (the "Notes"). The Notes are subject to certain redemption
and repurchase terms, as defined. In addition, the Notes contain certain
covenants that limit, among other things, the ability of Albecca and its
subsidiaries to: (1) pay dividends, redeem capital stock, or make certain other
restricted payments or investments; (2) incur additional indebtedness or issue
preferred equity interests; (3) merge, consolidate, or sell all or substantially
all of its assets; (4) create liens on assets, and; (5) enter into certain
transactions with affiliates.

    The Company's payment obligations under the Notes are jointly and severally
guaranteed by the Subsidiary Guarantors, as defined (Note 16). The subsidiary
guarantees are unconditional in nature. The indenture to the Notes provides that
no Subsidiary Guarantor may consolidate with or merge with or into another
entity unless the surviving entity of such a consolidation or merger assumes all
the obligations of the Subsidiary Guarantor.

    The Notes will not be redeemable at the Company's option prior to August 15,
2003. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, at the redemption prices listed
below plus accrued and unpaid interest and liquidated damages, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on August 15 of the years indicated as follows:


2003                                 105.375%
2004                                 103.583%
2005                                 101.792%
2006 and thereafter                  100.000%



     During fiscal 2000, the Company repurchased a portion of the Notes with a
face value of $39,820,000. The repurchase resulted in an extraordinary gain of
$5,833,000, net of applicable state taxes of $222,000. During fiscal 1999, the
Company repurchased a portion of the Notes with a face value of $11,250,000.
The repurchase resulted in an extraordinary gain of $1,331,000, net of
applicable state taxes of $70,000.

    Other long-term notes included borrowings denominated in foreign currencies
in the aggregate amounts of $39,158,000 and $13,305,000 as of August 29, 1999
and August 27, 2000.

    Aggregate maturities of long-term debt as of August 27, 2000 are as follows:
2001 - $7,686,000; 2002 - $2,142,000; 2003 - $2,693,000; 2004 - $781,000; 2005 -
$925,000; thereafter, $155,955,000.



5. GEOGRAPHIC INFORMATION



                                      F-13
<PAGE>   31

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

    The following table presents information regarding Albecca's different
geographical regions based on the historical operations of Albecca (in
thousands):

                                              YEARS ENDED
                             -----------------------------------------------
                             AUGUST 30,        AUGUST 29,         AUGUST 27,
                                1998              1999               2000
                             ----------        ----------         ----------
Revenue:
  United States              $  185,696        $  197,263         $  214,386
  Canada                         23,498            23,598             22,896
  United Kingdom                 46,968            41,934             37,546
  France                         36,267            37,688             24,145
  Other International            88,708            83,700             59,214
                             ----------        ----------         ----------
                             $  381,137        $  384,183         $  358,187
                             ==========        ==========         ==========

Operating income:
  United States              $   25,428        $   23,732         $   39,525
  Canada                          3,929             2,000              2,226
  United Kingdom                  1,353             1,498                512
  France                            595             1,080               (972)
  Other International               656            (3,835)            (2,393)
                             ----------        ----------         ----------
                             $   31,961        $   24,475         $   38,898
                             ==========        ==========         ==========


    Assets by geographical region consist of the following (in thousands):


                           AUGUST 29,      AUGUST 27,
                              1999            2000
                          ------------    ------------
United States               $ 103,659       $  86,421
Canada                         14,907          14,151
United Kingdom                 36,130          29,135
France                         33,250          11,767
Other International            78,612          49,621
                          ------------    ------------
                            $ 266,558       $ 191,095
                          ============    ============


6. SHAREHOLDERS' DEFICIT

STOCK SPLIT

    On April 27, 1998, Albecca effected a 1.7-for-1 stock split of its common
stock. The accompanying consolidated financial statements and notes hereof
reflect this stock split as if it had occurred at the beginning of each period.


CONVERSION OF COMMON STOCK

    On May 21, 1998, in anticipation of a proposed equity offering which was
later cancelled (Note 13), Albecca amended its articles of incorporation to
reclassify its common stock from a single class into two separate classes, Class
A common stock and Class B common stock. The two classes are identical except as
to their voting rights, with the Class A common stock carrying one vote per
share, and the Class B common stock carrying ten votes per share. The holders of
each class are entitled to class voting rights in very limited circumstances
under the Georgia Business Corporate Code. Otherwise, the classes vote together
on all matters presented to the shareholders. If the Class B common stock is
transferred to anyone outside of a limited group of holders related to the
majority shareholder, it will automatically convert into Class A common stock.
Also, the holders of the Class B common stock may convert it



                                      F-14
<PAGE>   32

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

into Class A common stock at their option.

    Upon approval of the amendment by the Company's three shareholders, the
common stock held by two of the Company's shareholders representing 2.2% of the
common stock was converted into Class A common stock, and the common stock held
by the majority shareholder representing 97.8% of the common stock was converted
into Class B common stock. In July 2000, the majority shareholder purchased
170,000 shares of Class A common stock, which represented 45.5% of the total
outstanding Class A common stock (and 1% of the total of all outstanding shares
of common stock) from one of the minority shareholders.

STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

    In November 1995, the Company's majority shareholder established a stock
performance program whereby a certain key employee could receive annually an
option to acquire 0.2% of the then outstanding shares of Albecca's common stock
and 0.2% of member interest in Larson-Juhl International LLC from the Company's
majority shareholder for $300,000, contingent upon the Company achieving its
performance goals, including, sales, profits, asset management, and future
positioning, for each fiscal year through fiscal 2000. Compensation expense
under this program is recognized over the performance period based on the
difference between the exercise price and the fair value, if any, measured at
the end of each period within the performance period. To the extent that fair
value exceeds the stated exercise price during the performance period, changes
in the fair value are reflected as an adjustment of accrued compensation and
compensation expense in the periods in which the changes occur until the
performance period is completed and such options are either granted or
forfeited. In November 1996, the key employee was awarded the option to acquire
34,000 shares of Albecca's common stock and 0.2% of member interest in
Larson-Juhl International LLC from the Company's majority shareholder for
$300,000. No compensation expense was recognized for this award, as the exercise
price, in the opinion of management, exceeded its fair value at inception of the
program and through the date of grant. On April 17, 1998, this option was
exercised. Albecca's majority shareholder extended the program through fiscal
2001 under the same terms and conditions as the original stock performance
program. In January 1999, the Company's majority shareholder acquired the 34,000
shares of the Company's common stock from the key employee for $300,000. No
compensation expense was recognized for this transaction since in the opinion of
management, the purchase did not exceed the fair market value of the shares at
the time of purchase. As of August 30, 1998 and August 29, 1999, no deferred
compensation expense was accrued as the exercise price, in the opinion of
management, did not exceed the fair value at those dates.

        On May 1, 1998, the provisions of the stock performance program
discussed above were amended whereby any option grant under such program would
be granted by the Company under the Albecca Inc. 1998 Stock Option Plan (the
"Stock Option Plan") discussed below. On May 1, 1998, the Company granted to
that certain key employee, under the stock performance program, an option to
acquire 34,062 shares of common stock at $8.80 per share, expiring May 1, 2003.
As a result of this grant, the Company recorded a compensation charge of
$144,000 during fiscal year 1998 representing the difference between the
exercise price and the fair value, based on management's estimate, at the date
of grant. In May 1999, the May 1, 1998 option granted to that certain key
employee under the stock performance program to acquire 34,062 shares of common
stock at $8.80 per share was cancelled. The Company awarded the key employee an
option to acquire 34,062 shares of common stock under the Stock Option Plan at
$6.46 per share, the fair value at the date of grant. The option vests to the
key employee on May 1, 2003.

    In May 1999, the Company further amended the provisions of the stock
performance program, whereby the key employee would be eligible to receive up to
a total of 170,310 options to acquire shares of common stock at $8.80 per share,
including the 34,062 options granted in May 1999. All 170,310 options, if
granted, vest to the key employee on May 1, 2003. In August 2000, the Company
awarded the key employee an option to acquire 34,062 shares of common stock at
$7.00 per share under this amended program. The Company has recorded
approximately $350,000 of compensation expense with respect to the contingent
stock performance program as of August 27, 2000. Compensation expense under this
program is recognized over the performance period based on the difference
between the exercise price and the fair value, if any, measured at the end of
each period within the performance period. To the extent that fair value exceeds
the stated exercise price during the performance period, changes in fair value
are reflected as an adjustment of accrued compensation and compensation expense
in the periods in which the changes occur until the performance period is
completed and such options are either granted or forfeited. No compensation
expense was recorded as of August 29, 1999 since, in the opinion of management,
the exercise prices of both outstanding and future options were equal to or
above fair market value.


    In November 1996, the Company's majority shareholder granted another key
employee the right to acquire 42,500 shares



                                      F-15
<PAGE>   33

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

of Albecca's common stock and 0.25% of member interest in Larson-Juhl
International LLC from the Company's majority shareholder for $200,000,
representing, in management's opinion, the fair value at the date of grant. On
April 19, 1997, this right was exercised. On December 1, 1997, this key employee
acquired 85,000 shares of Albecca's common stock and 0.5% of member interest in
Larson-Juhl International LLC from the Company's majority shareholder for
$300,000. The Company recorded a compensation charge of $100,000, representing
the difference between the exercise price and the fair value, based on
management's estimate, at the date of grant. On January 5, 1998, the Company's
majority shareholder granted this key employee the right to acquire 42,500
shares of Albecca's common stock and 0.25% of member interest in Larson-Juhl
International LLC from the Company's majority shareholder for $500,000,
representing, in management's opinion, the fair value at the date of grant. On
April 17, 1998, this right was exercised.

    In May 2000, this employee left the Company and in July 2000, the majority
shareholder purchased the 170,000 shares from the former employee. No
compensation was recognized for this transaction since, in the opinion of
management, the purchase price did not exceed the fair market value of shares at
the time of purchase.

    On May 1, 1998, the Company adopted the Albecca Inc. 1998 Stock Option Plan
(the "Stock Option Plan") for which 2,600,000 shares of common stock were
authorized for issuance in connection with stock options granted under such
plan. The Stock Option Plan provides for nonqualified and incentive stock
options. The options that are not incentive stock options granted under the
Stock Option Plan shall terminate and no longer be exercisable upon the earlier
to occur of (i) five years after a determination by the Committee that the
Option shall terminate in five years, or (ii) five years after an initial public
equity offering. An incentive stock option shall not be exercisable after the
expiration of ten years from the date of grant.

    In March 1999, the Company awarded 378,000 non-qualified options to acquire
shares of common stock at $6.46 per share to certain members of management under
the Stock Option Plan. No compensation expense was recognized relating to these
grants, as the exercise price was equal to the fair market value as determined
by management's estimation at the time of grant. The options granted vest on
November 1, 2003.

    On May 1, 2000, the Company repriced all of its outstanding options under
the 1998 Stock Option Plan to $5.80 per share, and awarded an additional 30,000
options to acquire shares of common stock under the Stock Option Plan at a
stated price of $5.80 per share to certain members of management. The Company
also declared its intention to settle all options in cash upon exercise by the
employee. As such, the Company began accounting for all outstanding options
under variable plan accounting.

    On May 1, 2000, the Company adopted the Larson-Juhl Canada 2000 Stock
Appreciation Rights Plan and the Larson-Juhl US 2000 Stock Appreciation Rights
Plan (The "SAR Plans"). These plans operate substantially similar to the Albecca
Inc. 1998 Stock Option Plan.

    In May 2000, the Company awarded 78,000 stock appreciation rights tied to
the fair market value of the Company's common stock at a stated price of $5.80
per share to certain members of management under the SAR Plans. The stock
appreciation rights vest on November 30, 2003.

    In August 2000, the Company awarded an additional 84,000 stock appreciation
rights under the SAR Plans and 99,062 options to acquire shares of common stock
under the Stock Option Plan with a stated price and exercise price of $7.00 per
share to certain members of management. The stock appreciation rights and
options vest on November 30, 2005.

    The Company recorded approximately $173,000 of compensation expense during
the year ended August 27, 2000, representing the difference between fair market
value and exercise and stated prices as of August 27, 2000.

    A summary of stock option activity and the related exercise prices are as
follows:



                                      F-16
<PAGE>   34

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                For the years ended
-------------------------------------------------------------------------------------------------------------------------
                                     August 30, 1998               August 29, 1999                August 27, 2000
Options in thousands            Options     Exercise Price    Options     Exercise Price     Options      Exercise Price
-------------------------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>          <C>               <C>           <C>               <C>
Outstanding, beginning of year          -          $    -        34,062           $ 8.80        412,062           $ 6.46
Granted                                 -               -             -                -        390,062             5.80
Granted                            34,062            8.80       412,062             6.46         99,062             7.00
Exercised                               -               -             -                -              -                -
Cancelled                               -               -        34,062             8.80        412,062             6.46
-------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year           34,062          $ 8.80       412,062           $ 6.46        489,124      $5.80-$7.00
-------------------------------------------------------------------------------------------------------------------------
Exercisable, end of year
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


    SFAS No. 123, "Accounting for Stock-Based Compensation," defines a
fair-value based method of accounting for an employee stock option plan or
similar equity instrument and allows an entity to continue to measure
compensation cost for those plans using the method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share, as if the fair-
value based method of accounting defined in the statement had been applied.

    The Company has elected to account for its stock-based compensation plans
under APB Opinion No. 25, however, the Company has computed for pro forma
disclosure purposes the value of all options granted during the years ended
August 30, 1998, August 29, 1999 and August 27, 2000, using the minimum value
method as prescribed by SFAS No. 123 using the following assumptions:


                 Risk-free interest rate                               6.3%
                 Expected dividend yield                                  -
                 Expected lives                                5 to 9 years
                 Expected volatility                                      -


    If the Company had accounted for these grants in accordance with SFAS No.
123, the Company's reported pro forma net income (loss) for the years ended
August 30, 1998, August 29, 1999 and August 27, 2000 would have been as follows
(in thousands):


<TABLE>
<CAPTION>
                                                AUGUST 30,     AUGUST 29,     AUGUST 27,
                                                   1998           1999           2000
                                               ------------   ------------   ------------
<S>                                               <C>            <C>            <C>
Net income (loss):
  As reported in the financial statements         $ 14,363       $ (4,761)      $ 22,070
                                               ------------   ------------   ------------
  Pro forma in accordance with SFAS No. 123       $ 14,158       $ (4,986)      $ 21,717
                                               ============   ============   ============
</TABLE>


    The estimated pro forma compensation cost resulting in the pro forma net
income (loss) may not be representative of actual results had the Company
accounted for the stock options using the fair-value based method.

DISTRIBUTIONS TO SHAREHOLDERS

    In connection with the Company's issuance of $200,000,000 of 10.75% senior
subordinated notes on August 11, 1998 (Note 4), a distribution of $60,000,000
was made to the Company's shareholders representing estimated previously
undistributed S corporation earnings accumulated through July 31, 1998. The
proceeds from these Notes were used, among other things, to fund a portion of
this distribution. The Notes contain certain covenants that limit, among other
things, the ability of the Company and its subsidiaries to pay dividends and/or
distributions to its shareholders.


7. RELATED PARTY TRANSACTIONS



                                      F-17
<PAGE>   35

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

    The Company's principal executive offices are located in a 65,000
square-foot office building located in Norcross, Georgia owned by L-J Properties
Inc., a company owned by Messrs. Ponzio, Trimarco and McKenzie, each of whom is
an executive officer of the Company. The Company's lease for this facility
terminates in August 2001. The total rent payments for the years ended August
30, 1998, August 29, 1999 and August 27, 2000 were $680,000, $708,000 and
$738,000, respectively.

    On August 11, 1998, a partner in a law firm that is providing services to
Albecca in connection with general corporate matters became a director of the
Company. He resigned as director in May 1999. The amount of professional fees
paid to this law firm during the years ended August 30, 1998 and August 29, 1999
were approximately $1,022,000 and $500,000, respectively. As of August 29, 1999,
approximately $65,000 was due to this law firm for previously provided services.
No amounts related to these previously provided services were due to this law
firm as of August 27, 2000.


8. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

    The Company leases certain operating facilities and equipment under
operating leases. Future minimum annual rentals under noncancelable leases as of
August 27, 2000 are as follows: 2001 -- $8,285,000; 2002 -- $5,649,000; 2003 --
$3,525,000; 2004 -- $2,012,000; 2005 -- $1,450,000; and thereafter --
$1,123,000.

    The total lease payments for the years ended August 30, 1998, August 29,
1999 and August 27, 2000 were approximately $8,531,000, $9,646,000 and
$8,338,000, respectively.

LITIGATION

    During fiscal 2000, the Company settled certain outstanding litigation. As a
result of the settlement of this litigation, the Company reversed $3,839,000 of
previously provided reserves recorded during fiscal 1998 and prior periods.
These amounts are reflected as a reduction of operating expenses in the
accompanying consolidated statement of operations.

    The Company is involved in certain litigation arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.


9. BENEFIT PLANS

    The Company sponsors a defined contribution 401(k) retirement investment
plan (the "Plan") for all of its U.S. employees with more than one year of
service. The Company makes discretionary contributions to the Plan, including a
limited 50% matching contribution. Under the terms of the Plan, a participant is
100% vested in the Company's matching and discretionary contributions after six
years of service. Matching and discretionary contributions made by the Company
for the years ended August 30, 1998, August 29, 1999 and August 27, 2000 were
approximately $408,000, $427,000 and $521,000, respectively.


10. QUARTERLY DATA (UNAUDITED)



                                      F-18
<PAGE>   36

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

    The following table presents quarterly information regarding the Company's
historical operations for each quarter for each of the two years in the period
ended August 27, 2000 (in thousands):

<TABLE>
<CAPTION>
                             NOVEMBER 29,  FEBRUARY 28,   MAY 30,    AUGUST 29,   NOVEMBER 28, FEBRUARY 27,    MAY 28,    AUGUST 27,
                                 1998         1999         1999         1999         1999          2000         2000         2000
                              ---------     --------     --------     --------     ---------     --------     --------     --------
<S>                           <C>           <C>          <C>          <C>          <C>           <C>          <C>          <C>
Net sales                     $ 103,575     $ 97,725     $ 96,224     $ 86,659     $ 100,120     $ 94,153     $ 87,883     $ 76,031
Cost of sales                    58,935       55,571       55,765       50,294        57,299       52,389       47,647       42,539
                              ---------     --------     --------     --------     ---------     --------     --------     --------
  Gross profit                   44,640       42,154       40,459       36,365        42,821       41,764       40,236       33,492
Operating expenses               36,224       35,613       33,932       31,883        32,097       31,522       24,645       24,793
Restructuring charges               117          129        1,245           --            --           --          855          506
Impairment of goodwill               --           --           --           --            --        4,997           --           --
                              ------------------------------------------------------------------------------------------------------
  Operating income                8,299        6,412        5,282        4,482        10,724        5,245       14,736        8,193
Net loss (gain) on
  dispositions of businesses         --           --           --        4,136            --        1,382          472       (2,823)
Interest income                    (555)        (462)        (604)        (633)         (820)      (1,011)      (1,263)      (1,493)
Interest expense                  7,125        6,545        6,245        6,248         6,413        5,956        6,033        5,863
                              ---------     --------     --------     --------     ---------     --------     --------     --------
  Income (loss) before
    provision for income
    taxes, minority interest
    and extraordinary gain        1,729          329         (359)      (5,269)        5,131       (1,082)       9,494        6,646
Provision for income taxes        1,059          251          539          355           862          363          358        2,071
Minority interest                   197           51          107          (37)          114           90           58           36
                              ---------     --------     --------     --------     ---------     --------     --------     --------
  Income (loss) before
    extraordinary gain              473           27       (1,005)      (5,587)        4,155       (1,535)       9,078        4,539
Extraordinary gain on
  repurchase of debt, net
  of tax                             --           --        1,008          323         2,980        1,544           --        1,309
                              =========     ========     ========     ========     =========     ========     ========     ========
    Net income (loss)         $     473     $     27     $      3     $ (5,264)    $   7,135     $      9     $  9,078     $  5,848
                              =========     ========     ========     ========     =========     ========     ========     ========
</TABLE>


11. OTHER

    On May 1, 1998, Albecca made a partial distribution of previously
undistributed S corporation earnings to its shareholders in the form of demand
promissory notes payable to its shareholders in the aggregate amount of
$10,500,000, bearing interest at a rate of 11% per annum (the "S Corp Notes").
On June 10, 1998, Albecca repaid $4,000,000 of the S Corp Notes, plus accrued
interest. On June 24, 1998, the holders of the S Corp Notes contributed the
remaining balance of the S Corp Notes to Larson-Juhl International LLC, a
related company under common ownership (Note 1). Albecca repaid the remaining
balance of $6,500,000 to Larson-Juhl International LLC on June 24, 1998.


12. RESTRUCTURING CHARGES AND DISPOSITIONS OF BUSINESSES

UNITED KINGDOM - NORTHAMPTON

    In May 2000, the Company initiated a restructuring plan related to the
closure of its United Kingdom - Northampton operation and recorded a charge to
operations of $909,000. Management made the decision to close this operation
following a series of under-performing quarters, at which time management
determined that the Company's resources, both financial and managerial, could be
more effectively invested in operations with a greater potential return. This
charge included severance costs for 37 team members of $222,000, a $270,000
write-down of property, plant and equipment to its estimated net realizable
value, $233,000 of lease termination costs and $184,000 of other exit costs
including post-closure maintenance and administrative costs. The $233,000 of
lease termination costs represented the Company's estimated future obligations
under the existing lease commitments of the closed facility, net of estimated
recoverable costs through subleasing.

    During August 2000, additional costs of $506,000 relating to the closure of
the United Kingdom - Northampton facilities were identified. This charge
included additional severance costs of $76,000 related to an employment contract
not previously identified, an additional $229,000 write-down of property, plant
and equipment due to a redetermination of the estimated net realizable value,
and $201,000 of additional lease termination costs and other exit costs related
to a reevaluation of the period that will be required to find a sub-tenant for
the building.


    As of August 27, 2000, the Company continued to sell existing assets and
collect existing accounts receivable through its United Kingdom - Arqadia Ltd.
operations. No team members remained at the facility. Management anticipates the
restructuring plan will be



                                      F-19
<PAGE>   37

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

completed prior to the end of fiscal 2001.

SWEDEN

In May 1999, the Company initiated a restructuring plan related to one of its
facilities in Sweden and recorded a charge to operations of approximately
$1,100,000. Management made the decision to close this operation in Sweden
because the facilities were deemed to be duplicative. This charge included
severance costs for 25 team members approximating $275,000, a $700,000
write-down of the owned facility to the estimated net realizable value on the
future sale of the building, $80,000 for inventory reserves related to inventory
outside of the region's core operating focus, and other exit costs, including
post-closure maintenance and administration costs of $45,000. The inventory
reserve was included in cost of goods sold in the accompanying consolidated
statement of operations for the year ended August 29, 1999.

    As of August 27, 2000, the Company's closure of its duplicate facility in
Sweden was complete. None of the 25 team members originally identified for
termination remained at the facility. The facility was sold in August 1999 at
its recorded book value and physical possession was transferred during fiscal
2000.

NEW ZEALAND

In March 1999, the Company initiated a plan to close its operations located in
New Zealand, and recorded a charge to operations of $375,000 related to this
closure. The plan to close the operation in New Zealand was adopted following a
series of under-performing quarters, at which time management determined that
the Company's resources, both financial and managerial, could be more
effectively invested in operations with a greater potential return. These costs
primarily consisted of $48,000 in severance costs for 9 team members, $75,000
for the write-down of machinery and equipment to its estimated net realizable
value for its future sale, $100,000 of inventory reserves related to product not
transferred to other locations within the Company, $50,000 in additional
reserves for accounts receivable deemed uncollectable, and $102,000 of other
exit costs, including lease terminations, post-closure maintenance and other
administrative costs. The reserves for inventory and accounts receivable have
been included as components of cost of goods sold and operating expenses,
respectively, in the accompanying consolidated statement of operations for the
year ended August 29, 1999.

    As of August 27, 2000, the Company, through its Australian operations,
continued to collect remaining accounts receivable related to its closed New
Zealand distribution operations. None of the 9 team members originally
identified for termination remained at the facility at August 27, 2000. The
Company estimates that the remaining closure activities will be materially
complete by the first quarter of fiscal 2001.

GREECE

    In June 1998, the Company initiated a plan to close its sole distribution
facility in Greece and recorded a charge to operations of $694,000. Management
elected to close the operations in Greece following a series of under-
performing quarters, at which time management determined that the Company's
resources, both financial and managerial, would be more effectively invested in
operations with a greater potential return. This charge included severance costs
for 14 team members aggregating $79,000, write-off of goodwill of $333,000,
additional reserves for uncollectable accounts receivable of $178,000 and other
exit costs of $104,000 including post-closing maintenance costs, lease disposal
costs, and legal fees directly related to the closure of the Greek operations.
The charge related to the additional reserves for uncollectable accounts
receivable has been included in operating expenses in the accompanying
consolidated statement of operations for the year ended August 30, 1998. In the
opinion of management, these additional reserves for uncollectable accounts
receivable were a direct result of its decision to close down these operations
(and its communication of the closure) since, with the closure, the Company
forfeited the collection leverage inherent in the customers need for future
products from the Company. In consultation with its attorneys, the Company
determined in many cases that the cost of collection would significantly exceed
any expected return. This situation was one of the material factors in the
Company's determination to close the business and was supported by a specific
analysis of each customer prior to and following the disclosure of the closing.

    During fiscal 1999, a restructuring charge of $129,000 was recorded
primarily for additional post closure maintenance and other administrative
costs. The Company also recorded an additional reserve of $50,000 for
uncollectable accounts receivable which was included in operating expenses in
the accompanying consolidated statement of operations for the year ended August
29, 1999. After consultation with the Company's attorneys, this amount was
deemed necessary for accounts that were previously estimated to be collectable.



                                      F-20
<PAGE>   38

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         As of August 27, 2000, none of the original 14 team members remained at
the facility. The Company, through its local counsel, will continue to collect
existing accounts receivable and finalize liquidation of its Greek entities. The
Company estimates that the restructuring plan will be completed prior to the end
of fiscal 2001. The remaining accrual primarily relates to estimated legal costs
necessary to complete the exit.

UNITED STATES

    In June 1998, the Company initiated a plan to close duplicate facilities in
the U.S., and recorded a charge to operations of $276,000 related to these
closures, primarily consisting of $234,000 for the severance and other
termination benefits of 17 team members. These facilities were operated by the
Company, but, as a result of acquisitions made in 1998, were deemed to be
duplicative and thus management made the decision for closure.

    During fiscal 1999, the Company incurred additional restructuring charges of
$117,000 related to its fiscal 1998 U.S. restructuring plan. These costs were
associated with travel costs of $70,000 directly related to the integration of
the closed U.S. duplicate facilities into other existing facilities as well as
labor and other related costs of $38,000 incurred during the process of
relocating property and equipment to other existing facilities and $9,000
relating to other post closure and administrative costs.

    As of August 27, 2000, the Company's closure of its duplicate facilities in
the United States was complete. None of the 17 team members originally
identified for termination remained at the facility. The unused balance of
$29,000 of the remaining restructuring provision was reversed and reflected as a
decrease of the current restructuring charges incurred during fiscal 2000.

UNITED KINGDOM - PLASTIC MOULDING MANUFACTURING OPERATIONS

    In June 1998, the Company initiated a plan to close its plastic moulding
manufacturing operations located in the United Kingdom and recorded a charge to
operations of approximately $1,800,000. The plan to close the operations in the
United Kingdom was adopted as it was not able to achieve acceptable operating
results; therefore, the Company made a decision to focus its energies and
resources, both financial and managerial, on the more profitable custom picture
framing market. This charge included $45,000 for the write-down of one of its
facilities, which was owned, to estimated net realizable value from the future
sale of the building, $230,000 related to severance and other termination
benefits for 59 team members terminated in connection with this plan, $465,000
of lease termination and exit costs, and $730,000 for the write-off of
non-current assets. The $465,000 of lease termination and exit costs represents
Albecca's estimated future obligations under the existing lease commitments of
the closed leased facility net of estimated recoverable costs through
subleasing. The write-off of non-current assets is related primarily to
machinery and equipment used in the manufacturing of plastic moulding which was
dismantled and will not be sold nor used by the Company due to direct
competitive pressures of plastic moulding on traditional moulding lines. This
charge also included additional reserves for uncollectable accounts receivable
of $330,000 which have been included in operating expenses in the accompanying
consolidated statement of operations for the year ended August 30, 1998. In the
opinion of management, these additional reserves for uncollectable accounts
receivable were a direct result of its decision to close down these operations
(and its communication of the closure), since, with the closure, the Company
forfeited the collection leverage inherent in the customers need for future
products from the Company. The determination of the uncollectable accounts
receivable was based on a customer by customer review by management after
communicating its closure decision to each of these customers.

    As of August 27, 2000, none of the original 59 team members remained with
respect to the closure of the Company's plastic moulding manufacturing
operations in the United Kingdom and all material events associated with the
restructuring plan had been completed. The unused balance of $25,000 of the
remaining restructuring provision was reversed and reflected as a decrease of
the current restructuring charges incurred during fiscal 2000.

SUMMARY OF RESTRUCTURING PLANS.

    At August 27, 2000, $864,000 of restructuring charges remained in accrued
liabilities representing severance and other termination costs of $206,000 and
lease termination and other exit costs of $658,000.

    A summary of the restructuring activity from each plan's adoption through
August 27, 2000 consists of the following:





                                      F-21
<PAGE>   39

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<TABLE>
<CAPTION>
                                                       Severance and          Lease
                                    Write-down of          other            termination
Closure of United Kingdom -          property and       termination       and other exit
Northampton:                          equipment           benefits             costs               Total
                                     -----------        -----------         -----------         -----------
<S>                                  <C>                <C>                 <C>                 <C>
2000 Provision                       $   499,000        $   298,000         $   618,000         $ 1,415,000
          Non-cash                       499,000                 --                  --             499,000
                                     -----------        -----------         -----------         -----------
          Cash                                --            298,000             618,000             916,000
Fiscal 2000 cash activity                     --           (116,000)            (84,000)           (200,000)
                                     -----------        -----------         -----------         -----------
Balance as of August 27, 2000        $        --        $   182,000         $   534,000         $   716,000
                                     ===========        ===========         ===========         ===========

                                                       Severance and
                                    Write-down of          other
Closure of Sweden duplicate          property and       termination         Other exit
facility:                             equipment           benefits             costs               Total
                                     -----------        -----------         -----------         -----------

1999 Provision                       $   700,000        $   275,000         $    45,000         $ 1,020,000
          Non-cash                       700,000                 --                  --             700,000
                                     -----------        -----------         -----------         -----------
          Cash                                --            275,000              45,000             320,000
Fiscal 1999 cash activity                     --           (125,000)            (30,000)           (155,000)
                                     -----------        -----------         -----------         -----------
Balance as of August 29, 1999                 --            150,000              15,000             165,000
Fiscal 2000 cash activity                     --           (150,000)            (15,000)           (165,000)
                                     -----------        -----------         -----------         -----------
Balance as of August 27, 2000        $        --        $        --         $        --         $        --
                                     ===========        ===========         ===========         ===========


                                                       Severance and
                                    Write-down of          other
Closure of operations in             property and       termination          Other exit
New Zealand:                          equipment           benefits             costs               Total
                                     -----------        -----------         -----------         -----------
1999 Provision                       $    75,000        $    48,000         $   102,000         $   225,000
          Non-cash                        75,000                 --                  --              75,000
                                     -----------        -----------         -----------         -----------
          Cash                                --             48,000             102,000             150,000
Fiscal 1999 cash activity                     --            (30,000)            (75,000)           (105,000)
                                     -----------        -----------         -----------         -----------
Balance as of August 29, 1999                 --             18,000              27,000              45,000
Fiscal 2000 cash activity                     --             (3,000)             (3,000)             (6,000)
                                     -----------        -----------         -----------         -----------
Balance as of August 27, 2000        $        --        $    15,000         $    24,000         $    39,000
                                     ===========        ===========         ===========         ===========
</TABLE>

                                      F-22
<PAGE>   40

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<TABLE>
<CAPTION>
                                                           Severance and
                                                                other
                                          Write-off          termination         Other exit
Closure of operations in Greece          of Goodwill           benefits             costs               Total
                                         -----------         -----------         -----------         -----------
<S>                                      <C>                 <C>                 <C>                 <C>
1998 Provision                           $   333,000         $    79,000         $   104,000         $   516,000
          Non-cash                           333,000                  --                  --             333,000
                                         -----------         -----------         -----------         -----------
          Cash                                    --              79,000             104,000             183,000
Fiscal 1998 cash activity                         --                  --                  --                  --
                                         -----------         -----------         -----------         -----------
Balance as of August 30, 1998                     --              79,000             104,000             183,000
1999 provision                                    --                  --             129,000             129,000
Fiscal 1999 cash activity                         --             (70,000)           (129,000)           (199,000)
                                         -----------         -----------         -----------         -----------
Balance as of August 29, 1999                     --               9,000             104,000             113,000
Fiscal 2000 cash activity                         --                  --              (4,000)             (4,000)
                                         -----------         -----------         -----------         -----------
Balance as of August 27, 2000            $        --         $     9,000         $   100,000         $   109,000
                                         ===========         ===========         ===========         ===========

                                                           severance and
                                                                other
                                                             termination          Other exit
Closure of U.S. duplicate facilities:                          benefits             costs               Total
                                                             -----------         -----------         -----------
1998 Provision                                               $   234,000         $    42,000         $   276,000
          Non-cash                                                    --                  --                  --
                                                             -----------         -----------         -----------
          Cash                                                   234,000              42,000             276,000
Fiscal 1998 cash activity                                             --             (42,000)            (42,000)
                                                             -----------         -----------         -----------
Balance as of August 30, 1998                                    234,000                  --             234,000
1999 provision                                                        --             117,000             117,000
Fiscal 1999 cash activity                                       (145,000)           (108,000)           (253,000)
                                                             -----------         -----------         -----------
Balance as of August 29, 1999                                     89,000               9,000              98,000
2000 provision                                                   (54,000)             54,000                  --
Fiscal 2000 cash activity                                        (15,000)            (54,000)            (69,000)
2000 reversal of excess provision                                (20,000)             (9,000)            (29,000)
                                                             -----------         -----------         -----------
Balance as of August 27, 2000                                $        --         $        --         $        --
                                                             ===========         ===========         ===========

                                                                                    Lease
                                                           Severance and         termination
                                        Write-down of           other                and
Closure of the United Kingdom plastic   property and         termination         other exit
moulding manufacturing operations:        equipment            benefits             costs               Total
                                         -----------         -----------         -----------         -----------
1998 Provision                           $   775,000         $   230,000         $   465,000         $ 1,470,000
          Non-cash                           775,000                  --                  --             775,000
                                         -----------         -----------         -----------         -----------
          Cash                                    --             230,000             465,000             695,000
Fiscal 1998 cash activity                         --            (216,000)                 --            (216,000)
                                         -----------         -----------         -----------         -----------
Balance as of August 30, 1998                     --              14,000             465,000             479,000
Fiscal 1999 cash activity                         --             (14,000)           (440,000)           (454,000)
                                         -----------         -----------         -----------         -----------
Balance as of August 29, 1999                     --                  --              25,000              25,000
2000 reversal of excess provision                 --                  --             (25,000)            (25,000)
                                         -----------         -----------         -----------         -----------
Balance as of August 27, 2000            $        --         $        --         $        --         $        --
                                         ===========         ===========         ===========         ===========
</TABLE>


    Revenue and net operating results from the activities that will not be
continued are not significant to the overall operations of the Company.



                                      F-23
<PAGE>   41

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DISPOSITION OF ERIJKO BELGIUM

         In August 2000, the Company sold its Erijko Belgium operations for cash
proceeds of $23,000. This decision was based on management's decision to focus
its energies and resources, both financial and managerial, on operations with a
greater potential for return. In the opinion of management, the disposition of
Erijko Belgium will not have a material impact on the future operations or
financial position of the Company.

DISPOSITION OF BRIO

    In June 2000, the Company sold its Brio operations, a manufacturer and
supplier of readymade frames and framing supplies to large "Do-It-Yourself"
stores in Europe. This decision was based on management's decision to focus its
energies and resources, both financial and managerial, on the European custom
picture framing market. The transaction was concluded on May 31, 2000, resulting
in cash proceeds of $13,979,000. The Company recorded a net gain on the sale of
the Brio operations of $3,927,000.

    The sales agreement required Brio to maintain a minimum level of working
capital through the closing date as supported by a closing balance sheet audit,
which has not yet been completed. As such, the preliminary estimated gain is
subject to adjustment pending the final results of the audit. In addition, the
sale agreement requires the Company to repurchase any receivables and inventory
on hand at the date of sale which remain uncollected or unsold six and twelve
months, respectively, after the closing date of the transaction. The Company
believes it has adequately reserved for this contingency. Brio's nine-month
sales and operating income for fiscal 2000 were approximately $16,141,000 and
$863,000, respectively. In the opinion of management, the disposition of Brio
will not have a material impact on the future operations or financial position
of the Company.

DISPOSITION OF MERSCH ENTITIES

    In January 2000, Albecca made a decision to dispose of its investment in its
Mersch entities, a manufacturer and supplier of readymade frames to large
European discount stores, located in Germany and France. This decision was based
on management's continued initiative to focus its energies and resources, both
financial and managerial, on the European custom picture framing market. On
January 31, 2000, Albecca finalized the sale of its Mersch entities for cash
proceeds of $16,278,000. Approximately $12,459,000 of the proceeds was used to
repay long-term liabilities retained by the Company. The loss on the disposition
of the Mersch entities was $2,972,000.

    In addition, the sale agreements required the Mersch entities to maintain a
minimum level of working capital through the closing date as supported by a
closing balance sheet audit, which has not yet been agreed to by the respective
parties. The Company recorded its best estimate of the net working capital
shortfall, based upon preliminary results of the closing balance sheet audit, as
part of the total $2,972,000 loss on the sale.

    The Mersch entities' five month sales and operating income for fiscal 2000
were $10,046,000 and $42,000, respectively. In the opinion of management, the
disposition of the Mersch entities will not have a material impact on the future
operations or financial position of the Company.

SALE OF OPERATIONS IN SOUTH AFRICA

    In July 1999, Albecca sold its investment in its operations in South Africa
for cash of $164,000 and a non-interest bearing note of $493,000 due in three
annual equal payments concluding in fiscal 2002. Management determined that its
resources, both financial and managerial, would be more effectively invested in
operations with a greater potential return. The loss on the sale of the
operations in South Africa was approximately $4,136,000. The eleven-month sales
revenue and operating income for fiscal 1999 related to the South Africa
operations were approximately $8,758,000 and $401,000, respectively. In the
opinion of management, the sale of the South African operations will not have a
material impact on the future operations or financial position of the Company.

13.  INFREQUENT ITEMS

IMPAIRMENT OF GOODWILL

    In October 1997, the Company acquired Robert F. deCastro, Inc. ("deCastro")
a distributor of products in the pre-framed art and the custom framing markets.
Since the acquisition, the demand in the markets for the deCastro product line
has dramatically



                                      F-24
<PAGE>   42

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

decreased or ceased. As a result, in fiscal 2000, management determined to
redirect its effort from pre-framed art and to focus its energies and resources,
both financial and managerial, on the custom picture framing market. The Company
determined that the estimated future undiscounted cash flows of the deCastro
product line were below the carrying value of the associated long-lived assets,
primarily consisting of goodwill. Accordingly, during fiscal 2000, the Company
adjusted the carrying value of deCastro's unamortized goodwill to its estimated
fair value of $192,000, resulting in a non-cash impairment charge of $4,997,000.
The estimated fair value of goodwill was based on anticipated future cash flows
discounted at a rate commensurate with the risk involved.

CANCELLED INITIAL PUBLIC EQUITY OFFERING

    In July 1998, the Company cancelled a planned initial public equity offering
of its common stock. As a result of the decision not to complete the offering,
the Company wrote off the associated expenses incurred of approximately
$1,273,000, which are included as "Cost of cancelled initial public equity
offering" in the accompanying consolidated statements of operations. These costs
related to SEC filing fees, accounting and legal fees, and printing costs which
were directly attributable to the cancelled initial public equity offering.


14. COMPREHENSIVE INCOME

    The Company adopted SFAS No. 130, "Reporting Comprehensive Income" during
fiscal 1998, which establishes standards for the reporting and presentation of
comprehensive income and its components in a full set of general purpose
financial statements. The adoption of SFAS No. 130 had no effect on the
Company's net income or shareholders' deficit for the years ended August 30,
1998, August 29, 1999 and August 27, 2000. The reconciliation of net income to
comprehensive net income is as follows (in thousands):

<TABLE>
<CAPTION>
                                                               For the years ended
                                           -----------------------------------------------------------
                                            August 30, 1998      August 29, 1999      August 27, 2000
                                           -----------------    -----------------    -----------------
<S>                                        <C>                  <C>                  <C>
Net income (loss), as reported                     $ 14,363             $ (4,761)            $ 22,070
Comprehensive income:  Foreign
currency translation adjustment                      (3,264)                 780               (5,464)
                                           -----------------    -----------------    -----------------
Total comprehensive income (loss)                  $ 11,099             $ (3,981)            $ 16,606
                                           =================    =================    =================
</TABLE>

15. SUBSEQUENT EVENTS

    Subsequent to fiscal year end, Albecca repurchased $4,000,000 of its senior
subordinated notes. The Company estimates that an extraordinary gain of
approximately $246,000 will be recorded, net of tax of $6,000.


16. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

    These condensed consolidating financial statements reflect Albecca and
Subsidiary Guarantors, which consist of all of the Company's Wholly-Owned
Restricted Subsidiaries other than the foreign subsidiaries, as defined under
the Indenture dated August 11, 1998. These nonguarantor foreign subsidiaries are
herein referred to as "Subsidiary Nonguarantors." The subsidiary guarantee of
each Subsidiary Guarantor will be subordinated to the prior payment in full of
all senior debt of such Subsidiary Guarantor. Separate financial statements of
the Subsidiary Guarantors are not presented because the Subsidiary Guarantees
are joint and several and full and unconditional and the Company believes the
condensed consolidating financial statements presented are more meaningful in
understanding the financial position of the Subsidiary Guarantors and the
separate financial statements are deemed not material to investors.

    On August 2, 1998, the operating assets of Albecca were contributed to a
wholly owned subsidiary of Albecca. This subsidiary, Larson-Juhl US LLC, became
a Subsidiary Guarantor at the date of the issue of the Notes. Therefore, the
historical operations and cash flows of this entity are reflected as a
Subsidiary Guarantor for the one-month period ending August 30, 1998 and the
years ending August 29, 1999 and August 27, 2000 and as Albecca for the period
through August 2, 1998. The operating assets of this entity are reflected as a
component of the Subsidiary Guarantor as of August 29, 1999 and August 27, 2000.


                                      F-25
<PAGE>   43

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

       GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS- (CONTINUED)



                     CONDENSED CONSOLIDATING BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                          August 27, 2000
                                                             -----------------------------------------------------------------------
                                                                                          Subsidiary    Consolidated
                                                                            Subsidiary       Non-        Elimination    Consolidated
                                                             Albecca Inc.   Guarantors    Guarantors       Entries         Total
                                                             ------------   ----------    ----------    ------------    ------------
<S>                                                           <C>            <C>           <C>            <C>            <C>
                       ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                   $  13,745      $   1,855     $   7,721      $      --      $  23,321
  Accounts receivable, net                                           --         20,291        16,093             --         36,384
  Intercompany accounts receivable                                   --         73,310         1,336        (74,646)            --
  Inventories                                                        --         23,617        24,796             --         48,413
  Other current assets                                              180            987         3,587             --          4,754
                                                              ---------      ---------     ---------      ---------      ---------
    Total current assets                                         13,925        120,060        53,533        (74,646)       112,872
PROPERTY, PLANT AND EQUIPMENT, net                                   --         11,095        25,597             --         36,692
OTHER LONG-TERM ASSETS                                            4,894         13,745        22,892             --         41,531
INVESTMENT IN SUBSIDIARIES                                      107,397             --         7,884       (115,281)            --
INTERCOMPANY LOANS RECEIVABLE                                    91,985             --           532        (92,517)            --
                                                              ---------      ---------     ---------      ---------      ---------
    Total assets                                              $ 218,201      $ 144,900     $ 110,438      $(282,444)     $ 191,095
                                                              =========      =========     =========      =========      =========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term debt                        $      --      $     563     $   7,123      $      --      $   7,686
  Accounts payable                                                   --          9,484         7,763             --         17,247
  Intercompany accounts payable                                  67,854            114         6,678        (74,646)            --
  Accrued liabilities                                               814         11,856        11,994             --         24,664
                                                              ---------      ---------     ---------      ---------      ---------
    Total current liabilities                                    68,668         22,017        33,558        (74,646)        49,597
                                                              ---------      ---------     ---------      ---------      ---------
LONG-TERM DEBT, less current maturities                         148,930          6,085         7,481             --        162,496
                                                              ---------      ---------     ---------      ---------      ---------
INTERCOMPANY LOANS PAYABLE                                           --            388        92,129        (92,517)            --
                                                              ---------      ---------     ---------      ---------      ---------
OTHER LONG-TERM LIABILITIES                                         220          5,961         2,698             --          8,879
                                                              ---------      ---------     ---------      ---------      ---------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.01 par value; 50,000,000 shares
  authorized and no shares issued and outstanding at
    August 27, 2000                                                  --             --            --             --             --
Class A common stock, $0.01 par value; 250,000,000 shares
  authorized, 374,000 shares issued and outstanding at
    August 27, 2000                                                   4             --            --             --              4
Class B common stock, $0.01 par value; 100,000,000 shares
  authorized, 16,626,000 shares issued and outstanding at
    August 27, 2000                                                 166             --            --             --            166
Additional paid-in capital                                        7,326         41,825         7,926        (49,751)         7,326
Accumulated (deficit) earnings                                   (7,113)        68,199       (19,134)       (65,530)       (23,578)
Cumulative foreign currency translation adjustment                   --            425       (14,220)            --        (13,795)
                                                              ---------      ---------     ---------      ---------      ---------
    Total shareholders' equity (deficit)                            383        110,449       (25,428)      (115,281)       (29,877)
                                                              ---------      ---------     ---------      ---------      ---------
                                                              $ 218,201      $ 144,900     $ 110,438      $(282,444)     $ 191,095
                                                              =========      =========     =========      =========      =========
</TABLE>


                                      F-26
<PAGE>   44

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

       GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS- (CONTINUED)

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                        August 29, 1999
                                                             -----------------------------------------------------------------------
                                                                                          Subsidiary    Consolidated
                                                                            Subsidiary       Non-        Elimination    Consolidated
                                                             Albecca Inc.   Guarantors    Guarantors       Entries         Total
                                                             ------------   ----------    ----------    ------------    ------------
<S>                                                           <C>            <C>           <C>            <C>            <C>
                      ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                   $  27,424      $   1,747     $   5,887      $      --      $  35,058
  Accounts receivable, net                                           --         17,526        29,772             --         47,298
  Intercompany accounts receivable                                   --         29,917           513        (30,430)            --
  Inventories                                                        --         28,212        39,408             --         67,620
  Other current assets                                               49            432         4,576             --          5,057
                                                              ---------      ---------     ---------      ---------      ---------
    Total current assets                                         27,473         77,834        80,156        (30,430)       155,033
PROPERTY, PLANT AND EQUIPMENT, net                                   --          8,088        45,397             --         53,485
OTHER LONG-TERM ASSETS                                            6,443         18,884        32,713             --         58,040
INVESTMENT IN SUBSIDIARIES                                       71,791             --         7,559        (79,350)            --
INTERCOMPANY LOANS RECEIVABLE                                    94,598             --            13        (94,611)            --
                                                              ---------      ---------     ---------      ---------      ---------
    Total assets                                              $ 200,305      $ 104,806     $ 165,838      $(204,391)     $ 266,558
                                                              =========      =========     =========      =========      =========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term debt                        $      --      $   2,209     $  24,380      $      --      $  26,589
  Accounts payable                                                   --          8,611        17,812             --         26,423
  Intercompany accounts payable                                  21,742            155         8,533        (30,430)            --
  Accrued liabilities                                               895         16,336         9,100             --         26,331
                                                              ---------      ---------     ---------      ---------      ---------
    Total current liabilities                                    22,637         27,311        59,825        (30,430)        79,343
                                                              ---------      ---------     ---------      ---------      ---------
LONG-TERM DEBT, less current maturities                         188,750          2,045        22,416             --        213,211
                                                              ---------      ---------     ---------      ---------      ---------
INTERCOMPANY LOANS PAYABLE                                           --             13        94,598        (94,611)            --
                                                              ---------      ---------     ---------      ---------      ---------
OTHER LONG-TERM LIABILITIES                                          --          3,975         3,962             --          7,937
                                                              ---------      ---------     ---------      ---------      ---------
SHAREHOLDERS' (DEFICIT) EQUITY
Preferred stock, $0.01 par value; 50,000,000 shares
  authorized and no shares issued and outstanding at
    August 29, 1999                                                  --             --            --             --             --
Class A common stock, $0.01 par value; 250,000,000 shares
  authorized, 374,000 shares issued and outstanding at
    August 29, 1999                                                   4             --            --             --              4
Class B common stock, $0.01 par value; 100,000,000 shares
  authorized, 16,626,000 shares issued and outstanding at
    August 29, 1999                                                 166             --            --             --            166
Additional paid-in capital                                        7,326         41,500         7,926        (49,426)         7,326
Accumulated (deficit) earnings                                  (18,578)        29,811       (14,407)       (29,924)       (33,098)
Cumulative foreign currency translation adjustment                   --            151        (8,482)            --         (8,331)
                                                              ---------      ---------     ---------      ---------      ---------
    Total shareholders' (deficit) equity                        (11,082)        71,462       (14,963)       (79,350)       (33,933)
                                                              ---------      ---------     ---------      ---------      ---------
                                                              $ 200,305      $ 104,806     $ 165,838      $(204,391)     $ 266,558
                                                              =========      =========     =========      =========      =========
</TABLE>


                                      F-27
<PAGE>   45

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

       GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS- (CONTINUED)

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               Year Ended August 27, 2000
                                                         -----------------------------------------------------------------------
                                                                                      Subsidiary    Consolidated
                                                                        Subsidiary       Non-        Elimination    Consolidated
                                                         Albecca Inc.   Guarantors    Guarantors       Entries         Total
                                                         ------------   ----------    ----------    ------------    ------------
<S>                                                       <C>            <C>            <C>            <C>            <C>
Net sales                                                 $      --      $ 219,850      $ 147,358      $  (9,021)     $ 358,187
Cost of sales                                                    --        115,747         93,148         (9,021)       199,874
                                                          ---------      ---------      ---------      ---------      ---------
  Gross profit                                                   --        104,103         54,210             --        158,313
Operating expenses                                              167         60,087         52,803             --        113,057
Restructuring charges                                            --            (29)         1,390             --          1,361
Impairment of goodwill                                           --          4,997             --             --          4,997
                                                          ---------      ---------      ---------      ---------      ---------
  Operating (loss) income                                      (167)        39,048             17             --         38,898
Net gain on dispositions of businesses                           --             --           (969)            --           (969)
Interest income                                              (4,539)            --            (48)            --         (4,587)
Interest expense                                             21,796            344          2,125             --         24,265
                                                          ---------      ---------      ---------      ---------      ---------
(Loss) income before provision for income taxes,
  minority interest and extraordinary gain                  (17,424)        38,704         (1,091)            --         20,189
Provision for income taxes                                       --            316          3,338             --          3,654
Minority interest                                                --             --            298             --            298
                                                          ---------      ---------      ---------      ---------      ---------
(Loss) income before extraordinary gain                     (17,424)        38,388         (4,727)            --         16,237
Extraordinary gain on repurchase of debt, net of tax          5,833             --             --             --          5,833
Equity in earnings of subsidiaries                           35,606             --             --        (35,606)            --
                                                          ---------      ---------      ---------      ---------      ---------
    Net income (loss)                                     $  24,015      $  38,388      $  (4,727)     $ (35,606)     $  22,070
                                                          =========      =========      =========      =========      =========

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)

NET CASH PROVIDED BY
  OPERATING ACTIVITIES                                    $  31,721      $   3,030      $   4,429      $      --      $  39,180
                                                          ---------      ---------      ---------      ---------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment                     --         (5,570)        (3,240)            --         (8,810)
  Acquisitions of businesses                                     --             --         (1,872)            --         (1,872)
  Proceeds from sales of property, plant
    and equipment                                                --             74          1,443             --          1,517
  Proceeds from dispositions of businesses                       --             --         30,257             --         30,257
  Changes in other long-term assets                           1,137           (331)          (392)            --            414
                                                          ---------      ---------      ---------      ---------      ---------
  Net cash provided by (used in) investing activities         1,137         (5,827)        26,196             --         21,506
                                                          ---------      ---------      ---------      ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from revolving credit facilities                      --             --         27,112             --         27,112
  Repayments of revolving credit facilities                      --             --        (38,798)            --        (38,798)
  Proceeds from long-term debt                                   --          4,755          6,836             --         11,591
  Repayments of long-term debt                              (33,987)        (2,339)       (24,783)            --        (61,109)
  Subsidiary capital contributions/distributions                 --            312           (312)            --             --
  Distributions to shareholders                             (12,550)            --             --             --        (12,550)
                                                          ---------      ---------      ---------      ---------      ---------
  Net cash (used in) provided by financing
    activities                                              (46,537)         2,728        (29,945)            --        (73,754)
                                                          ---------      ---------      ---------      ---------      ---------
EFFECT OF EXCHANGE RATE ON CASH                                  --            177          1,154             --          1,331
                                                          ---------      ---------      ---------      ---------      ---------
NET (DECREASE) INCREASE IN CASH                             (13,679)           108          1,834             --        (11,737)
Cash and cash equivalents, beginning of period               27,424          1,747          5,887             --         35,058
                                                          ---------      ---------      ---------      ---------      ---------
Cash and cash equivalents, end of period                  $  13,745      $   1,855      $   7,721      $      --      $  23,321
                                                          =========      =========      =========      =========      =========
</TABLE>



                                      F-28
<PAGE>   46

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

       GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS- (CONTINUED)

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               Year Ended August 29, 1999
                                                        -----------------------------------------------------------------------
                                                                                     Subsidiary    Consolidated
                                                                       Subsidiary       Non-        Elimination    Consolidated
                                                        Albecca Inc.   Guarantors    Guarantors       Entries         Total
                                                        ------------   ----------    ----------    ------------    ------------
<S>                                                      <C>            <C>            <C>            <C>            <C>
Net sales                                                $      --      $ 204,636      $ 187,833      $  (8,286)     $ 384,183
Cost of sales                                                   --        113,824        115,027         (8,286)       220,565
                                                         ---------      ---------      ---------      ---------      ---------
  Gross profit                                                  --         90,812         72,806             --        163,618
Operating expenses                                             140         70,553         66,959             --        137,652
Restructuring charges                                           --            342          1,149             --          1,491
                                                         ---------      ---------      ---------      ---------      ---------
  Operating (loss) income                                     (140)        19,917          4,698             --         24,475
Loss on disposition of business                                 --             --          4,136             --          4,136
Interest income                                             (2,254)            --           (159)           159         (2,254)
Interest expense                                            22,086            616          3,620           (159)        26,163
                                                         ---------      ---------      ---------      ---------      ---------
(Loss) income before provision for income taxes,
  minority interest and extraordinary gain                 (19,972)        19,301         (2,899)            --         (3,570)
Provision for income taxes                                      --            408          1,796             --          2,204
Minority interest                                               --             --            318             --            318
                                                         ---------      ---------      ---------      ---------      ---------
(Loss) income before extraordinary gain                    (19,972)        18,893         (5,013)            --         (6,092)
Extraordinary gain on repurchase of debt, net of tax         1,331             --             --             --          1,331
Equity in earnings of subsidiaries                          13,880             --             --        (13,880)            --
                                                         ---------      ---------      ---------      ---------      ---------
    Net (loss) income                                    $  (4,761)     $  18,893      $  (5,013)     $ (13,880)     $  (4,761)
                                                         =========      =========      =========      =========      =========

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                 (In thousands)

NET CASH (USED IN) PROVIDED BY
  OPERATING ACTIVITIES                                   $  (7,482)     $   1,865      $  19,262      $      --      $  13,645
                                                         ---------      ---------      ---------      ---------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment                    --         (1,811)        (4,137)            --         (5,948)
  Acquisitions of businesses                                    --             --         (3,594)            --         (3,594)
  Proceeds from sales of property, plant
    and equipment                                               --            110          2,320             --          2,430
  Proceeds from disposition of business                         --             --            164             --            164
  Changes in other long-term assets                             --            (81)        (3,087)            --         (3,168)
                                                         ---------      ---------      ---------      ---------      ---------
  Net cash used in investing activities                         --         (1,782)        (8,334)            --        (10,116)
                                                         ---------      ---------      ---------      ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments for additional bond issuance costs                 (516)            --             --             --           (516)
  Changes in intercompany loan balances                         --         (1,824)         1,824             --             --
  Proceeds from revolving credit facilities                     --            517         24,007             --         24,524
  Repayments of revolving credit facilities                     --            (59)       (26,280)            --        (26,339)
  Proceeds from long-term debt                                  --          2,775         12,883             --         15,658
  Repayments of long-term debt                              (9,458)        (3,756)       (18,662)            --        (31,876)
  Subsidiary capital contributions/distributions                --          3,980         (3,980)            --             --
  Distributions to shareholders                             (4,308)            --             --             --         (4,308)
                                                         ---------      ---------      ---------      ---------      ---------
  Net cash (used in) provided by financing
    activities                                             (14,282)         1,633        (10,208)            --        (22,857)
                                                         ---------      ---------      ---------      ---------      ---------
EFFECT OF EXCHANGE RATE ON CASH                                 --             13           (511)            --           (498)
                                                         ---------      ---------      ---------      ---------      ---------
NET (DECREASE) INCREASE IN CASH                            (21,764)         1,729            209             --        (19,826)
Cash and cash equivalents, beginning of period              49,188             18          5,678             --         54,884
                                                         ---------      ---------      ---------      ---------      ---------
Cash and cash equivalents, end of period                 $  27,424      $   1,747      $   5,887      $      --      $  35,058
                                                         =========      =========      =========      =========      =========
</TABLE>


                                      F-29
<PAGE>   47

                                  ALBECCA INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

       GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS- (CONTINUED)

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            Year Ended August 30, 1998
                                                    -----------------------------------------------------------------------
                                                                                 Subsidiary    Consolidated
                                                                   Subsidiary       Non-        Elimination    Consolidated
                                                    Albecca Inc.   Guarantors    Guarantors       Entries         Total
                                                    ------------   ----------    ----------    ------------    ------------
<S>                                                  <C>            <C>            <C>            <C>            <C>
Net sales                                            $ 170,885      $  22,690      $ 193,218      $  (5,656)     $ 381,137
Cost of sales                                           92,880         12,323        117,534         (5,656)       217,081
                                                     ---------      ---------      ---------      ---------      ---------
  Gross profit                                          78,005         10,367         75,684             --        164,056
Operating expenses                                      53,182          8,319         68,332             --        129,833
Restructuring charges                                       --            276          1,986             --          2,262
                                                     ---------      ---------      ---------      ---------      ---------
  Operating income                                      24,823          1,772          5,366             --         31,961
Cost of cancelled initial public equity offering         1,273             --             --             --          1,273
Interest expense                                           623            655         10,671             --         11,949
Interest income                                           (116)            --             --             --           (116)
                                                     ---------      ---------      ---------      ---------      ---------
Income (loss) before provision for income taxes
  and minority interest                                 23,043          1,117         (5,305)            --         18,855
Provision for income taxes                                 864             24          3,133             --          4,021
Minority interest                                           --             --            471             --            471
Equity in earnings of subsidiaries                      16,044             --             --        (16,044)            --
                                                     ---------      ---------      ---------      ---------      ---------
Net income (loss)                                    $  38,223      $   1,093      $  (8,909)     $ (16,044)     $  14,363
                                                     =========      =========      =========      =========      =========

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                 (In thousands)

NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES                               $  19,906      $   1,054      $  (3,508)     $      --      $  17,452
                                                     ---------      ---------      ---------      ---------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment              (955)           (62)        (7,361)            --         (8,378)
  Acquisitions of businesses                           (20,989)            --         (7,076)            --        (28,065)
  Proceeds from sales of property, plant
    and equipment                                           37             54            418             --            509
  Changes in other long-term assets                         --         (1,618)         1,919             --            301
                                                     ---------      ---------      ---------      ---------      ---------
  Net cash used in investing activities                (21,907)        (1,626)       (12,100)            --        (35,633)
                                                     ---------      ---------      ---------      ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issue of senior
    subordinated notes, net of debt issue costs        193,241             --             --             --        193,241
  Changes in intercompany loan balances                (57,478)           433         57,045             --             --
  Proceeds from revolving credit facilities             87,685            327         21,849             --        109,861
  Repayments of revolving credit facilities            (92,585)           (64)       (42,058)            --       (134,707)
  Proceeds from long-term debt                           2,641            777         12,258             --         15,676
  Repayments of long-term debt                          (8,509)          (763)       (32,841)            --        (42,113)
  Repayments of notes payable to shareholders           (4,000)            --             --             --         (4,000)
  Distributions to shareholders                        (70,300)            --             --             --        (70,300)
                                                     ---------      ---------      ---------      ---------      ---------
  Net cash provided by financing activities             50,695            710         16,253             --         67,658
                                                     ---------      ---------      ---------      ---------      ---------
EFFECT OF EXCHANGE RATE ON CASH                             95           (253)           264             --            106
                                                     ---------      ---------      ---------      ---------      ---------
NET INCREASE (DECREASE) IN CASH                         48,789           (115)           909             --         49,583
Cash and cash equivalents, beginning of period             399            133          4,769             --          5,301
                                                     ---------      ---------      ---------      ---------      ---------
Cash and cash equivalents, end of period             $  49,188      $      18      $   5,678      $      --      $  54,884
                                                     =========      =========      =========      =========      =========
</TABLE>


                                      F-30
<PAGE>   48

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

Not applicable.

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The following table sets forth the names, ages and principal positions of
Albecca's executive officers and directors:

                 NAME             AGE                 POSITION
        Craig A. Ponzio.......    50    Chairman of the Board, President, Chief
                                        Executive Officer and Director
        June R. Ponzio........    38    Vice Chairman of the Board and Director
        D. Garry Fehrman......    57    Director
        William P. Trimarco...    41    President, International
        Randall D. Fretz......    48    President, North America
        Stephen E. McKenzie...    39    Senior Vice President, Marketing
        R. Bradley Goodson ...    41    Vice President, Finance, Chief Financial
                                        Officer, Treasurer and Secretary

    Craig A. Ponzio has served as Albecca's Chairman of the Board, President,
Chief Executive Officer and a Director since 1981. He has been actively involved
with Albecca since 1973 and acquired Albecca in 1981. Mr. Ponzio oversees
Albecca's operations, including the development and execution of its overall
strategy. Mr. Ponzio is Albecca's chief designer and provides leadership in all
aspects of the design process.

    June R. Ponzio has served as Albecca's Vice Chairman of the Board and a
Director since May 1998. She served as Corporate Secretary from October 1993
until May 1998. Mrs. Ponzio joined Albecca in 1992.

    D. Garry Fehrman has served as a Director since May 1999. Mr. Fehrman has
been President, Chief Executive Officer and Chairman of the Board of Atlantech
International, Atlanta, Georgia, since 1983. Prior to Atlantech International,
Mr. Fehrman held various executive positions at Gulf Canada Limited and Ontario
Hydro.

    William P. Trimarco has served as Albecca's President, International since
January 1999. Mr. Trimarco had served as Albecca's President, U.S. Operations
from July 1997 to December 1998, as its Senior Vice President, U.S. Operations
from 1995 to 1997. Mr. Trimarco joined Albecca in 1982.

    Randall D. Fretz has served as Albecca's President, North America since
January 1, 1999. Mr. Fretz joined Albecca in 1995 as President, Canada. Prior to
joining Albecca, he was the Division Director, Ray-Ban for Bausch & Lomb,
Canada.

    Stephen E. McKenzie has served as Albecca's Senior Vice President, Marketing
since September 1998 and from September 1995 served as its Vice President,
Marketing. Mr. McKenzie joined Albecca in 1991.

    R. Bradley Goodson has served as Albecca's Vice President, Finance, Chief
Financial Officer and Treasurer since May 2000, and as Secretary since May 1998.
He previously held the positions of Vice President Finance, International and
Vice President Business Development. Mr. Goodson joined Albecca in 1994 and was
employed by Arthur Andersen & Co. from 1988 to 1994.

    Craig Ponzio and June Ponzio are married. There are no other family
relationships among Albecca's directors and executive officers.

BOARD OF DIRECTORS

    The Bylaws provide that the size of the Board of Directors shall be
determined by the Board of Directors or by the shareholders of Albecca. The size
of the Board of Directors is currently fixed at three members, two of whom are
members of Albecca's management. Directors of Albecca are generally elected at
the annual meeting of shareholders. Directors of Albecca are elected or
appointed to serve until they resign or are removed, or until their successors
are elected and have qualified. Directors who are also members of


                                       18
<PAGE>   49

management are not separately compensated as Directors. Mr. Fehrman's annual
compensation is $16,000 per year. Expenses incurred for attendance at board
meetings are also reimbursed. Additionally, on May 1, 2000, Mr. Fehrman was
granted 5,000 options on Albecca Inc.'s Class A common stock under the
Larson-Juhl 1998 Stock Option Plan.


ITEM 11.  EXECUTIVE COMPENSATION

    The following table summarizes the compensation paid or accrued for services
rendered to Albecca by Albecca's Chief Executive Officer and the four most
highly compensated other executive officers whose total salary and bonus
exceeded $100,000 during the year ended August 27, 2000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                     Long Term
                                                  Annual Compensation                               Compensation
                                   ---------------------------------------------------              ------------
                                                                                          Securities
                                                                        Other Annual      Underlying               All Other
Name and Principal Position        Year     Salary($)    Bonus ($)    Compensation ($)   Options/SARs          Compensation ($)
---------------------------        ----     ---------    ---------    ----------------   ------------          ----------------
<S>                                <C>       <C>          <C>         <C>                <C>                   <C>
Craig A. Ponzio, Chairman of       2000      680,000           (1)                 --               -              326,250  (2)
     the Board, President and      1999      680,000           --             450,000 (3)           -                    -
     Chief Executive Officer       1998      680,000           --             419,000 (4)           -              950,000  (5)

William P. Trimarco,               2000      205,000           (1)                  -          34,062                    -
      President, International                                                                 34,062  (6)
                                   1999      245,000      585,000                   -               -                    -
                                   1998      240,000      220,000                   -          34,062                    -

Randall D. Fretz (4)               2000      188,600           (1)                  -         120,000                    -
     President, North America      1999      162,000       62,500              24,000               -                    -

Stephen E. McKenzie,               2000      184,300           (1)                  -          35,000                    -
     Senior Vice President,                                                                    30,000  (6)
     Marketing                     1999      159,000       62,500             100,000          30,000                    -
                                   1998      117,000       55,000                   -               -                    -

R. Bradley Goodson,                2000      142,300           (1)                  -          35,000                    -
     Vice President, Finance and                                                               25,000  (6)
     Chief Financial Officer       1999      135,200       25,000                   -          25,000                    -
                                   1998      113,000       42,000                   -               -                    -
</TABLE>

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

(1) The amount of bonus earned for the fiscal year ended August 27, 2000 has not
    been allocated or fully allocated to the individual through the date hereof.

(2) This amount represents the annual increment in value of the deferred
    compensation balance due this individual that has been accrued but not paid.

(3) Represents amounts accrued in prior years, the payment terms of which were
    amended during fiscal 2000, such that this amount will be paid in fiscal
    2009.

(4) Of this amount, $400,000 was reflected as a bonus payment in the prior
    year's Summary Compensation Table. During fiscal 2000, the payment terms of
    this amount were amended so that the amount will be paid in fiscal years
    2008 and 2009.

(5) Represents amounts earned (and accrued) in prior years, the payment terms
    of which were amended in fiscal 2000 such that these amounts will be paid in
    fiscal years 2006, 2007 and 2008.

(6) Represents shares subject to an option granted in a previous fiscal year,
    the exercise price of which was repriced in fiscal year 2000. SEC
    regulations require the Company to disclose the number of shares subject to
    previously granted options and repriced in fiscal year 2000 as if a new
    option for such number of shares was granted in fiscal year 2000.


                                       19
<PAGE>   50

OPTION/SAR GRANTS IN LAST FISCAL YEAR

    The following table sets forth information concerning each grant of SARs and
options (which plans are more fully described in Note 6 to the consolidated
financial statements) to Albecca's executive officers during the year ended
August 27, 2000.

<TABLE>
<CAPTION>
                                                                                                     Potential Realizable Value
                                                                                                       At Assumed Annual Rate
                                                                                                     Of Stock Price Appreciation
                                                 Individual Grants                                       For Option Term (1)
                      --------------------------------------------------------------------------       ----------------------
                      Number of Securities    Percent of Total
                          Underlying        Options/Sars Granted      Exercise
                          Options/SARs         To Employees In      or Base Price     Expiration
Name                      Granted (#)          Fiscal Year (2)         ($/Sh)            Date           5%($)         10%($)
-------------------   --------------------  --------------------    -------------     ----------       --------      --------
<S>                         <C>                   <C>                    <C>                <C>        <C>           <C>
William P. Trimarco         34,062                 5.2                   7.00               (3)        $217,316      $336,533
                            34,062  (4) (5)        5.2                   5.80               (3)        $258,190      $377,407

Randall D. Fretz            84,000                12.9                   7.00               (6)        $272,880      $398,880
                            36,000                 5.5                   5.80               (6)        $535,920      $829,920

Stephen E. McKenzie         35,000                 5.4                   7.00               (3)        $223,300      $345,800
                            30,000  (4)            4.6                   5.80               (3)        $227,400      $332,400

R. Bradley Goodson          30,000                 4.6                   7.00               (3)        $191,400      $296,400
                             5,000                 0.8                   5.80               (3)         $37,900       $55,400
                            25,000  (4)            3.8                   5.80               (3)        $189,500      $277,000
</TABLE>

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

(1)  The 5% and 10% assumed annual rates of compounded stock price appreciation
     are mandated by rules of the SEC. The actual stock price may increase or
     decrease over the term. For calculation purposes, the options were assumed
     to expire five years from the close of the most recently completed fiscal
     year.

(2)  Based on 651,124 shares. The Company granted options for a total of 171,062
     shares and SARs for the equivalent of 120,000 shares in the fiscal year
     ended August 27, 2000, and repriced options granted in previous fiscal
     years with respect to an additional 360,062 shares. Under SEC regulations,
     repriced options are deemed as additional grants in the year in which they
     are repriced. Also includes potential option discussed in Note (6) below.

(3)  The options terminate and no longer are exercisable upon the earlier to
     occur of (a) five years after a determination by the committee the option
     shall terminate, or (b) five years after an initial public offering of the
     Company's common stock.

(4)  Represents shares subject to an option granted in a previous fiscal year,
     the exercise price of which was repriced in fiscal year 2000. SEC
     regulations require the Company to disclose the number of shares subject to
     previously granted options and repriced in fiscal year 2000 as if a new
     option for such number of shares was granted in fiscal year 2000.

(5)  As more fully explained in Note 6 to the consolidated financial statements,
     this individual is a participant in a performance based plan under which,
     subject to meeting certain performance criteria, he can be granted 34,062
     of options per year in fiscal years 2001, 2002 and 2003.

(6)  Expires not later than five years after (a) the determination by the
     committee that the SAR shall expire, or (b) the date upon which the SAR's
     are converted to options.


  AGGREGATED OPTION/STOCK APPRECIATION RIGHT EXERCISES IN LAST FISCAL YEAR AND
             FISCAL YEAR END OPTION/STOCK APPRECIATION RIGHT VALUES

<TABLE>
<CAPTION>
                                     Number Of Securities Underlying Unexercised          Value Of Unexercised In-The-Money
                                          Options/SARs At Fiscal Year-End                  Options/SARs At Fiscal Year-End

               Name                        (#) Exercisable/Unexercisable                    ($) Exercisable/Unexercisable
               ----                        -----------------------------                    -----------------------------
<S>                                                  <C>                                              <C>
    William P. Trimarco                               0/68,124                                        0/277,946
    Randall D. Fretz                                 0/120,000                                        0/460,800
    Stephen E. McKenzie                               0/65,000                                        0/262,200
    R. Bradley Goodson                                0/60,000                                        0/244,800
</TABLE>



                                       20
<PAGE>   51

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    Craig A. Ponzio is the sole member of the Compensation Committee of the
Company's Board of Directors. Mr. Ponzio is the Chairman of the Board,
President, and Chief Executive Officer of Albecca. Albecca leases its corporate
headquarters in Norcross, Georgia from L-J Properties Inc., a company owned 80%
by Mr. Ponzio. The lease commenced in August 1991 and terminates in August 2001,
subject to Albecca's option to extend the lease for two 36-month periods.
Albecca currently pays L-J Properties $768,000 per year in rent, with certain
annual increases determined by a formula set forth therein. Albecca believes
that the lease with L-J Properties is on terms at least as favorable to Albecca
as those obtainable from unaffiliated third parties.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The authorized capital stock of Albecca consists of 250,000,000 shares of
Class A Common Stock, $0.01 par value per share, 100,000,000 shares of Class B
Common Stock, $0.01 par value per share, and 50,000,000 shares of preferred
stock, $0.01 par value per share. The following table sets forth certain
information regarding the beneficial ownership of Albecca's two classes of
common stock as of the date of this report with respect to each person who owns
beneficially more than 5% of the common stock and all executive officers and
directors of Albecca as a group. Except as otherwise indicated, the persons or
entities listed below have sole voting and investment power with respect to such
shares. Each share of Class B Common Stock is convertible at the option of the
holder into one share of Class A Common Stock. The number of shares of Class A
Common Stock and percentages contained under this heading do not account for
these conversion rights. Holders of Class A Common Stock are entitled to one
vote per share. Holders of Class B Common Stock are entitled to 10 votes per
share.

<TABLE>
<CAPTION>
                                                              SHARES OWNED
                                                                                                   TOTAL
                                                    CLASS A                  CLASS B              VOTING
                                                 COMMON STOCK             COMMON STOCK             POWER
                                              NUMBER       PERCENT    NUMBER         PERCENT      PERCENT
                                             -------       -------  ----------       -------      -------
<S>                                          <C>             <C>    <C>                 <C>         <C>
    Craig A. Ponzio.......................   204,000         54.5%  16,626,000          100%        99.9%
    June R. Ponzio........................   204,000         54.5%  16,626,000          100%        99.9%
    All executive officers and directors
    as a Group (7 persons)................   374,000          100%  16,626,000          100%         100%
</TABLE>


    The address for Craig A. Ponzio and June R. Ponzio is 3900 Steve Reynolds
Boulevard, Norcross, Georgia 30093. All shares of common stock attributable to
Mrs. Ponzio are owned of record by her husband, Mr. Ponzio. Mrs. Ponzio
disclaims beneficial ownership of such shares.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Albecca leases its corporate headquarters in Norcross, Georgia from L-J
Properties Inc., a company owned 80% by Mr. Ponzio and 10% by each of Messrs.
Trimarco, and McKenzie. The lease commenced in August 1991 and terminates in
August 2001, subject to Albecca's option to extend the lease for two 36-month
periods. Albecca currently pays L-J Properties $768,000 per year in rent, with
certain annual increases determined by a formula set forth therein. Albecca
believes that the lease with L-J Properties is on terms at least as favorable to
Albecca as those obtainable from unaffiliated third parties.


                                       21
<PAGE>   52
                                     PART IV

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

a.       1.  Financial Statements included in Part II of this report:

                  Consolidated Balance Sheets as of August 29, 1999 and August
                  27, 2000.

                  Consolidated Statement of Operations for each of the three
                  years ended August 30, 1998, August 29, 1999 and August 27,
                  2000.

                  Consolidated Statements of Shareholders' Equity (Deficit) for
                  each of the three years ended August 30, 1998, August 29,
                  1999 and August 27, 2000.

                  Consolidated Statement of Cash Flows for each of the three
                  years ended August 30, 1998, August 29, 1999 and August 27,
                  2000.

         2.  Financial Statement Schedules included in this report:

                  Schedule II -- Valuation and Qualifying Accounts.

         3.  Exhibits:

NO.      DESCRIPTION

 3.1     Amended and Restated Articles of Incorporation of Albecca (incorporated
         by reference to Exhibit 3.1 of Albecca's Registration Statement on Form
         S-4 (No. 333-67975) as filed with the SEC on November 25, 1998 and
         declared effective by the SEC on February 12, 1999).

 3.2     Amended and Restated Bylaws of Albecca (incorporated by reference to
         Exhibit 3.2 of Albecca's Registration Statement on Form S-4 (No.
         333-67975) as filed with the SEC on November 25, 1998 and declared
         effective by the SEC on February 12, 1999).

 4.1     Indenture dated August 11, 1998, among Albecca Inc. and State Street
         Bank & Trust, as trustee, relating to the Notes (the "Indenture")
         (incorporated by reference to Exhibit 4.1 of Albecca's Registration
         Statement on Form S-4 (No. 333-67975) as filed with the SEC on November
         25, 1998 and declared effective by the SEC on February 12, 1999).

 4.2     Form of 10 3/4% Senior Note due 2008 of Albecca Inc. (the "New Notes")
         (included as Exhibit A of the Indenture filed as Exhibit 4.1).

10.1     1998 Stock Option Plan (incorporated by reference to Exhibit 10.1 of
         Albecca's Registration Statement on Form S-4 (No. 333-67975) as filed
         with the SEC on November 25, 1998 and declared effective by the SEC on
         February 12, 1999).

10.1.1   Larson-Juhl U.S. 2000 Stock Appreciation Rights Plan.

10.1.2   Larson-Juhl Canada 2000 Stock Appreciation Rights Plan.

21.1     Subsidiaries of the Registrant

27.1     Financial Data Schedule (for SEC use only)

b. Reports on Form 8-K: None


                                       22
<PAGE>   53

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE






To Albecca Inc.:


We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of ALBECCA INC. (a Georgia
corporation) included therein and have issued our report thereon dated October
30, 2000. Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. This schedule is the responsibility
of Albecca's management and presented for purposes of complying with the
Securities and Exchange Commission rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.



/s/ Arthur Andersen LLP



Atlanta, Georgia
October 30, 2000



                                       23
<PAGE>   54

                                   SCHEDULE II
                                     ALBECCA

                        VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
                                                      BALANCE AT     CHARGED TO                                     BALANCE
                                                       BEGINNING      COSTS AND                                     AT END
                                                        OF YEAR       EXPENSES      DEDUCTIONS*     OTHER**         OF YEAR
<S>                                                   <C>            <C>            <C>            <C>            <C>
For the fiscal year ended:

 August 30, 1998: Allowance for doubtful accounts     $5,378,000     $3,756,000     $3,444,000     $  169,000     $5,859,000

 August 29, 1999: Allowance for doubtful accounts     $5,859,000     $1,643,000     $2,329,000     $   17,000     $5,190,000

August 27, 2000: Allowance for doubtful accounts      $5,190,000     $2,045,000     $1,952,000     $       --     $5,283,000
</TABLE>

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

    *   Principally charges for which reserves were provided, net of recoveries.

    **  Acquired through acquisition of businesses.


                                       24
<PAGE>   55


                                   SIGNATURES


    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereto duly authorized.


                                 Albecca Inc.

November 27, 2000                By: /s/ Craig A. Ponzio
----------------------------     -----------------------------------------------
Date                             Craig A. Ponzio
                                 Chairman, President and Chief Executive Officer



                                POWER OF ATTORNEY

    KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Craig A. Ponzio his attorney-in-fact, with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report (Form 10-K) and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.

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

<TABLE>
<CAPTION>

Signatures                             Title                                   Date
----------                             -----                                   ----
<S>                                    <C>                                     <C>
/s/ Craig A. Ponzio....................Chairman of the Board, President        November 27, 2000
-------------------
    Craig A. Ponzio                    and Chief Executive Officer
                                       (principal executive officer)

/s/R. Bradley Goodson..................Chief Financial Officer                 November 27, 2000
---------------------
    R. Bradley Goodson                 (principal financial and
                                       accounting officer)

/s/ June R. Ponzio.................... Director                                November 27, 2000
-------------------
    June R. Ponzio

/s/ D. Garry Fehrman...................Director                                November 27, 2000
--------------------
     D. Garry Fehrman
</TABLE>


                                       25
<PAGE>   56
                                 EXHIBIT INDEX

NO.      DESCRIPTION

 3.1     Amended and Restated Articles of Incorporation of Albecca (incorporated
         by reference to Exhibit 3.1 of Albecca's Registration Statement on Form
         S-4 (No. 333-67975) as filed with the SEC on November 25, 1998 and
         declared effective by the SEC on February 12, 1999).

 3.2     Amended and Restated Bylaws of Albecca (incorporated by reference to
         Exhibit 3.2 of Albecca's Registration Statement on Form S-4 (No.
         333-67975) as filed with the SEC on November 25, 1998 and declared
         effective by the SEC on February 12, 1999).

 4.1     Indenture dated August 11, 1998, among Albecca Inc. and State Street
         Bank & Trust, as trustee, relating to the Notes (the
         "Indenture")(incorporated by reference to Exhibit 4.1 of Albecca's
         Registration Statement on Form S-4 (No. 333-67975) as filed with the
         SEC on November 25, 1998 and declared effective by the SEC on February
         12, 1999).

 4.2     Form of 10 3/4% Senior Note due 2008 of Albecca Inc. (the "New
         Notes")(included as Exhibit A of the Indenture filed as Exhibit 4.1) .

10.1     1998 Stock Option Plan (incorporated by reference to Exhibit 10.1 of
         Albecca's Registration Statement on Form S-4 (No. 333-67975) as filed
         with the SEC on November 25, 1998 and declared effective by the SEC on
         February 12, 1999).

10.1.1   Larson-Juhl U.S. 2000 Stock Appreciation Rights Plan.

10.1.2   Larson-Juhl Canada 2000 Stock Appreciation Rights Plan.

21.1     Subsidiaries of the Registrant

27.1     Financial Data Schedule (for SEC use only)

c.       Reports on Form 8-K: None


                                       26