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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934         For the fiscal year ended: December 31,
2009

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from
____________to _____________

Commission File No. 000-28543

SUNSET SUITS HOLDINGS, INC.(Exact
name of registrant as specified in its charter)

|Nevada                                           | 26-1516905                          
|------------------------------------------------ | ------------------------------------
|(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.)
|organization)                                    |                                     

ul. Starołęcka 18 61-361
Poznań, Poland
(Address
of principal executive offices)

+48 (61) 642 40 04(Registrants
telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

|Title of each class | Name of each exchange on which
      registered
|------------------- | -----------------------------------------------
|None                | None                                           

Securities registered pursuant to Section 12(g) of the Exchange
Act: Common Stock, par value $0.001 per share

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ]             No [X]

Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [  ]             No [X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]             No [  ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files)

Yes [  ]             No [X]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  [X]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

|Large Accelerated Filer [  ]                  | Accelerated Filer  [  ]        
|--------------------------------------------- | -------------------------------
|                                              |                                
|Non-Accelerated Filer [  ]                    | Smaller reporting company  [  ]
|(Do not check if a smaller reporting company) |                                

Indicate by check mark whether registrant is a shell company
(as defined in Rule 12b-2 of the Act)

Yes [  ]             No [X]

The common stock of the registrant was not not listed on any
principal market or quoted on any securities quotation system on June 30, 2009.
Accordingly, as of June 30, 2009 (the last business day of the registrants most
recently completed second fiscal quarter), there was no market for the
registrant's common stock and the aggregate market value of the shares of the
registrants common stock held by non-affiliates at such time is not
determinable.

There were a total of 12,499,645 shares of the registrants
common stock outstanding as of March 29, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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SUNSET SUITS HOLDINGS, INC.

Annual Report on FORM 10-KFor the
Fiscal Year Ended December 31, 2009

|                 
|-----------------
|                 
|TABLE OF CONTENTS

|PART I                                 |                                                                                                                           | 1 
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | --
|ITEM 1.                                | BUSINESS.                                                                                                                 | 1 
|ITEM 1A.                               | RISK FACTORS.                                                                                                             | 12
|ITEM 1B.                               | UNRESOLVED STAFF COMMENTS.                                                                                                | 22
|ITEM 2.                                | PROPERTIES.                                                                                                               | 21
|ITEM 3.                                | LEGAL PROCEEDINGS.                                                                                                        | 22
|ITEM 4.                                | (REMOVED AND RESERVED).                                                                                                   | 22
|PART II                                |                                                                                                                           | 22
|ITEM 5.                                | MARKET FOR REGISTRANTS
      COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
      EQUITY SECURITIES. | 22
|ITEM 6.                                | SELECTED FINANCIAL DATA.                                                                                                  | 23
|ITEM 7.                                | MANAGEMENTS DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS **OF
      OPERATIONS.**                    | 23
|Accounts Receivable                    | 48                                                                                                                       
|Foreign Currency
      Translation     | 49                                                                                                                       
|Use of estimates                       | 50                                                                                                                       
|ITEM 7A.                               | QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK.                                                         | 50
|ITEM 8.                                | FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA.                                                                        | 51
|ITEM 9.                                | CHANGES IN AND DISAGREEMENTS
      WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.                               | 51
|ITEM 9A(T). CONTROLS AND PROCEDURES.   | 51                                                                                                                       
|ITEM 9B.                               | OTHER INFORMATION.                                                                                                        | 52
|PART III                               |                                                                                                                           | 52
|ITEM 10.                               | DIRECTORS, EXECUTIVE
      OFFICERS AND CORPORATE GOVERNANCE.                                                             | 52
|Directors and Executive
      Officers | 52                                                                                                                       
|ITEM 11.                               | EXECUTIVE COMPENSATION.                                                                                                   | 53
|ITEM 12.                               | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
      OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.                     | 54

|ITEM 13. | CERTAIN RELATIONSHIPS AND
      RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. | 55
|-------- | -------------------------------------------------------------------------------- | --
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES.                                          | 56
|PART IV  |                                                                                  | 57
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES.                                         | 57

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Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. We use words such as believe, expect, anticipate, project,
target, plan, optimistic, intend, aim, will or similar expressions
which are intended to identify forward-looking statements. Such statements
include, among others, those concerning market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; uncertainties
related to conducting business in foreign countries, as well as all assumptions,
expectations, predictions, intentions or beliefs about future events. You are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, including those identified in
Item 1A, Risk Factors included herein, as well as assumptions, which, if they
were to ever materialize or prove incorrect, could cause the results of the
Company to differ materially from those expressed or implied by such
forward-looking statements.

Although we believe the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
level of activity, performance, or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy or completeness of any of
these forward-looking statements. You should not rely upon forward-looking
statements as predictions of future events. We are under no duty to update any
of these forward-looking statements after the date of this report to conform our
prior statements to actual results or revised expectations.

Use of Terms

Except as otherwise indicated by the context, references in
this report to (i) the Company, we, us, and our are to the combined
business of Sunset Suits Holdings, Inc., a Nevada corporation, and its
consolidated subsidiaries; (ii) Sunset Suits are to our wholly-owned
subsidiary Sunset Suits S.A., a Polish company; (iii) Fashion Service are to
our wholly-owned subsidiary Fashion Service Sp. z o.o., a Polish company; (iv)
Men's Fashion are to the predecessor company to Sunset Suits, Sunset Suits
Men's Fashion - Moda Męska; (v) SEC are to the United States Securities and
Exchange Commission; (vi) Securities Act are to Securities Act of 1933, as
amended; (vii) Exchange Act are to the Securities Exchange Act of 1934, as
amended; (viii) Poland, Polish and Pole are to the Republic of Poland;
(ix) PLN are to the legal currency of Poland, the Polish Zloty; (x) EUR or
Euro are to the legal currency of the European Union; (xi) U.S. dollars,
dollars, USD and $ refer to the legal currency of the United States; (xii)
LIBOR are to the London Interbank Offered Rate; and (xiii) WIBOR refers to
the Warsaw Interbank Offered Rate.

PART I

|ITEM 1. BUSINESS.
|-----------------

Business Overview

We are a designer and retailer of high quality menswear based
in Poland. Our merchandise includes suits, sport coats, slacks, dress shirts and
ties. We offer an assortment of styles and maintain a broad selection of
fabrics, colors and sizes. Prior to March 26, 2010, we manufactured the majority
of our menswear through our subsidiary, Fashion Service, and purchased the
remaining inventory from third party suppliers. On March 26, 2010, we sold 100%
of our ownership interest in Fashion Service and are currently transitioning the
supply of our merchandise to a supply chain in Asia.

We distribute our clothing primarily through our sales outlets,
which we operate, and which are dedicated exclusively to the sale of our
clothing. As of December 31, 2009, our operations included 88 domestic retail
stores located in Poland with total retail space of approximately 12,208 square
meters, 3 stores located in Latvia with total retail space of approximately 359
meters, 8 stores located in the Czech Republic with total retail space of
approximately 766 meters, and 5 stores located in Lithuania with total retail
space of approximately 654 square meters. Our sales outlets are located mainly
in larger shopping centers in urban areas with populations in excess of 50,000
people.

We target our sales to men in the 18 to 35 year-old age group,
one of the most rapidly developing demographics in our industry. Our products
are targeted toward consumers of business attire, consumers who are purchasing
attire for special events, and consumers who are shopping for smart casual
attire.

1

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Because we concentrate on men's business attire, which is
characterized by infrequent and more predictable fashion changes, we believe
that we are not as exposed to trends typical of more fashion-forward apparel
retailers, where significant markdowns and promotional pricing are more common.
In addition, because our inventory mix includes business casual merchandise,
we are able to meet demand resulting from the trend over the past decade toward
more relaxed dress codes in the workplace. We believe that the quality and
selection we provide to our customers have been significant factors in enabling
us to consistently gain market share in Poland.

We market our clothing principally through the direct efforts
of our in-house sales staff. As of December 31, 2009, we had 475 sales
personnel. We believe we provide a superior level of customer service relative
to our competitors. Additionally, our in-store salespersons are trained as
clothing consultants to provide customers with assistance and advice on their
apparel needs, including product style, color coordination, fabric choice and
garment fit. We encourage our sales staff to be friendly and knowledgeable.

We compete with several designers and manufacturers of apparel,
domestic and foreign. Our ability to continuously evaluate and respond to
changing consumer demands and tastes, across multiple markets, is critical to
our success. We emphasize fashion, quality and service in engaging in the
apparel business. Our business depends on our ability to shape, stimulate, and
respond to changing consumer trends and demands by producing innovative,
attractive and exciting clothing as well as on our ability to remain competitive
in the areas of quality and price.

For the fiscal year ended December 31, 2009, we had net sales
of $26 million, compared to net sales of $38 million for the fiscal year ended
December 31, 2008, an decrease of 34%. Approximately 23% of this decrease,
however, results from the decrease in value of the PLN compared to the USD from
2008 to 2009.

The address of our principal executive office in Poland is ul.
Starołęcka 18, 61- 361 Poznań, Poland and our telephone number is +48
(61) 642 40 04. We maintain a website at www.sunsetsuits.pl that contains
information about our Company, but that information is not part of this report.

Our Corporate Structure and History

Prior Operations and Bankruptcy

We were initially incorporated under the laws of the State of
Texas as SMSA III Acquisition Corp. as part of the implementation of the Chapter
11 reorganization plan of Senior Management Services of America III, Inc. and
its affiliated companies, or the SMS Companies.

On January 17, 2007, the SMS Companies filed a petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. On August
1, 2007, the United States Bankruptcy Court for the Northern District of Texas
confirmed the First Amended, Modified Chapter 11 Plan, or the Plan, as presented
by the SMS Companies and their creditors.

During the three years prior to filing the reorganization
petition, the SMS Companies operated a chain of skilled nursing homes in Texas,
which had consisted of 14 nursing facilities, ranging in size from approximately
114 beds to 325 beds. In the aggregate, the SMS Companies provided care to
approximately 1,600 resident patients and employed over 1,400 employees. A
significant portion of the SMS Companies cash flow was provided by patients
covered by Medicare and Medicaid. The SMS Companies facilities provided
around-the-clock care for the health, well being, safety and medical needs of
the SMS Companies' patients. The administrative and operational oversight of the
nursing facilities was provided by an affiliated management company located in
Arlington, Texas.

In 2005 the SMS Companies obtained a secured credit facility
from a financial institution. The credit facility eventually was comprised of an
$8.3 million term loan and a revolving loan of up to $15 million that was used
for working capital and to finance the purchase of the real property on which
two of the SMS Companies' nursing care facilities operated. By late 2006, the
SMS Companies were in an overadvance position, whereby the amount of funds
extended by the lender exceeded the amount of collateral eligible to be borrowed
under the credit facility. Beginning in September 2006, the SMS Companies
entered into a series of forbearance agreements whereby the lender agreed to
forebear from declaring the financing in default as long as the SMS Companies
obtained a commitment from a new lender to refinance and restructure the credit
facility. The SMS Companies were unsuccessful in obtaining a commitment from a
new lender, and on January 5, 2007, the lender declared the SMS Companies in
default and commenced foreclosure and collection proceedings. On January 9,
2007, the lender agreed to provide an additional $1.7 million to fund payroll
and permit a controlled transaction to bankruptcy. Subsequently, on January 17, 2007, the SMS
Companies filed a petition for reorganization under Chapter 11 of the Bankruptcy
Code.

2

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Plan of Reorganization

Halter Financial Group, or HFG, participated with the SMS
Companies and their creditors in structuring the Plan. As part of the Plan, HFG
provided $115,000 to be used to pay professional fees associated with the Plan
confirmation process. HFG was granted an option to be repaid through the
issuance of equity securities in 23 of the SMS Companies, including Senior
Management Services of El Paso Sunset, Inc.

HFG exercised the option and, as provided in the Plan, 80% of
our outstanding common stock, or 1,000,000 shares, was issued to HFG in
satisfaction of HFG's administrative claims. The remaining 20% of our
outstanding common stock, or 250,178 shares, was issued to 455 holders of
unsecured debt. The 1,250,178 shares, or Plan Shares, were issued pursuant to
Section 1145 of the Bankruptcy Code. As further consideration for the issuance
of the 1,000,000 Plan Shares to HFG, the Plan required HFG to assist us in
identifying a potential merger or acquisition candidate.

We remained subject to the jurisdiction of the bankruptcy court
until we acquired Sunset Suits. On May 9, 2008, we filed a certificate of
compliance with the bankruptcy court which stated that the requirements of the
Plan had been met, resulting in the discharge to be deemed granted. Thereafter,
the post-discharge injunction provisions set forth in the Plan and the
confirmation order became effective.

From August 1, 2007 (the date of the confirmation of the Plan)
until May 21, 2008, when we acquired Sunset Suits, we had virtually no
operations, assets or liabilities.

On September 26, 2007, we consummated a merger to reincorporate
in the State of Nevada.

Immediately prior to our acquisition of Sunset Suits as
described below, our corporate structure was as follows:



Acquisition of Sunset Suits and Related Financing

On May 21, 2008, we acquired all of the business operations of
Sunset Suits in a share exchange transaction pursuant to which all of the issued
and outstanding shares of Sunset Suits were exchanged for 6,121,250 shares of
our common stock. As a result of this transaction and following the private
placement described below, the former stockholders of Sunset Suits acquired 49%
of our common stock and Sunset Suits became our wholly-owned subsidiary.
Additionally, Fashion Service, through which we conducted our manufacturing
operations until March 26, 2010, became our indirect wholly-owned subsidiary.
For accounting purposes, the share exchange transaction was treated as a reverse
acquisition with Sunset Suits as the acquirer and Sunset Suits Holdings, Inc. as
the acquired party. On May 27, 2008, we changed our name to Sunset Suits
Holdings, Inc. to more accurately reflect our new business.

Men's Fashion was started in Poland in 1987 by Mirosław
Kranik as a sole proprietorship. On July 19, 2006, Sunset Suits was established
as a Polish joint stock company. On February 3, 2007, through an in-kind
contribution by Mirosław Kranik in exchange for a new issuance of shares in
Sunset Suits, certain assets of Men's Fashion, including rights under lease
contracts to 74 shops, the Sunset Suits trademark, know-how and fixed
shop-related assets, were acquired by Sunset Suits. The registration of the
share capital increase through an in-kind contribution took place at the
National Court Register in Poznań on March 23, 2007.

3

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Fashion Service was originally incorporated in Poland as a
limited liability company on November 29, 2007. At the time of its
incorporation, all of the shares of Fashion Service were owned by Mirosław
Kranik and his wife Ewelina Ligocka-Kranik. Mirosław Kranik received his
shares of Fashion Service in exchange for an in-kind contribution of certain
assets of Men's Fashion, including land, buildings, technical appliances and
machinery, transportation means, other fixed assets, intangible good and legal
rights, fixed assets in construction, inventory and legal obligations. The
registration of the company took place at the National Court Register in
Poznań on December 10, 2007. On January 28, 2008, pursuant to a share sale
agreement, Mr. Kranik sold his shares of Fashion Service to Sunset Suits. As a
result of these transactions, Fashion Service became a subsidiary of Sunset
Suits, in which Sunset Suits holds 2,000 shares of Fashion Service and Ewelina
Ligocka-Kranik holds two shares. Subsequently on March 10, 2008, Ewelina
Ligocka-Kranik transferred the two shares held by her to Sunset Suits. Fashion
Service was the primary source of clothing and accessories sold in Sunset Suits
shops, both in Poland and internationally through March 2010.

On March 26, 2010, Sunset Suits S.A., our wholly owned
subsidiary, entered into a purchase agreement (the Agreement) with XCRITO
Ltd., a corporation headquartered in Limassol, Cyprus (XCRITO), pursuant to
which we sold to XCRITO 100% of our equity interest in our
wholly-owned subsidiary Fashion Service Sp. z o. o. (Fashion Service). The
sale of Fashion Service was part of a restructuring plan intended to improve our operating margin. The size of
our current retail operations
was not sufficient to fully utilize the manufacturing capacity of Fashion
Service. In order to do so, we would have been required to engage in
wholesale distribution to large distributers or retail clients. We
recognized lower gross margins from our manufacturing business segment as
compared to our retail segment, which therefore lowered the gross margin of the
Company as a whole. In addition, the manufacturing plant would have required
major upgrades in order to satisfy our needs. Accordingly, our management decided that it was more cost effective and in the best
interests of the Company and its shareholders to increase our sourcing of
merchandise through a supply chain in Asia instead of maintaining our own
production lines.

Immediately following the acquisition of Sunset Suits, we
completed a private placement in which we sold 5,128,217 new shares of our
common stock to 71 accredited investors. As a result of this private placement,
we raised approximately $16 million in gross proceeds, which left us with
$11,225,000 in net proceeds after the deduction of offering expenses in the
amount of approximately $4,775,000. In connection with this private placement,
we paid the placement agent, Wentworth Securities, Inc., a placement agency fee
of $1,440,000.

In connection with the private placement on May 21, 2008,
Mirosław Kranik, our largest stockholder, entered into an escrow agreement,
or Escrow Agreement, with us, Wentworth Securities, Inc. and Securities Transfer
Corporation, the escrow agent. Pursuant to the Escrow Agreement, Mr. Kranik
agreed to place an aggregate of 3,125,000 shares of our common stock owned by
him (to be equitably adjusted for stock splits, stock dividends and similar
adjustments) into escrow with Securities Transfer Corporation. In the Escrow
Agreement, the parties established minimum after tax net income thresholds of
$3,377,000 for the fiscal year ending December 31, 2008 and $9,948,000 for the
fiscal year ending December 31, 2009. In the event that the minimum after tax
net income thresholds for fiscal year 2008 or fiscal year 2009 are not achieved,
then the investors would be entitled to receive up to 100% of the shares in
escrow for each applicable year based upon a pre-defined formula agreed to among
the parties to the Escrow Agreement. However, in the event that the release of
such shares of common stock to the investors, Mr. Kranik or any other party is
deemed to be an expense, charge or deduction from the revenue reflected on our
financial statements for the applicable year, as required under U.S. generally
accepted accounting principals, such expense or deduction will be excluded for
purposes of determining whether or not the minimum after tax income thresholds
for fiscal year 2008 and fiscal year 2009 are achieved.

We did not achieve the minimum after tax net income threshold
for fiscal year ended December 31, 2008, and pursuant to the Escrow Agreement,
the investors received an aggregate of 1,514,006 shares of our common stock from
Mr. Kranik. Additionally, we did not meet the after tax net income threshold of
$9,948,000 for the fiscal year ended December 31, 2009. Pursuant to the Escrow
Agreement, the investors are entitled to receive an additional [1,562,500]
shares from Mr. Kranik. We are currently in negotiations with the investors to
waive the delivery of the shares and instead amend the terms of the Escrow
Agreement such that these shares remain in escrow, together with an additional
625,000 to be pledged by Mr. Kranik, and all such shares would be released to
the investors if the Company does not achieve an after tax net income of of
US$2,037,000 in 2010 and US$3,422,000 in 2011. We anticipate that the proposed
amendment will be approved.

4

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Recent Acquisitions

On May 21, 2008, we entered into a stock purchase agreement
with Mirosław Kranik, our president and chief executive officer, and Ewelina
Ligocka-Kranik, or the Kraniks, pursuant to which we acquired from the Kraniks
100% of the interests in (1) Sunset Suits Bohemia, s.r.o., or Bohemia; (2) UAB
Sunset Suits Vilnius, or Sunset Suits Vilnius; (3) SIA Sunset Riga, or Sunset
Riga; and (4) Osauhing Posnania, or OU Posnania;, companies engaged in the
business of operating Sunset Suits retail stores that sell menswear that is
primarily sourced from Sunset Suits. As consideration for the sale of these
companies, we paid to the Kraniks an aggregate of $1,000. After consummating
these acquisitions, our future minimum lease payments will increase by $2.6
million as the result of taking over new lease agreements, with terms running
through 2014. This additional commitment includes the leases assumed in the
January acquisition of 2 stores in Latvia, one additional retail store opened in
March 2009 in Latvia, the July acquisitions of the 11 stores in the Czech
Republic and 1 store in Estonia, which has since been closed, and the August
acquisition of 5 stores in Lithuania.

Mr. Kranik and his spouse agreed in September 2008, to transfer
the four companies (which owned and operated a total of 17 stores at the time)
to us for the nominal consideration of $1,000 as a requirement of the investors
in the private placement since the price paid by the private placement investors
was based on a valuation that included the four companies. Initially, we
anticipated that the transfer of these local companies would occur in 2008. Due
to the need to prepare these local companies for the transfer, including with
respect to local requirements on ownership and regulation of the rights in their
assets, the transfers were not able to be finalized in 2008.

We acquired Bohemia, a company incorporated in accordance with
the Laws of Czech Republic, on July 9, 2009. Bohemia sells products through its
own network of 10 retail stores in Czech Republic.

We acquired Sunset Suits Vilnius, a company incorporated in
accordance with the Laws of Republic of Lithuania, on August 25, 2009. Sunset
Suits Vilnius sells products through its own network of 4 retail stores in
Lithuania.

We acquired Sunset Riga on January 29, 2009. Sunset Riga is
incorporated in accordance with the Laws of Republic of Latvia and sells
products through its own network of 3 retail stores in Latvia.

We acquired OU Posnania on July 10, 2009. OU Posnania is
incorporated in accordance with the Laws of Republic of Estonia and sells
products through its 1 retail store in Estonia.

We accounted for the recent acquisitions according to
paragraphs D8-D14 of Appendix D of FAS 141(ASC 805-50-30-5 and ASC 805-50-15-6).
The acquisitions we accounted for in a manner similar to a pooling of
interests in that the accounts of the transferred entities have combined with
our accounts for all periods presented at their historical cost basis. Prior
period financial statements presented have been restated to reflect the acquired
entities accounts as part of the Company. All of the accounts of the acquired
entities are stated in accordance with US GAAP at amounts equivalent to those
that would have been recorded by the separate entities.

Our Corporate Structure

All of our business operations are conducted through our
subsidiaries. The chart below presents our corporate structure as of April 15,
2010.

5

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Our Industry and Principal Market

Overview of the European Apparel Industry

Sales of menswear are spread relatively equally over Europe,
USA and the Asia Pacific Region. According to SMI-ATI, clothing sales in Europe
represent approximately 28.4% of global sales. Approximately 90% of European
sales are from countries other than Hungary, the Czech Republic, Poland and
Russia.

Sales of menswear in Poland are the highest in Central Europe,
constituting 2.1% of total European sales. Sales of menswear in the Czech
Republic and Hungary are much lower, constituting only 0.8% and 0.7%,
respectively, of total European sales. According to Datamonitor, Russia, which
covers a much greater geographic area than Poland, generates only about 6.6% of
total European sales (about 3 times more sales than Poland notwithstanding its
significantly greater geographic size). According to SMI-ATI, Eastern European
markets (e.g., Ukraine, Russia) will represent an increasingly larger segment of
the European menswear market over the next several years, both in terms of
production and distribution of menswear products.

According to Eurostats 2008 report entitled Textiles,
Clothing, Leather and Footwear, the textiles, clothing and leather
manufacturing sector of the European Union (27 countries) consisted of about
266,000 enterprises in 2004, generating EUR 67.8 billion of value. This value
corresponds to 1.3 % of the value generated by the non-financial business
economy of the European Union. Also according to Eurostats report, the
textiles, clothing and leather manufacturing sector of the EU-27 employed 3.4
million workers in 2004, constituting 2.7% of the non-financial business economy
workforce of the European Union.

According to Eurostat, over the last five years, clothing
consumption has increased at a slow pace in the largest European markets (with
the exception of Germany, where sales of clothing have slightly decreased).
Sales of clothing in new European member states have grown slightly over the
last several years; but average consumption of clothing is still relatively low.
European clothing prices have shown relative stability notwithstanding an
overall increase in prices for consumer goods generally. In some European
countries, such as Spain and Italy, clothing prices have steadily increased,
while in other European countries such as the United Kingdom and most Northern
European countries, clothing prices have declined.

The recent trend in clothing prices is likely to have been
affected by macro-economic conditions, including slow economic growth in the
European Union. We also believe that clothing prices were affected by the
following factors: (1) changing consumption patterns (increasing concerns over
price, increasing popularity of seasonal sales, outlets, and increasing appeal
of other product categories), which resulted in a reduction in clothing
consumption for the average European family; (2) the liberalization of the
international clothing and textile trade, which has exposed European
manufacturers to growing pressure from low-cost Asian imports; (3) the
consolidation of China as the worlds leading clothing producer, and its
increasing impact on European imports; and (4) the appreciation of the European
currency, which might have negatively affected the international competitiveness
of European goods. Within the clothing industry, these changes have been
associated with broad changes in international value chains and retail formats,
resulting in increasing pressure on European manufacturers to reduce costs.

6

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Overview of the Polish Clothing Market

The Polish clothing market has grown significantly in recent
years. According to GUS (Polands Central Statistical Office), the average
yearly increase in the Polish clothing sector has been between approximately 5%
and 18% over the period from 2005 through 2008. Many factors have contributed to
this growth, including the consolidation of Polish clothing manufacturers, an
increase in investments in, and restructuring of, Polish clothing manufacturers,
an increase in Polish and foreign investment in the construction of shopping
centers, the diversification of customers, creation of trademarks tailored for
specific customer groups, and an increased focus on sales and marketing efforts.

The value of retail sales in Poland is subjected to significant
fluctuation from year to year. According to GUS, in 2005, retail sales in Poland
shrunk by 2.4%, in part as a reaction to the slower pace of economic growth and
in part because of a high comparative base (a material portion of the growth in
retail sales in 2004 was generated by the one-off impact of Poland's accession
to the EU). In 2006, GUS noted a close to 13% increase in retail sales to over
PLN 490 billion (approximately $172 billion). Non-food goods account for 30% of
Polands retail sales. Polish clothing and footwear market in 2009 dropped by
6.25% as a result of the global financial crisis. The following table
illustrates the value of various indicators related to the Polish clothing
market, and the year over year growth or forecasted growth over the period from
2006 through 2010.

|Indicators                                                                     | 2006  | 2007  | 2008  | 2009E | 2010F
|------------------------------------------------------------------------------ | ----- | ----- | ----- | ----- | -----
|                                                                               |       |       |       |       |      
|Value of retail sales in Poland (PLN billion)                                  | 493.8 | 515.6 | 566.4 | 573.8 | 585.8
|Year
      over year growth of retail sales (%)                                | 12.9  | 4.4   | 9.9   | 1.3   | 2.1  
|Value of clothing market in Poland (PLN
      billion)                         | 21.2  | 24.9  | 27.2  | 25.5  | 26.8 
|Year
      over year growth of clothing market (%)                             | 10.0  | 17.5  | 9.2   | -6.3  | 5.1  
|Value of clothing sales in retail chains in
      Poland (PLN billion)         | 8.3   | 10.6  | 12.7  | 11.8  | 12.4 
|Year
      over year growth of clothing sales in retail chains in Poland(%)    | 13.6  | 26.9  | 20.0  | -7.0  | 5.0  
|                                                                               |       |       |       |       |      
|Source: GUS,
      EUROSTAT, The Economist, NBP (The National Bank of Poland) |      

According to The Economist Intelligence Unit and Gfk Polonia
(an international market research organization), clothing sales in Poland are
also highly dependent upon price. According to Gfk Polonia, on average 91% of
survey respondents claim that price is a key prerequisite for the purchase of
clothing. Among other significant factors, discounts (88%), a wide range of
products (84%), and high quality (77%) were mentioned. Only 10-15% of Poles
purchase clothing as a result of a real need. Moreover, according to Gfk
Polonias report titled Fashion in Poland 2006, young Poles are increasingly
interested in fashion and are becoming a more and more attractive consumer group
for clothing producers. By 2008 already two-fifths of the surveyed respondents
(out of which almost two-thirds are younger than 30) declared an interest in
fashion.

Our Competitive Strengths

We believe that we have the following competitive strengths in
our industry:

- Recognizable Brand in Our Markets. We believe that our brand
  has built a loyal following of fashion- conscious consumers who desire
  high-quality, well-designed apparel. We believe that brand recognition is
  critical in the apparel industry, where a strong brand name helps define
  consumer preferences. We are one of the most recognized brands in Poland, both
  in terms of overall brand recognition and in the category of elegant apparel.
- Distribution Through Our Specialty Retail Sales Outlets. Our
  sales outlets are located mainly in larger shopping centers located in urban
  areas. We believe our sales outlets set, reinforce and capitalize on the image
  and distinct sensibility of our brand.
- Design Expertise. Our design staff designs substantially all
  of our products using computer aided design stations, which provide timely
  translation of designs into sample depictions varying in color, cut and style.
  The use of these design tools provides our customers with products that meet
  current fashion trends. Since our design team is local, it is also more in
  tune with local tastes and trends.

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- Experienced Management Team. Our management team has
  significant experience in the apparel industry and has extensive experience in
  growing brands and in the retail environment. Mirosław Kranik, our
  significant stockholder and Chief Executive Officer, has worked in the apparel
  industry for over 20 years.

Our Growth Strategy

We are committed to enhancing profitability and cash flows
through the following strategies:

- Increased Sales Network. We plan to increase our sales
  network both in Poland and internationally. In Poland, as of December 31,
  2009, we had a sales network of 475 salespersons and we plan to expand our
  network further during the 2009 fiscal year. Because of the global economic
  crisis and the particular effect it has had on many of countries in the
  Central and Eastern European region, our original plans of increasing our
  sales network in Lithuania, Estonia, Latvia, the Czech Republic, Slovakia,
  Romania, Hungary and Bulgaria have been postponed.
- Opening of Additional Sales Outlets. We plan to open
  additional sales outlets in Poland and internationally. In Poland, we plan to
  increase the number of our sales outlets to 95 in the year 2011. Depending on
  the economic outlook in Poland this stores might be opened earlier in the year
  2010.
- Building a New Business for our Commercial Network in
  Poland. We plan on revising our domestic business model in the
  following ways: (1) increasing our distribution channels, (2) concentrating on
  the mid-priced and traditional menswear sectors, (3) implementing a rewards
  program for loyal customers, and (4) enhancing our monitoring and forecasting
  of sales in our sales outlets.

Retail Sales Outlets

We distribute our clothing primarily through our sales outlets,
which we operate, and which are dedicated exclusively to the sale of our
clothing. As of December 31, 2009, our operations included 88 domestic retail
stores located in Poland with total retail space of approximately 12,208 square
meters, 3 stores located in Latvia with total retail space of approximately 359
meters, 8 stores located in the Czech Republic with a total retail space of
approximately 766 meters, and 5 stores located in Lithuania with a total retail
space of approximately 654 square meters.

Our sales outlets are located mainly in larger shopping centers
in urban areas with populations in excess of 50,000 people. All of our Polish
sales outlets are leased. Generally, our sales outlets are leased for initial
periods ranging from 5 to 10 years with renewal options for an additional 5
years. The outlets range in size from 60 square meters to 255 square meters. We
believe our sales outlets set, reinforce and capitalize on the image and
distinct sensibility of our brand and provide a shopper-friendly environment.
The display of our merchandise in our sales outlets varies depending upon the
selling season and the size and location of the store.

Sales and Marketing

The menswear market consists of the following sectors: formal,
smart casual, mainstream, jeans, and sport. We are focused on two sectors:
formal and smart casual. The menswear market sector is divided into five price
levels (segments), ranging from lowest to highest, as follows: budget,
moderate, better, bridge and designer. We operate in medium price sector
that spans from moderate through better. We refer to this segment as the
lower-medium segment.

Management believes that the Polish market for formal attire is
approximately a PLN 1 billion (approximately $304 million) market. We have about
a 9% market share. To achieve increased sales growth, we decided to focus on
relatively non-expensive formal attire and the smart casual, lower medium price
segments of the market.

We target our sales to men in the 18 to 35 year-old age group,
one of the most rapidly developing demographics in our industry. Our products
are targeted toward consumers of business attire, consumers who are purchasing
attire for special events, and consumers who are shopping for smart casual
attire.

Because we concentrate on men's business attire, which is
characterized by infrequent and more predictable fashion changes, we believe we
are not as exposed to trends typical of more fashion-forward apparel retailers,
where significant markdowns and promotional pricing are more common. In
addition, because our inventory mix includes business casual merchandise, we
are able to meet demand for such products resulting from the trend over the past
decade toward more relaxed dress codes in the workplace. We believe that the
quality and selection we provide to our customers have been significant factors
in enabling us to consistently gain market share in Poland.

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We market our clothing principally through the direct efforts
of our in-house sales staff. We had 475 sales personnel as of December 31, 2009.
We believe we provide a superior level of customer service relative to our
competitors. Additionally, our in-store salespersons are trained as clothing
consultants to provide customers with assistance and advice on their apparel
needs, including product style, color coordination, fabric choice and garment
fit. We encourage our sales staff to be friendly and knowledgeable.

Manufacture and Design

Until March 26, 2010, Fashion Service was our wholly-owned
subsidiary, and was the primary designer, manufacturer and supplier for our
retail operations during 2009 and 2008. However, on March 26, 2010, we sold 100%
of our interest in Fashion Service to XCRITO Ltd., an unrelated third party. The
sale of Fashion Service was part of a restructuring plan intended to improve our
operating margin. The size of the our retail operations was not sufficient to
fully utilize the manufacturing capacity of Fashion Service. In order to do so,
we would have been required to engage in wholesale distribution to large
distributers or retail clients. We recognized lower gross margins from our
manufacturing business segment as compared to our retail segment, which in turn
lowered the gross margin of the Company as a whole. In addition, the
manufacturing plant on Fashion Service would have required major upgrades in
order to satisfy our needs going forward. Accordingly, the our management
decided that it was more cost effective and in the best interests of the Company
and its shareholders to increase the sourcing of merchandise through a supply
chain in Asia rather than maintaining our own production lines. As the result
the design department was transferred from Fashion Service to Sunset Suits S.A.
in the first quarter 2010 and its competency will be retained in-house going
forward.

Raw Materials and Suppliers

Prior to March 26, 2010, we purchased raw materials,
including fabric, yarn, buttons and other trim from domestic and foreign
sources, and designed and manufactured most of our inventory through Fashion
Service. As discussed above, our management determined that it was more cost
effective to cease our manufacturing operations through Fashion Service and
begin importing finished goods from Asia through Sunset Suits S.A. We expect to
make approximately 70% of our purchases in the year 2010 from suppliers located
in Asia. In the following years we expect we will purchase approximately 90% of
our finished goods from the Asia.

Approximately 66% of the raw materials that we purchased in
2009 were purchased from foreign textile mills, including mills in China, Korea
and Europe. Purchases from foreign mills, especially with respect to higher
quality fabrics, reflect enhanced diversity of available styles relative to
Polish-sourced fabric. Purchases from our largest fabric supplier represented
45% and 45% of our total fabric requirements 2009 and 2008, respectively. No
other supplier accounted for over 25% of our 2009 total raw material
requirements.

Changing sourcing policies

Retailers and manufacturers commonly enter into informal
partnerships ranging from trust-based commercial relationships to increase the
stability and reliability of the production and purchase of goods, to a more
extensive integration of information systems and operations and activities.

We are currently introducing changes in the organization and  implementation of
our purchasing activities, including streamlining our suppliers
portfolios, internationally centralizing our procurement activities, maintaining
a high rotation of buyers,
and commencing online auctions. These changes are aimed at systematically reducing
our purchasing
costs.  Supply relationships in the clothing industry
between suppliers and manufacturers commonly range from the establishment of short to
medium-term informal, and often non-binding supply agreements between the parties  followed by a flow of
individual orders.

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Advertising

Our advertising initiatives have been developed to elevate
trademark awareness and increase customer acquisition and retention. Our
advertising initiatives are relatively limited. We do not place advertisements
in fashion magazines, on television, in the newspaper, on radio or on the
internet. We mainly place our advertisements in shopping centers using
billboards and point-of-purchase displays.

Inventory

The cyclical nature of the retail business requires us to carry
a significant amount of inventory in our sales outlets, especially prior to peak
selling seasons when we and other retailers generally build up our inventory
levels. We review our inventory levels in order to identify slow-moving
merchandise and use markdowns to clear merchandise. Because we do not carry much
replacement inventory in our stores, much of our inventory is maintained in our
warehouses.

Our management reporting system provides flexibility,
accountability, cost savings and time efficiency. This system has been designed
to provide total control of the distribution in our retail chain to secure: (1)
product availability in our sales points  maintaining stock levels in an
extensive range of sizes and collections, (2) value for money  durability of
fabrics and detail in manufacturing make for long lasting garment appearance in
relation to price, (3) accurate and up to date information reports, stock
reviews, sales points order status and delivery performance, (4) personalized
data reporting and analysis by individuals, business units or company summary,
and (5) electronic transfer of information.

Our Competition

Competition in our segment of the fashion industry is intense.
We compete with several domestic and foreign designers and manufacturers of
apparel, many of which are significantly larger and have substantially greater
resources than us. Our ability to continuously evaluate and respond to changing
consumer demands and tastes, across multiple markets, is critical to our
success. We emphasize fashion, quality and service. Our business depends on our
ability to shape, stimulate, and respond to changing consumer trends and demands
by providing innovative, attractive and exciting clothing, as well as on our
ability to remain competitive in the areas of quality and price.

Additionally, consumers have begun to migrate away from
traditional department stores, turning instead to specialty retailers, national
chains and off-price retailers. We have taken advantage of this trend through
our sales outlets, which, we believe, set, reinforce and capitalize on the image
and distinct sensibility of our trademark and provide a shopper-friendly
environment.

Market shares of the largest clothing companies in Poland has
similar over the last several years and according to our estimation are as
follows: LPP  5.2%, H&M  2.8%., NG2  2.7%, Deichmann  2.1%, Vistula
Group  1.8%, Inditex  1.7%, Our share in this market we estimate at 0.3%

Market share of largest retail chains selling formal
menswear

|                                          | Market Share
|----------------------------------------- | ------------
|Sunset Suits                              | 9%          
|Vistula & Wólczanka as Vistula Group      | 11%         
|Bytom & Intermoda as Bytom Group          | 10%         
|Próchnik                                  | 2%          
|Other chains                              | 10%         
|Independent shops, hypermarkets and other | 58%         

Among all renowned brands, brand owners have focused on
rejuvenating their clientele by offering modern, braver designs. This is
especially apparent among traditional designer brands, which to-date have relied
on classical, toned down cuts. This marketing approach has been pioneered by
Vistula & Wólczanka, which is assessed by market players as exceptionally
innovative. A similar strategy has been undertaken by Bytom, which earlier had
been associated with suits for middle-aged men. Vistula, Bytom and Próchnik sell menswear from the middle
and middle-upper price segments. Other than Vistula, Bytom, Próchnik,
Ermenegildo Zegna (Warsaw and Poznań) and Armani (Warsaw), there are no other
chains offering premium formal menswear in Poland, such as Ralph Lauren or Bugati.

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We do not have any significant competitors in the lower-medium
price segment of the Polish men's fashion industry. Therefore, we deem our
primary competitors to consist of entities in the medium-upper price segments.
Our main competitors whose scope of activity is the design and distribution of
men's formal clothing within Poland are as follows, as compared to Sunset Suits:

|                              |            |                                                                                                                   |           | Franchise/ 
|----------------------------- | ---------- | ----------------------------------------------------------------------------------------------------------------- | --------- | -----------
|                              | Country of |                                                                                                                   |           | Partnership
|Chain                         | origin     | Assortment                                                                                                        | **Owned** | agency     
|Bytom (Bytom Group)           | Poland     | Mostly high quality classical collections,additionally a sports style casual line /medium-upper price segment     | 48        | 69         
|Digel                         | Poland     | Suits,
      trousers, shirts  mainly casual style /medium-upper
      price segment                             | 6         | 43         
|Eldorado                      | Poland     | Fashion clothing for men / medium price segment                                                                   | 12        | 0          
|Ermenegildo Zegna             | Italy      | Upper
      price segment                                                                                         | 2         | 0          
|Hugo Boss                     | Germany    | Suits, trousers, shirts, coats / upper price
      segment                                                        | 7         | 0          
|Intermoda
      (Bytom Group) | Poland     | Fashion clothing for men / medium-upper pricesegment                                                              | 37        | 0          
|Kastor                        | Poland     | Shirts / medium price segment                                                                                     | 4         | 15         
|Lorens&Wiktor                 | Poland     | Mostly high quality classical collections / medium-upper price segment                                            | 12        | 0          
|Pawo                          | Poland     | Fashion clothing for men / medium-lower pricesegment                                                              | 23        | 2          
|Pierre Cardin                 | France     | Upper
      price segment                                                                                         | 9         | 0          
|Próchnik                      | Poland     | Suits, overcoats, shirts, trousers, jackets,
      ties, beltsand accessories /
      upper- price segment        | 24        | 2          
|Sunset
      Suits            | Poland     | **Mostly high quality classical collections,**additionally a sports style casual line /medium-upper price segment | 88        | 0          
|Vistula (Vistula Group)       | Poland     | Classical suits and avant-garde men's fashion /medium-upper price segment                                         | 71        | 0          
|Wólczanka (VistulaGroup)      | Poland     | Shirts
      / medium-upper price segment                                                                         | 69        | 2          

Intellectual Property

We utilize the following primary trademarks in our business:

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Our Sunset Suits trademark is registered with the Polish Patent
Office under No. R-75309. An application dated January 24, 2008, was filed with
the Polish Patent Office to update the register to reflect the transfer of the
ownership of trademark from Mr. Mirosław Kranik to Sunset Suits. We regard
our trademark and other proprietary rights as valuable assets that are critical
in the marketing of our products, and therefore we vigorously protect our
trademark against infringements.

Environmental Matters

Regulations relating to the protection of the environment have
not had a significant effect on our capital expenditures, earnings or
competitive position. Fashion Services production operations are not energy
intensive, and we are not engaged in producing fibers or fabrics.

Regulation

Our current business operations are not subject to any material
regulations.

Our Employees

As of December 31, 2009, we employed 736 full-time employees
and 43 part time employees for a total of 779 employees. The following table
sets forth the number of our employees by function as of December 31, 2009. In
connection with our sale of Fashion Service on March 26, 2010, we no longer
employ the 214 manufacturing employees identified in the table.

|Functions                | Number of Employees
|------------------------ | -------------------
|Manufacturing            | 214                
|Sales                    | 475                
|Accounting               | 20                 
|Human Resources          | 8                  
|IT                       | 2                  
|Administration and other | 44                 
|Transport and logistics  | 16                 
|TOTAL                    | 779                

Insurance

We maintain property insurance for our sales outlets, our
production facility located in Krzyżanowo, Poland, and for the premises in
Poznań and Miłosław, Poland, where our registered offices are located.
We do not maintain business interruption insurance or key-man life insurance. We
believe our insurance coverage is customary and standard for companies of
comparable size in comparable industries in Poland.

|ITEM 1A. RISK FACTORS.
|----------------------

The shares of our common stock are highly speculative in
nature, involve a high degree of risk and should be purchased only by persons
who can afford to lose the entire amount invested in the common stock. Before
purchasing any shares of common stock, you should carefully consider the
following factors relating to our business and prospects. You should pay
particular attention to the fact that we conduct all of our operations in Poland
and are governed by a legal and regulatory environment that in some respects
differs significantly from the environment that may prevail in the U.S. and
other countries. If any of the following risks actually occurs, our
business, financial condition or operating results will suffer, the trading
price of our common stock could decline, and you may lose all or part of your
investment.

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RISKS RELATED TO OUR BUSINESS

The recent changes in general economic conditions, and
the impact on consumer confidence and consumer spending, could adversely impact
our results of operations.

Our performance is subject to general economic conditions and
their impact on levels of consumer confidence and consumer spending. Recently,
consumer confidence and consumer spending have deteriorated significantly, and
could remain depressed for an extended period. Some of the factors influencing
this deterioration include fluctuating interest rates and credit availability,
fluctuating fuel and other energy costs, fluctuating commodity prices, higher
levels of unemployment, higher consumer debt levels, reductions in net worth
based on market declines, home foreclosures and reductions in home values, and
general uncertainty regarding the overall future economic environment. Consumer
purchases of discretionary items, including our merchandise, generally decline
during periods when disposable income is adversely affected or there is economic
uncertainty, and this has recently adversely impacted, and could continue in the
future to adversely impact, our results of operations.

Disruptions in the capital and credit markets related to
the current national and worldwide financial crisis, which may continue
indefinitely or intensify, could adversely affect our results of operations,
cash flows and financial condition, or those of our customers and suppliers.

The current disruptions in the capital and credit markets may
continue indefinitely or intensify, and adversely impact our results of
operations, cash flows and financial condition, or those of our customers and
suppliers. Disruptions in the capital and credit markets as a result of
uncertainty, changing or increased regulation, reduced alternatives or failures
of significant financial institutions could adversely affect our access to
liquidity needed to conduct or expand our businesses or conduct acquisitions or
make other discretionary investments, as well as our ability to effectively
hedge our currency or interest rate. Such disruptions may also adversely impact
the capital needs of our customers and suppliers, which, in turn, could
adversely affect our results of operations, cash flows and financial condition.

Our ability to effectively manage our growth and expand
our business, including our number of retail stores, may be limited.

A large part of our initial growth resulted from an increase in
the number of our retail sales outlets and the increased sales volume and
profitability provided by these sales outlets. However, in connection with the
relocation of our sales outlets to modern shopping centers, in recent years the
number of our sales outlets has decreased. The number of our sales outlets
decreased from 140 in 2003 to 96 in 2004 and then to 87 in 2005 and 76 in 2006.
In the future, we will depend upon the addition of new retail stores to increase
our sales volume and profitability. As of December 31, 2009 we had 88 retail
outlets in Poland and 16 stores outside Poland. Our long term plans assume to
open approximately 90 new stores by 2013 in Poland and neighboring countries.
Opening these stores will significantly increase our expenses and we may
encounter problems in opening these new stores that would affect our
profitability. These problems include the insufficiency of capital to open new
stores, delays in opening stores, and our inability to identify suitable
locations for new stores. Any of these problems that we encounter may have a
material adverse impact on our financial results.

The addition of new retail sales outlets includes obtaining
suitable store locations, hiring qualified personnel, establishing distribution
methods and advertising our brand name and distinguishing characteristics to
consumers who may not be familiar with them. We cannot assure you that we will
be able to achieve our planned expansion, that we will be able to timely open
and operate our new sales outlets or that any such expansion will be profitable.
The costs associated with opening new stores may negatively affect our
profitability. Our expansion strategy may also be negatively affected by
conditions in the commercial real estate market existing at the time we seek to
expand.

To accommodate our growth, we will need to implement a variety
of new and upgraded operational and financial systems, procedures, and controls,
including improvements to our accounting and other internal management systems,
by dedicating additional resources to our reporting and accounting function and
improvements to our record keeping and contract tracking system. We will also
need to recruit more personnel and train and manage our growing employee base.

The expansion of our business may place significant strain on
our personnel, management, financial systems and operational infrastructure and
may impede our ability to meet any increased demand for our apparel. Our
business growth also presents numerous risks and challenges, which are
difficult to quantify but could be significant, including the costs associated
with such growth.

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If we encounter any of the risks described above or if we are
otherwise unable to establish or successfully operate additional capacity, we
may be unable to grow our business and revenues, reduce our operating costs,
maintain our competitiveness or improve our profitability and, consequently, our
business, financial condition, results of operations and prospects will be
adversely affected.

Our ability to ability to transfer successfully our
supply chain to sources in Asia

As a result of the sale of Fashion Service, we will not
continue to manufacture our own products.

Accordingly, we will transfer our supply chains from Poland to
supply sources in Asia from which we will import finished goods and by-products.

The requirement that we form partnerships in the supply chain
and our production needs are likely to become even more critical in the future.
As large retailers increase the focus on private labels, and are therefore forced
to increase the focus on design, marketing and logistics with respect to such
partnerships with entities that are skilled in every phase of production, from
textile sourcing to packaging.

Through the sale of Fashion Service, we are now subject to
risks regarding human, technical and business relationships with third parties
which may affect our operations.

If we encounter any of the risks described above or are
otherwise unable to establish our supply chain in Asia, we may be unable to grow
our business and revenues, reduce our operating costs, maintain our
competitiveness or improve our profitability and, consequently, our business,
financial condition, results of operations and prospects will be adversely
affected.

We have a significant amount of debt, which could have
negative consequences to us.

We have a significant amount of debt. As of December 31, 2009,
we had, on a consolidated basis, approximately $5.983 million principal amount
of indebtedness outstanding. Our substantial indebtedness could have important
consequences, including:

- increasing our vulnerability to adverse general economic and industry
  conditions and adverse changes in governmental regulations;
- limiting our ability to obtain additional financing to fund capital
  expenditures and other general corporate requirements;
- requiring us to dedicate a substantial portion of our cash flow from
  operations to payments on our indebtedness, thereby reducing the availability
  of our cash flow to fund capital expenditures or other general corporate
  purposes;
- limiting our flexibility in planning for or reacting to changes in our
  business and the industry in which we operate; and
- placing us at a competitive disadvantage compared to our less leveraged
  competitors

Our ability to pay interest on our indebtedness and to satisfy
our other debt obligations will depend upon, among other things, our future
operating performance and cash flow and our ability to refinance indebtedness
when necessary. Each of these factors is, to a large extent, dependent on
general economic, financial, competitive, legislative, regulatory and other
factors beyond our control. If in the future we cannot generate sufficient cash
from operations to make scheduled payments on our indebtedness or to meet our
liquidity needs or other obligations, we will need to refinance our existing
debt, obtain additional financing or sell assets. We cannot assure you that we
will be able to renegotiate or refinance any of our debt on commercially
reasonable terms or at all. In addition, our interest expense may increase if
general economic conditions result in an increasing interest rate environment
because most of our debt is based on variable as opposed to fixed rates. We
cannot assure you that our business will generate cash flow, or that we will be
able to obtain funding sufficient to satisfy our debt service requirements.

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We have assumed a portion of the delinquent tax and
social security obligations of the predecessor to our former subsidiary, Fashion
Service, Men's Fashion, equal to approximately $9,967,000. If these delinquent
tax and social security obligations are not paid in accordance with applicable
deferment agreements that were entered into with Polish tax and social security
authorities, then such authorities may take enforcement action against Fashion
Service, including the imposition of penalties and other charges which would
have a material adverse effect on the financial condition and reputation of
Sunset Suits.

The predecessor of Fashion Service, Men's Fashion, failed to
make all required payments to the Polish tax authorities during the period from
2004 through 2007, and to the Polish social security administration during the
period from 2002 through 2007. As a result of our acquisition of all or
substantially all of the assets of Men's Fashion, our former subsidiary, Fashion
Service, became jointly and severally liable with our Chief Executive Officer
and President, Mirosław Kranik, for a portion of these delinquent payments,
equal to approximately $9,967,000. As disclosed in greater detail below under
Item 7, Managements Discussion and Analysis of Financial Condition and Results
of Operations - Tax and Social Security Payment Obligations, we have entered
into deferment agreements with the Polish taxing and social security authorities
with respect to the repayment of these delinquent amounts. If these delinquent
tax and social security obligations are not paid in accordance with the
applicable deferment agreements, then such authorities may take enforcement
action against Fashion Service, including the imposition of penalties and other
charges, which would have a material adverse effect on our financial condition
and reputation. In accordance with the sale of 100% of our interest in Fashion
Service on March 26, 2010, we assumed the liabilities of Fashion Service related
to payments due to the Polish tax authorities equal to approximately $6,765,000.

Mirosław Kranik, our
significant stockholder, Chief Executive Officer and President, retained a
portion of the delinquent tax and social security obligations of Men's Fashion.
If Mr. Kranik fails to pay these delinquent tax and social security obligations
in accordance with deferment agreements entered into with the applicable
authorities, then such authorities may bring enforcement actions against Mr.
Kranik, which could result in the imposition of fines or other penalties. Any
such enforcement actions against Mr. Kranik could distract him from his duties
as our Chief Executive Officer and President and negatively affect our ability
to execute on our business plan.

As described in the immediately preceding risk factor, under
deferment agreements entered into with Polish tax and social security authority,
Mirosław Kranik is jointly and severally liable along with Fashion Services
for delinquent tax and social security payments in an aggregate amount in excess
of PLN 17,672,744 (approximately $6,200,310) and Men's Fashion is solely liable
for PLN 9,130,774 (approximately $3,203,446) of the delinquent social security
payments.

Since Men's Fashion was a sole proprietorship (i.e., just a
name under which Mr. Kranik previously operated his clothing business and not a
separate legal entity), these liabilities are personal to Mr. Kranik and put his
personal assets at risk. Although Fashion Service has agreed to make all
payments due to the tax and social security authorities as part of its
acquisition of assets from Men's Fashion, if Fashion Service fails to make any
such payments then Mr. Kranik would be obligated to make these payments. If
payments under the deferment agreements are not made in accordance with the
payment schedules provided for in those agreements, then such authorities may
bring enforcement actions against Mr. Kranik personally, which could distract
him from his duties as our Chief Executive Officer and President.

15

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Our negative working capital could materially and
adversely affect our ability to remain a going concern.

As of the date these financial statements have been prepared,
the Company has a negative working capital amounting to $3,325,000. Subsequent
to December 31, 2009 the Company reported a decrease in total sales with
relative lower decrease in operating costs, which resulted in a net loss and a
further decrease of total shareholders equity. Management is aware of this
unfavorable financial situation of the Company and prepared a recovery plan. The
plan assumes: i) improvement of operating margin; ii) negotiations with
suppliers to extend payments terms; iii) negotiations with fiscal authorities to
extend payments of taxes; iv) negotiations with landlords to decrease operating
lease costs; iv) issuance of debt to finance current business activity. We have
already accomplished several extensions of tax payment due dates and several
lease payment due dates.

Subsequent steps to remedy the financial situation of the
Company depend on raising additional funds. The achievement of our plans is
dependent on successful negotiations with suppliers and fiscal authorities. As
of  this report, these negotiations are still ongoing and the final outcome is
uncertain. Therefore as of the date of this report, there is a substantial doubt
regarding the Companys ability to continue as a going concern.

Net sales of the Company for the twelve month period ended
December 31, 2009 decreased by 31% compared to the twelve month period ended
December 31, 2008. This net sales decrease is predominantly due to the
depreciation of Polish zloty (currency in which we sell) against the U.S. Dollar
(currency in which we report) by 23%. If denominated in Polish zloty, our local
currency, our net sale drop would have been 11%. We believe that this decrease
in net sales is a result of a decrease in demand for our products, a negative
outcome from the current global financial crisis. Consequently management
believes that this decrease in our net sales is temporary and will restore in
the year 2010.

The global financial crisis is a major factor responsible for
the depreciation of the Polish zloty against foreign currencies like the U.S.
Dollar and the Euro. The depreciation of the Polish zloty against the Euro has a
significant impact on our operations and net results as we have significant
costs like rent, which are denominated in the Euro.

The Company bears a significant risk of operating leverage,
mainly due to the relatively high operating lease cost for our retail outlets.
Moreover, these rents are usually denominated in a foreign currency  the Euro.
In the year 2009 the weighted average foreign exchange rate of PLN/EUR
depreciated by over 8%. Due to that our operating costs in Polish zloty have
increased considerably. This resulted in deterioration of our working capital
and increase in liquidity risk.

Our business is seasonal and is affected by general
economic conditions.

Like most other retail businesses, our business is seasonal.
The last quarter of the year is the best sales period when customers purchase
coats, occasional suits and business suits from an autumn-winter collection. We
also typically experience increased sales during the Spring (March, April).
During this period consumers typically purchase menswear for various special
occasions including weddings, first communion and other special events. The
seasonality of our sales may result in fluctuating financial results which may
negatively affect our overall financial condition.



16

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Like other retail businesses, our operations may be negatively
affected by local, regional, national or international economic conditions, such
as levels of disposable consumer income, consumer debt, interest rates and
consumer confidence. Any economic downturn might cause consumers to reduce their
spending, which could negatively affect our sales. A long economic downturn
would have an adverse economic affect on our business.

Our industry is highly competitive.

The men's tailored clothing market is fragmented, and we face
intense competition for customers and suitable store locations. We compete with
specialty men's clothing stores, traditional department stores, other off-price
retailers and manufacturer-owned stores, independently owned outlet stores and
discount operators. Our biggest competitor in Poland is Vistula & Wólczanka.
We also compete with other clothing manufacturers and clothing distributors in
Poland such as Peek & Cloppenburg, Hugo Boss, and Royal Collection.

Poland's accession to the European Union may result in
increased competition from other well-known foreign manufacturers and
distributors. Brand name, foreign competitors will present a special challenge
for us because we are targeting the middle class market in Poland by offering
our own brand name, stylish clothing. High-end foreign menswear will be an
attractive alternative to our products and we may lose market share to these
brand name foreign competitors.

We may not be able to respond to changing fashion and
retail trends in a timely manner, which could have a material adverse effect on
us.

We operate in a market characterized by possible rapid changes
in terms of consumer patterns and buying power. Buying power with respect to
clothing products is driven by macroeconomic factors. We seek to respond to
changes in consumer patterns relating to general fashion trends and preferences
for shopping locations by implementing a targeted design, sales and marketing
strategy. However, there is also a risk that we may lose some of its popularity
among customers.

The apparel industry has historically been subject to rapidly
changing fashion trends and consumer preferences. If we cannot gauge consumer
needs and fashion trends and respond appropriately, then consumers may not
purchase our products, which could have a material adverse effect on us. We are
subject to the risk of a missed collection (i.e., a collection that is not in
line with current consumer trends in the menswear industry). Quickly changing
fashion trends and highly unpredictable customers' taste have a significant impact on our business. A failure to tailor the product offer to customer's taste may result in decreased sales and a need to reduce our prices.

17

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We experience fluctuations in operating results.

Our annual and quarterly operating results have fluctuated, and
are expected to continue to fluctuate. Among the factors that may cause our
operating results to fluctuate are customers' response to merchandise offerings,
the timing of the rollout of new sales outlets, seasonal variations in sales,
the timing of merchandise receipts, the level of merchandise returns, changes in
merchandise mix and presentation, our cost of merchandise, unanticipated
operating costs, and other factors beyond our control, such as general economic
conditions and actions of competitors. As a result of these factors, we believe
that period-to-period comparisons of historical and future results will not
necessarily be meaningful and should not be relied on as an indication of future
performance.

Our success depends on our key personnel and our ability
to attract and retain additional personnel.

Mr. Mirosław Kranik has been very important to our success.
Mr. Kranik is our founder, he is also a significant stockholder, our Chief
Executive Officer, President and director and the Chief Executive Officer of our
subsidiary, Fashion Service. The loss of Mr. Kranik's services could have a
significant negative effect on us. Also, our continued success and the
achievement of our expansion goals are dependent upon our ability to attract and
retain additional qualified employees as we expand. If we are unable to attract
additional and retain qualified employees our operating results will suffer and
we will not be able to expand as projected.

Because we plan to do business internationally, our
business could be harmed if changes in political or economic stability, laws,
exchange rates or foreign trade policies should occur.

Future sales of our apparel in foreign markets and our future
relationships with our foreign suppliers will subject us to the risks of doing
business abroad. As a result of our future suppliers, in some instances, being
at great geographic distances from us, our transportation costs will be
increased and longer lead times will be required, which will reduce our
flexibility. Our finished goods will also be subject to import duties, quotas
and other restrictions. Other risks in doing business internationally include
political or economic instability, any significant fluctuations in the value of
the Euro against foreign currencies, terrorist activities and restrictions on
the transfer of funds. Although we have not yet been affected in a material way
by any of the foregoing factors, as we have not commenced international
operations, we cannot predict the likelihood or frequency of any such events
occurring in the future once we have commenced international operations, and any
material disruption may have an adverse affect on our business.

We may require additional capital and we may not be able
to obtain it on acceptable terms or at all.

As of December 31, 2009, we had cash and cash equivalents of
$388,000 (including $10,000 classified as held for sale). There is a reasonable
possibility of generating cash flow from operations based on the continuation of
positive net income, and the fact that we no longer have to pay overdue
operating liabilities, as these were paid in 2008. Management has also
instituted various plans, as discussed in the Overview section of the
Management's Discussion and Analysis below, to improve profitability and
operating cash flow. The risk that the Company will not be able to generate cash
from operations is significant. In addition, while we are attempting to obtain
from the Polish tax authorities a further deferment of the final installment of
a payment in the amount of $3.4 million coming due in March 2010, as discussed
more fully in the risk factor captioned Our negative working capital could
materially and adversely affect our ability to remain a going concern, there is
a risk that we will be unable to obtain such a deferment. If these resources are
insufficient to satisfy our cash requirements, we may seek to sell additional
equity or debt securities or obtain additional credit facilities. The sale of
additional equity securities could result in dilution to our stockholders. The
incurrence of indebtedness would result in increased debt service obligations
and could require us to agree to operating and financing covenants that would
restrict our operations. Our ability to obtain additional capital on acceptable
terms is subject to a variety of uncertainties, including:

- investors' perception of, and demand for, securities of Polish-based
  companies involved in the clothing business;
- conditions of the U.S. and other capital markets in which we may seek to
  raise funds;
- our future results of operations, financial condition and cash flows; and
- economic, political and other conditions in Poland.

Financing may not be available in amounts or on terms
acceptable to us, if at all. Any failure by us to raise additional funds on
terms favorable to us, or at all, could have a material adverse effect on our
business, financial condition and results of operations.

18

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We may be exposed to potential risks relating to our
internal controls over financial reporting and our ability to have the operating
effectiveness of our internal controls attested to by our independent auditors.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002,
or SOX 404, the SEC adopted rules requiring public companies to include a report
of management on the company's internal controls over financial reporting in
their annual reports, including Form 10-K. In addition, the independent
registered public accounting firm auditing a company's financial statements must
also attest to and report on the operating effectiveness of our internal
controls starting fiscal year 2010. In the future, our management may conclude
that our internal controls over our financial reporting are not effective due to
the identification of one or more material weaknesses, or our independent
registered public accounting firm may issue an adverse opinion on our internal
control over financial reporting if one or more material weaknesses are
identified. We can provide no assurance that we will comply with all of the
requirements imposed by SOX 404 and there can be no positive assurance that we
will receive a positive attestation from our independent auditors. In the event
we identify significant deficiencies or material weaknesses in our internal
controls that we cannot remediate in a timely manner or we are unable to receive
a positive attestation from our independent auditors with respect to our
internal controls, investors and others may lose confidence in the reliability
of our financial statements.

RISKS RELATED TO DOING BUSINESS IN POLAND

There are risks associated with investing in emerging
markets such as Poland.

Poland has undergone significant political and economic change
since 1989. These changes have thus far been largely beneficial for Polish
businesses, but future political, economic, social and other developments could
adversely affect our business. In particular, future changes in laws or
regulations affecting Polish economic growth (or in the interpretation of
existing laws or regulations), whether caused by changes in the government of
Poland or otherwise, could have a material adverse effect on us and our ability
to service our indebtedness. For example, while there is no limitation for most
foreign exchange transactions conducted by businesses in Poland, we cannot
assure you that foreign exchange control restrictions, taxes or limitations will
not be imposed or increased in the future with regard to repatriation of
earnings and investments from Poland.

Poland has been one of the fastest growing economies in Europe
over the years that we have been in operation. There is no guarantee, however,
that this growth will continue. Any significant slowdown in Poland's economic
growth could adversely affect our business.

Poland is generally considered by international investors to be
an emerging market. In general, investing in the securities of companies such as
ours with substantial operations in markets such as Poland involves a higher
degree of risk than investing in the securities of companies having substantial
operations in the United States or other developed markets.

Since there is volatility in the Polish tax system, our
cash flows and ability to service our debt may be adversely affected.

The Polish tax system is characterized by frequent changes in
tax regulations, as a result of which many tax regulations are either not the
subject of firmly established interpretations or are subject to frequently
changing interpretation. The volatility of the Polish tax system makes tax
planning difficult and results in an increased risk of tax non-compliance for
Polish companies. Furthermore, changing interpretations of tax regulations by
the tax authorities, extended time periods relating to overdue liabilities and
the possible imposition of high penalties and other sanctions result in the tax
risk for a Polish company being significantly higher than in countries with more
stable tax systems.

RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY

No market exists for the trading of our securities and no
market may ever develop. Accordingly, you may not have any means of trading the
shares you acquire.

A market does not presently exist for our securities and no
assurance can be given that a market will ever develop. Consequently, you may
not be able to liquidate your investment in our securities for an emergency or
at any time, and the securities will not be readily acceptable as collateral for
loans. Although we will endeavor to establish a trading market for our
securities in the future, no assurance can be given as to the timing of this
event or whether the market, if established, will be sufficiently liquid to
enable an investor to liquidate his investment in us.

19

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Certain of our stockholders hold a significant percentage
of our outstanding voting securities.

Ms. Mirosław Kranik, our Chief Executive Officer, is the
beneficial owner of approximately 36% of our outstanding voting securities. As a
result, he possesses significant influence and can elect a majority of our board
of directors and authorize or prevent proposed significant corporate
transactions. His ownership and control may also have the effect of delaying or
preventing a future change in control, impeding a merger, consolidation,
takeover or other business combination or discourage a potential acquirer from
making a tender offer.

Certain provisions of our Articles of Incorporation and
Bylaws, Nevada law and our Rights Plan may make it more difficult for a third
party to effect a change-of-control.

Our Articles of Incorporation authorizes our board of directors
to issue up to 10,000,000 shares of preferred stock. The preferred stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by our board of directors without further action by our
stockholders. These terms may include preferences as to dividends and
liquidation, conversion rights, redemption rights and sinking fund provisions.
The issuance of any preferred stock could diminish the rights of holders of our
common stock, and therefore could reduce the value of such common stock. In
addition, specific rights granted to future holders of preferred stock could be
used to restrict our ability to merge with, or sell assets to, a third party.
The ability of our board of directors to issue preferred stock could make it
more difficult, delay, discourage, prevent or make it more costly to acquire or
effect a change-in-control, which in turn could prevent our stockholders from
recognizing a gain in the event that a favorable offer is extended and could
materially and negatively affect the market price of our common stock.

In addition, Nevada corporate law and our Articles of
Incorporation and Bylaws contain certain other provisions that could discourage,
delay or prevent a change in control of our Company or changes in its management
that our stockholders may deem advantageous. These provisions:

- deny holders of our common stock cumulative voting rights in the election
  of directors, meaning that stockholders owning a majority of our outstanding
  shares of common stock will be able to elect all of our directors;
- require any stockholder wishing to properly bring a matter before a
  meeting of stockholders to comply with specified procedural and advance notice
  requirements; and
- allow any vacancy on the board of directors, however the vacancy occurs,
  to be filled by the directors.

On June 9, 2008, our board of directors enacted a shareholder
rights plan, or Rights Plan, for the purpose of impeding any effort to acquire
our Company on terms that are inconsistent with its underlying value and which
would not therefore be in the best interests of our stockholders. The existence
of the Rights Plan will make it more difficult, delay, discourage, prevent or
make it more costly to acquire or effect a change-in-control that is not
approved by our board of directors, which in turn could prevent our stockholders
from recognizing a gain in the event that a favorable offer is extended and
could materially and negatively affect the market price of our common stock.

We do not intend to pay dividends on shares of our common
stock for the foreseeable future.

We have never declared or paid any cash dividends on shares of
our common stock. We intend to retain any future earnings to fund the operation
and expansion of our business and, therefore, we do not anticipate paying cash
dividends on shares of our common stock in the foreseeable future.

We may be subject to penny stock regulations and
restrictions and you may have difficulty selling shares of our common stock.

The SEC has adopted regulations which generally define
so-called penny stocks to be an equity security that has a market price less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exemptions. If our common stock becomes a penny stock, we may
become subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule.
This rule imposes additional sales practice requirements on broker-dealers that
sell such securities to persons other than established customers and accredited
investors (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. As a result, this
rule may affect the ability of broker-dealers to sell our securities and may
affect the ability of purchasers to sell any of our securities in the secondary
market.

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For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the SEC relating to the penny stock market.
Disclosure is also required to be made about sales commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock.

There can be no assurance that our common stock will qualify
for exemption from the Penny Stock Rule. In any event, even if our common stock
were exempt from the Penny Stock Rule, we would remain subject to Section
15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any
person from participating in a distribution of penny stock if the SEC finds that
such a restriction would be in the public interest.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not Applicable.

ITEM 2. PROPERTIES.

As of December 31, 2009, we operated 88 retail sales outlets in
Poland. The following table sets forth the location, by city, of these sales
outlets.

|CITY             | NUMBER OF OUTLETS
|---------------- | -----------------
|Warszawa         | 8                
|Kraków           | 5                
|Wrocław          | 5                
|Poznań           | 4                
|Bielsko Biała    | 3                
|Bydgoszcz        | 3                
|Częstochowa      | 3                
|Opole            | 3                
|Płock            | 3                
|Sosnowiec        | 3                
|Szczecin         | 3                
|Białystok        | 2                
|Gliwice          | 2                
|Koszalin         | 2                
|Lublin           | 2                
|Rybnik           | 2                
|Toruń            | 2                
|Zabrze           | 2                
|Biała Podlaska   | 1                
|Bytom            | 1                
|Chełm            | 1                
|Cieszyn          | 1                
|Dąbrowa Górnicza | 1                
|Gdańsk           | 1                
|Gorzów Wlkp.     | 1                
|Iława            | 1                
|Jelenia Góra     | 1                
|Katowice         | 1                
|Kielce           | 1                
|Kielce           | 1                

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|Kluczbork            | 1 
|-------------------- | --
|Kłodzko              | 1 
|Krasne               | 1 
|Legnica              | 1 
|Łódź                 | 1 
|Nowy
    Sącz        | 1 
|Piaseczno            | 1 
|Piła                 | 1 
|Piotrków Trybunalski | 1 
|Puławy               | 1 
|Racibórz             | 1 
|Radom                | 1 
|Rumia                | 1 
|Rzeszów              | 1 
|Słubice              | 1 
|Słupsk               | 1 
|Tarnów               | 1 
|Włocławek            | 1 
|Zielona Góra         | 1 
|Total                | 88

All of our Polish sales outlets are leased. We believe our
sales outlets set, reinforce and capitalize on the image and distinct
sensibility of our brand and provide a shopper-friendly environment. The display
of our merchandise in our sales outlets varies depending upon the selling season
and the size and location of the store. Generally our sales outlets are leased
for initial periods ranging from 5 to 10 years with renewal options for an
additional 5 years. The outlets range in size from 60 square meters to 255
square meters.

Sunset Suits has its Polish registered offices at ul.
Starołecka 18, 61-361, Poznań, Poland. Sunset Suits leases its registered
offices from Stomil-Poznań S.A. Sunset Suits pays a monthly rental rate of PLN 1,092 (approximately $342.00) for this space. This space consists of
approximately 31.2 square meters and is the location where Sunset Suits
maintains its corporate records. Fashion Service has its registered office at
ul. Si enkiewicza 11, Miłosław, Poland 62-320 subleases its registered
offices from Przedsi ebiorstwo Odziezowe Mikon S.A. w likwidacji. Fashion
Service pays a monthly rental rate of $312.50 for this space. This space
consists of approximately 30 square meters and is the location where Fashion
Service maintains its corporate records.

We believe that the properties we own and lease are sufficient
for the proper operation of our business.

|ITEM 3. LEGAL PROCEEDINGS.
|--------------------------

From time to time, we may become involved in various lawsuits
and legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will
have a material adverse affect on our business, financial condition or operating
results.

|ITEM 4. (REMOVED AND RESERVED).
|-------------------------------

PART II

Market Information

|ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES.
|---------------------------------------------------------------------------------------------------------------------------------

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Our shares are currently quoted on the Over The Counter
Bulletin Board under the symbol "SNSX.OB".

Approximate Number of Holders of Our Common Stock

As of March 29, 2010, there were approximately 531 holders of
record of our common stock. This number excludes the shares of our common stock
owned by stockholders holding stock under nominee security position listings.

Dividends

We have never declared or paid a cash dividend. Any future
decisions regarding dividends will be made by our board of directors. We
currently intend to retain and use any future earnings for the development and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our board of directors has complete discretion on whether to
pay dividends, subject to the approval of our stockholders. Even if our board of
directors decides to pay dividends, the form, frequency and amount will depend
upon our future operations and earnings, capital requirements and surplus,
general financial condition, contractual restrictions and other factors that the
board of directors may deem relevant.

Securities Authorized for Issuance Under Equity Compensation
Plans

See Item 12, Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters  Securities Authorized for
Issuance Under Equity Compensation Plans.

Recent Sales of Unregistered Securities

We have not sold any equity securities during the fiscal year
ended December 31, 2009 that were not previously disclosed in a quarterly report
on Form 10-Q or a current report on Form 8-K that was filed during the 2009
fiscal year.

Purchases of Equity Securities

No repurchases of our common stock were made during the fourth
quarter of 2009.

|ITEM 6. SELECTED FINANCIAL DATA.
|--------------------------------

Not Applicable.

|ITEM 7. MANAGEMENTS DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|----------------------------------------------------------------------------------------------------

The following managements discussion and analysis should be
read in conjunction with our financial statements and the notes thereto and the
other financial information appearing elsewhere in this report. In addition to
historical information, the following discussion contains certain
forward-looking information. See Special Note Regarding Forward Looking
Statements above for certain information concerning those forward looking
statements.

Overview

We distribute and sell high quality menswear, including suits,
sport coats, slacks, dress shirts and ties. We are operating in the formal
menswear market sector within its medium price segment. In the formal menswear
market sector, the medium price segment represents, for example, suits priced in
the range of 600  1,000 PLN ($180  $300) and shirts in range of 100  180 PLN
($30  $55). We offer an assortment of styles and maintain a broad selection of
fabrics, colors and sizes.

For the last four years we had the third highest sales of
formal menswear in Poland behind Vistula & Wólczanka and Bytom Group. For
the year end December 31, 2009, we had net sales of $26.6 million, compared to
net sales of $38.6 million for the fiscal year end December 31, 2008. In
comparison, Vistula & Wólczanka had net sales of $97 million and $120
million or the years ended December 31, 2009 and December 31, 2008,
respectively. However, based on management's research, only half of these
amounts represent sales of formal menswear. Based upon our management's
research, we estimate that the market share of the largest retail chains selling
formal menswear in Poland in 2009 was: Vistula & Wólczanka S.A.  11%,
Sunset Suits  9%, Bytom Group  10%, Próchnik  2%, other chains  10%. We
generate revenue through retail sales of our menswear, which we sell mainly
through our retail sales outlets. Between 2003 and 2006, there was a significant
change in the retail market in Poland. Large numbers of retail stores were
moving from street stores to newly opened shopping malls, which were not
present in Poland before 1997. As a result of this trend, we closed some smaller
street-located stores and opened up new larger stores within shopping malls. The
result of this decision was that the number of stores dropped from 140 in 2003
to 76 in 2006 (approximately 46%), however our overall retail space only dropped
from 14,000 to 11,000 square meters (approximately 22%). Although we were
closing stores during this period when the overall Polish clothing market
experienced significant growth, as described later under the caption Clothing
market development, nevertheless, our annual net sales increased during this
period by an average of 6.2%. While the costs of opening and maintaining the
new stores in malls were higher than the previous street-front stores, we were
able to liquidate certain stores that were losing money. It was largely the
result of having operated this large number of smaller, unprofitable, or
marginally profitable stores that we began 2007 with substantial unpaid
operating liabilities principally taxes.

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As of December 31, 2009, our distribution was carried out
through a network of 88 retail outlets in Poland (90 retail outlets as of
December 31, 2008). We intend to continue to build upon our business strategy by
implementing new initiatives to promote our products and to fill product and
brand portfolio needs as evidenced by our opening of new retail stores in
premier malls in Poland. We opened 16 of these stores during 2009, 5 new stores
in the first half of 2009 and 11 more in the second half of 2009. Two other
stores were moved to smaller, more efficient spaces within the same mall in the
first quarter 2009.

The following table presents the movement in our retail outlets
during the years 2009 and 2008:

Beginning of the
    
    
    End of theYear
    year,
      January 1,
    New openings
    Closures
    year,December 31,Number of retail outlets, 2009
    90
    16
    18
    88Number of retail outlets, 2008
    84
    15
    9
    90


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Of our 88 existing stores, a number are located on the street
in smaller cities. We are monitoring the profitability of these stores. It is
possible that we could decide to close some of these stores if we determine that
they do not have the potential to be profitable. Nineteen such stores were
closed during the fiscal year ended December 31, 2009.

Sunset Suits-branded retail stores are also operated
internationally by local companies based in the Czech Republic, Lithuania, and
Latvia. Our international stores offer substantially the same products as do
Sunset Suits Polish retail sales outlets. And with our Polish retail locations,
nearly all of the product sold in our international stores was also sourced from
Fashion Service. All of these local companies were incorporated prior to the
incorporation of Sunset Suits (July 19, 2006). The Czech company is the oldest,
having been incorporated in 1999 and the first retail sales outlets in the Czech
Republic having opened in 2001. The remaining companies in Lithuania and Latvia
were incorporated during 2004 and 2005, and the first retail sales outlets in
each of these countries were opened in the same period. As of March 31, 2010 our
distribution in these four countries is carried out through a network of 16
stores.

During our last two fiscal years, the total number of our
international retail stores has ranged from a high of 19 and a low of 16,
through the opening of a new retail store in each of Latvia and Lithuania and
the closing of one existing retail store in each of Estonia and the Czech
Republic. As we received from Mr. Miroslaw Kranik in 2009 the local entities
that operate the international retail stores in the transfer described in the
section Recent Acquisitions, no additional consideration is being paid for any
interim increases in the number of international retail stores.

In the next 3 to 5 years we plan to develop and to increase the
number of our retail stores overall. Our long terms plans include doubling the
current number of Sunset Suits retail locations. As part of these plans, we also
intend to continue to expand our operations globally, through direct marketing
and through partnerships with licensees. We recently expanded our wholesale
operations to include sales of certain products to department and specialty
stores throughout Central Europe. We plan to expand our distribution channel in
the next 24 months by entering into franchise agreements with partners across
Central and Eastern Europe for our brand. Our efforts to enhance the channels of
distribution resulted in the development of new distribution channel in 2008,
specifically direct sales to corporations. A direct sales to corporation channel
should be distinguished from the wholesale channel of distribution. During the
year 2009, management concluded that the wholesale channel of distribution
bearing low margin is not the primary focus of the Company. Instead the Company
will continue a development of a medium margin, direct sales channel. However
our focus will be place on the retail outlet network.

With our 3 stores in Latvia, 8 stores in the Czech Republic,
and 5 stores in Lithuania, we have begun working towards our goal of increasing
our international presence. We are focused on medium sized stores (approximately
50 to 70 square meters per store) located in large and medium-sized malls with
large numbers of customers seeking traditional styles, good quality and
competitive prices.

To achieve our short-term goals, we will focus on expanding our
presence in shopping malls by opening new locations as well as launching new
distribution channels such as corporate sales and direct selling to
professionals connected with custom tailoring. To accomplish this expansion,
however, we expect to spend approximately $250,000 in additional promotion and
marketing expense in 2010. We may, however, be unable to achieve a significant
increase in revenue. In addition to the uncertainty always inherent in any
future plans, particularly with a new channel, we face 1) liquidity problems
that may prevent us from conducting the necessary promotion and marketing and 2)
possible diminution of demand as a result of the global financial crisis.

The menswear market in Poland amounted to approximately PLN 1
billion (approximately $304 million) in 2009. Approximately 42% of the menswear
market is controlled by well recognized brands organized as retail chains. The
remaining 58% of the market covers independent shops and sales in hypermarkets
and other commercial points of sale. Our long term strategy includes plans to
acquire approximately 15% of this latter market segment.

In the long term, our intention is to restructure our retail
operations as follows:

- Up to 40 premium shops (around 70 square meters per shop) concentrated in
  prestigious and modern locations to develop brand strength and to become a
  modern market player vis-à-vis the closest competitor that offers higher
  prices for comparable quality and design;

25

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- Up to 60 medium shops (around 100 square meters per shop) concentrated in
  large malls with the huge market flow of clients not focused on modern and
  current trends in design but looking for traditional shape, good quality and
  competing prices;
- Up to 80 low cost shops (around 50 square meters per shop) concentrated in
  small malls and hypermarkets with the huge market flow of clients focused on
  low prices; and
- Franchising shops in urban areas outside the center.

In order to achieve our long-term development plans of building
up to an additional 90 retail stores over approximately the next five years, we
estimate we will need approximately PLN 35 million (approximately $12.2 million,
for an average store opening cost of $135,000). In order to achieve these
long-term development goals, we will need to raise capital through additional
financing. Management believes that it is possible that a significant portion of
the funds needed for increased inventory levels and capital expenditures
required for our retail expansion will come from operations. Even management's
most optimistic estimates however indicate that a substantial portion of the PLN
35 million will have to come from additional financings or bank loans. This
$12.2 million is in addition to approximately $11 million that would have to be
raised to retire old obligations as discussed below under the caption "Liquidity
and Capital Resources."

Summary of Financial Performance

As of December 31, 2009, we had negative equity (liabilities in
excess of assets) of $6.2 million and negative working capital (current
liabilities in excess current assets) of $9.5 million. This includes negative
working capital of $6.2 associated with asset held for sale. Our negative
working capital associated with continuing operations amounted to $3.3 million.
Our net loss for the fiscal year ended December 31, 2009 was $5.0 million.

The negative working capital (even after the arrangement with
the Polish tax authorities) and equity, along with our loss for the most recent
twelve month period raise a substantial doubt about our ability to continue as a
going concern. In addition to seeking new debt financing, which may not be
possible, or which may come at a high cost, we are implementing various plans
both to increase profitability and cash flow both to continue operations and to
finance expansion plans. In addition, our management also expects, if necessary
to continue operations, that it can conserve cash by delaying the payment of
certain of its liabilities and by decreasing inventory purchases. Some of the
possible sources of improving profitability and cash flow through which we seek
to be able to internally finance much of the expansion are as follows:

- We are attempting to increase our gross margin for 2010 as a result of the
  full implementation of our revised higher pricing strategy and supply chain
  improvements begun in 2008, as discussed under Supply chain development and
  Gross Profit as a Percentage of Total Revenue below, and maintenance of
  those margins thereafter. We may, however, be unsuccessful in the further
  implementation of this strategy.
- We are attempting to increase sales efficiency (i.e., sales per store) by
  opening more stores in prime mall locations and closing stores that are not
  profitable. We do have the risk, however, that increases in sales will turn
  out to be insufficient to cover the higher occupancy costs of the prime
  locations. Additionally, because of the global financial crisis, we are
  opening fewer new stores than we originally planned. Our current financial
  condition allows us to open up to 10 new retail outlets per year. We also
  estimate that due to global financial crisis impact on our Company we have
  approximately 2 years of delay to our prior development plans.
- We are engaging in a cost cutting policy focused on negotiations of rent
  agreements, negotiations of salaries, negotiations with raw materials
  suppliers and reduction of the number of employees. We believe that because of
  the global economic situation we will have some success in the negotiations.
  It is possible, however, that we will either be unsuccessful in cutting costs
  or that the reductions in costs will be concurrent with the receipt of less
  value from suppliers, resulting in no net benefit to the Company.
- We plan to attempt to renegotiate the payment schedules with our trade
  creditors. We believe that many of the creditors will have an incentive to
  provide terms so as to increase the likelihood of collection of the full
  amount due. We could, however, be unsuccessful in our efforts. Or we may need
  to make concessions to the creditors that will be more costly to the Company
  than the benefit received.
- We plan to attempt to renegotiate the terms of our bank settlement
  agreements. If we are successful, we would not increase our operating cash
  flow but would increase the availability of that operating cash flow to be
  used for capital investment. We could, however, be unsuccessful in our
  efforts.

26

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- To the extent that the expansion plan itself is successful in earlier
  years it would provide additional cash flows to finance the later expansion.
  On the other hand we do have the risk that new stores will prove to be
  unprofitable, or insufficiently profitable to provide an acceptable return on
  our investment. Our ability to finance capital investments from operating cash
  flows in future years will be negatively impacted if we are unable to achieve
  our objectives in the earlier years. We are fully capable, however, of scaling
  back the expansion plans, if necessary, to be done over a longer period than
  anticipated
- An improvement of the world economy by 2011 is possible. It is also
  possible, however, that the global financial crisis will continue, which would
  have a detrimental effect on our sales.
- In November 2009, we renegotiated to extend the payment terms of PLN
  2,486,000 ($872,000) of tax liabilities that were to mature as of March 10,
  2010 to later in 2010, principally November, which resulted from our earlier
  settlement with Polish tax authorities (mostly VAT) to extend payment terms.
- In June 10, 2009, we reached a settlement with the Polish social security
  administration to accept our settlement application so that our past due
  social security liabilities have now been extended to include 84 monthly
  installments through 2016 (with smaller amounts maturing between 2009 and
  2012). This settlement generated additional working capital of approximately
  $5.7 million, based on June 30, 2009 exchange rates.

Our ability to generate operating cash flow from increases in
our net income is enhanced by the prominence of our retail segment in our
overall business because our immediate receipt of cash revenue means that we do
not need working capital in the form of accounts receivable to generate sales.
We will, however, need to finance additional accounts receivable for our new
distribution channels. A significant portion of inventory, which is necessary
for our retail operations, can be financed through accounts payable credit.

The possibility of achieving positive operating cash flows
sufficient to finance a significant portion of our capital needs must be
considered against the fact that cash provided by operations in 2009 was
positive $1.9 million. The main reasons that led to the achievement of positive
cash flow from operations despite the financial loss are:

- the increase in accounts payable of $ 1.6 million;
- the increase in other liabilities of $ 2.8 million,
  primarily due to increased tax liabilities by $ 2.2 million; and
- the decrease in accounts receivable of $2.9 million.

We believe that in a normalized situation (that is, no growth or
decrease in sales), that operating cash flows would tend toward net income plus
depreciation and amortization, which in 2009 was $4 million negative. If we were
to have stagnant costs and sales we would not, however, be able to achieve this
operating cash flow in the short run as even with successful settlements to
stretch our payments we would still have to repay the remaining old tax and
trade obligations.

In the short term, we are closely analyzing the current market
situation in Poland and the impact of global financial crisis on our business.
Accordingly, our management has determined that it is in our best interest to
scale back plans to open as several new retail stores in 2010, as much as
possibly in the next years, as we had initially planned. Our current financial
condition allows us to open up to 10 new retail outlets per year. We also
estimate that due to global financial crisis impact on our Company we have
approximately 2 years of delay to our prior development plans.. We are, however,
of the opinion that steady but continuous development of our retail shop network
provides us with our best opportunity for success, especially in the situation
of the global financial crisis.

For the fiscal year ended December 31, 2009, we had net sales
of $26.6 million, compared to net sales of $38.6 million for the fiscal year
ended December 31, 2008, an decrease of approximately 34%. This increase,
however, results from the decrease in the value of the PLN compared to the USD
by 23% from the year 2008 to the year 2009. The actual total net sales as
denominated in PLN decreased by 8% in the year 2009 as compared to the year
2008. This was principally due to the impact of the financial crisis in the
fourth quarter of 2009.

Our average gross margin achieved in retail sales in Poland
increased from 56% in 2008 to 58% in 2009. This increase was principally due to
the realization of our strategies (i) to develop a supply chain by finding high
quality raw materials from cheaper suppliers thus reducing the production costs
of our own factory, and (ii) to increase our operating margin by raising the
average price per item of our apparel.However, the gross margin for the
one month period ended December 31, 2008 was at 63%, while a gross margin for
the one month period ended December 31, 2009 decreased to 49%. We had to
decrease our prices for our apparel at the end of 2009 in order to mark the
market and consequently to stimulate sales. This event is unusual and closely
correlated with the effect of global financial crisis in Poland as it was
observed in almost all clothing branches in Poland. We currently do not expect
to markdown our merchandise at the end of 2010 in a manner similar to December
2009. .In other words, we believe this markdown trend in the Polish apparel
retail industry was temporary and should inverse in the second half of the year.

27

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Principal Factors Affecting Our Financial Performance

We believe that the following factors will continue to affect
our financial performance:

- Economic growth in Poland. Growth in Polands GDP,
  employment and wages should result in increased demand for our products.
  According to the Polish Central Statistical Office, Polands economic growth
  in 2009 measured by the countrys GDP was 1.7% compared to 2008. The GDP for
  the fourth quarter 2009 showed 3.1% increase over the fourth quarter of 2008.
  Domestic demand, which is the main factor in GDP growth, reached 0.9% during
  the fourth quarter of 2009, with total consumption and individual consumption
  showing increases of 0.6% and 1.1%, respectively, over the fourth quarter of
  2008. The contribution of individual consumption to GDP growth in 2009 was
  2.3%. The International Monetary Fund forecasts that Polish GDP growth for
  2010 will approximate 2.75%. The Monetary Policy Council estimates that
  Poland's economic growth is slowing due to the current global economic crisis,
  and that this slowdown will be further impacted by a deteriorating business
  outlook and greater difficulty in accessing credit. Despite continued
  over-liquidity in the banking system, borrowing costs remain high. At the same
  time, data from the Monetary Policy Council indicates that unemployment is on
  the rise and wage growth is slowing.
- Global financial crisis. The downturn in global financial
  markets might affect negatively the forecasted Polish GDP growth, and as a
  result decrease our customers' purchasing power. This might negatively affect
  our projected total sales increase and deteriorate our profit margins. The
  negative impact of the global financial crisis is believed not to affect the
  Polish economy as seriously as the US economy, however. This is, among others,
  due to a lower reliance of Polish corporations and households on financial
  markets. Polish corporations finance their operations from their own resources
  in larger part than US corporations. Polish households' dependence on mortgage
  loans is significantly smaller than in the US.
- Clothing market development. The Polish clothing market has
  grown significantly in recent years. According to GUS, from 2005 through 2008,
  the average yearly increase in the Polish clothing sector has been between
  approximately 5% and 18%. According to the reports of PMR Research (a
  well-recognized market research company specializing in Central and Eastern
  Europe) the total clothing and footwear market in Poland reached in 2008 27.2
  billion PLN ($9.5 billion) and 25.5 billion PLN ($8.9 billion) in 2009. After
  the observed decrease in 2009 of 6.3%, PMR estimates the market value for the
  year 2010 to be 26.8 billion PLN ($9.4 billion). This means an increase of
  5.1% as compared to the year 2009. The downturn in global financial markets
  might negatively affect future clothing and footwear markets in Poland, in
  turn decreasing our projected total net sales and profit margins. On the other hand, our market
  position may result in an increase in projected total net sales and profit
  margins, as customers switch from the higher priced sector to our
  medium-priced segment.

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- Supply chain development.We will continue to seek high
  quality and cheaper sources of supply abroad, particularly raw materials and
  semi-finished and finished products. Increased liquidity has also allowed us
  to make larger and more systematic orders from our suppliers resulting in a
  decrease of the purchase prices. Lower purchase prices have decreased our cost
  of goods sold resulting in higher operating margins beginning from the second
  quarter of 2008. We believe that our overall supply chain development process
  will continue to result in increased profit margins.
- Increase in exports. We plan to expand sales of our products
  to foreign markets. This goal has been achieved through acquisitions of shares
  in local companies operating retail stores in Lithuania, Latvia, Estonia and
  the Czech Republic, as well as through further development of retail outlets
  in these countries. We believe that the overall increase in export sales
  through our network of acquired retail stores will result in increased sales
  of menswear and positively affect our overall sales.

Short-Term Financial Plan

Our short-term financial plan for 2010 includes various
initiatives as discussed above, through which we hope to achieve positive net
income for the year and positive cash flows from operations or cash flows, which
are negative only to the extent that we use cash to decrease our overdue tax
payables. We believe that we will achieve this plan, especially with the
acceptance of the settlement proposal with the Polish social security
authorities as discussed above. If we are able to achieve positive cash flows
from operations, it would allow us to simultaneously pay down our current debts
and overdue loans and tax payables according to agreed schedules. It would also
allow us to have sufficient cash flows to operate normally in the year 2010. We
are only in the preliminary stages of our applications for these two long term
loans for an aggregate of approximately $5 million. There is a significant
possibility that we will not be successful in our applications. Our retail
stores development for 2010 is dependent on obtaining these loans, and or
achieving positive cash flows from operations.

Recent Acquisitions

On May 21, 2008, we entered into a stock purchase agreement
with Mirosław Kranik, our president and chief executive officer, and Ewelina
Ligocka-Kranik, or the Kraniks, pursuant to which we acquired from the Kraniks
100% of the interests in Bohemia, Sunset Suits Vilnius, Sunset Riga and OU
Posnania, companies engaged in the business of operating Sunset Suits retail
stores that sell menswear that is primarily sourced from Sunset Suits. As
consideration for the sale of these companies, we paid to the Kraniks an
aggregate of $1,000. After consummating these acquisitions, our future minimum
lease payments will increase by $2.6 million as the result of taking over new
lease agreements, with terms running through 2014. This additional commitment
includes the leases assumed in the January acquisition of 2 stores in Latvia,
one additional retail store opened in March 2009 in Latvia, the July
acquisitions of the 11 stores in the Czech Republic and 1 store in Estonia,
which has since been closed, and the August acquisition of 5 stores in
Lithuania.

Mr. Kranik and his spouse agreed in September 2008, to transfer
the four companies (which owned and operated a total of 17 stores at the time)
to us for the nominal consideration of $1,000 as a requirement of the investors
in the private placement since the price paid by the private placement investors
was based on a valuation that included the four companies. Initially, we
anticipated that the transfer of these local companies would occur in 2008. Due
to the need to prepare these local companies for the transfer, including with
respect to local requirements on ownership and regulation of the rights in their
assets, the transfers were not able to be finalized in 2008.

We acquired Bohemia, a company incorporated in accordance with
the Laws of Czech Republic, on July 9, 2009. Bohemia sells products through its
own network of 10 retail stores in Czech Republic. We acquired Sunset Suits
Vilnius, a company incorporated in accordance with the Laws of Republic of
Lithuania, on August 25, 2009. Sunset Suits Vilnius sells products through its
own network of 4 retail stores in Lithuania. We acquired Sunset Riga on January
29, 2009. Sunset Riga is incorporated in accordance with the Laws of Republic of
Latvia and sells products through its own network of 3 retail stores in Latvia.
We acquired OU Posnania on July 10, 2009. OU Posnania is incorporated in
accordance with the Laws of Republic of Estonia and sells products through its 1
retail store in Estonia.

We accounted for the recent acquisitions according to
paragraphs D8-D14 of Appendix D of FAS 141(ASC 805-10-15-4). The acquisitions we
accounted for in a manner similar to a pooling of interests in that the
accounts of the transferred entities have combined with our accounts for all periods
presented. Prior period financial statements presented have been restated to
reflect the acquired entities accounts as part of the Company. All of the
accounts of the acquired entities are stated in accordance with US GAAP at
amounts equivalent to those that would have been recorded by the separate
entities.

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Recent Events

On March 26, 2010, Sunset Suits S.A., our wholly owned
subsidiary, entered into a purchase agreement (the Agreement) with XCRITO Ltd.
(an unrelated third party), a corporation headquartered in Limassol, Cyprus
(XCRITO), pursuant to which we sold to XCRITO 100% of our equity interest in
our wholly-owned subsidiary Fashion Service. Pursuant to the Agreement, XCRITO
agreed to pay to the Company $16,000, and in turn will acquire all of the assets
and liabilities of Fashion Service, except for liabilities resulting from long
term debt (including current amounts owed on such debt), equal to approximately
$6,765,000, which will be assumed pursuant to the Agreement by Sunset Suits S.A.

In connection with the Agreement, Mirosław Kranik, our
President and Chief Executive Officer, agreed to continue to manage the
operations of Fashion Service for up to 90 days from the closing of the
transaction. In addition, the Company has agreed to rent office space from
Fashion Service in Krzyżanowo, Poland for a period of 6 months following the
closing of the transaction. Our management estimates that we will obtain
approximately 25% of our total inventory needs from Fashion Service for a period
up to 6 months following the closing of the transaction.

The sale of Fashion Service was part of a restructuring plan
intended to improve our operating margin. The size of our current retail
operations was not sufficient to fully utilize the manufacturing capacity of
Fashion Service. In order to do so, we would have been required to engage in
wholesale distribution to large distributers or retail clients. We recognized
lower gross margins from our manufacturing business segment as compared to its
retail segment, which therefore lowered the gross margin of the Company as a
whole. In addition, the manufacturing plant would have required major upgrades
in order to satisfy our needs. Accordingly, our management decided that it was
more cost effective and in the best interests of the Company and our
shareholders to increase its sourcing of merchandise through a supply chain in
Asia instead of maintaining its own production lines

Results of Operations

The following tables set forth key components of our results of
operations for the periods indicated, in dollars and as a percentage of revenue.

(All amounts, other than percentages, in thousands of US
dollars)

|                                                    |   | Year
      Ended December 31, |   |  | Year
      Ended December 31, |   |   |        |  
|--------------------------------------------------- | - | ----------------------------- | - |  | ----------------------------- | - | - | ------ | -
|                                                    |   | 2009                          |   |  | 2008                          |   |   |        |  
|                                                    |   |                               |   |  | Percent                       |   |   |        |  
|                                                    |   |                               |   |  | of                            |   |   |        |  
|                                                    |   | Amount                        |   |  | Revenue                       |   |   | Amount |  
|Sales revenue                                       | $ | 26,586                        |   |  | 100%                          |   | $ | 38,577 |  
|Cost of sales                                       |   | 11,319                        |   |  | 43%                           |   |   | 16,942 |  
|Gross profit                                        |   | 15,267                        |   |  | 57%                           |   |   | 21,634 |  
|Administrative expenses                             |   | 2,075                         |   |  | 8%                            |   |   | 2,513  |  
|Selling expenses                                    |   | 16,463                        |   |  | 62%                           |   |   | 17,457 |  
|Total Expenses                                      |   | 18,538                        |   |  | 70%                           |   |   | 19,970 |  
|Gain (loss) on
      disposal of fixed assets, net  | $ | (647                          | ) |  | (2%                           | ) | $ | 3      |  
|Interest income                                     |   | 4                             |   |  | 0%                            |   |   | 31     |  
|Interest expense                                    |   | 554                           |   |  | 2%                            |   |   | 710    |  
|Gain (loss) on transaction in
      foreigncurrency |   | (74                           | ) |  | 0%                            |   |   | 599    |  
|Income before
      income taxes                    |   | (4,542                        | ) |  | (17%                          | ) |   | 1,587  |  
|Income taxes                                        |   | 468                           |   |  | 2%                            |   |   | (527   | )
|Net income
      (loss) from ContinuingOperations   |   | (4,074                        | ) |  | (15%                          | ) |   | 1,062  |  
|Income (loss) from Discontinued Operations          |   | (961                          | ) |  | (4%                           | ) |   | 714    |  
|Net (Loss) Income                                   |   | (5,034                        | ) |  | (19%                          | ) |   | 1,776  |  

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(All amounts, other than percentages, in thousands of Polish
zloty)

|                                                    |  | Year
      Ended December 31, |   |  | Year
      Ended December 31, |   |  |                 |  
|--------------------------------------------------- |  | ----------------------------- | - |  | ----------------------------- | - |  | --------------- | -
|                                                    |  | 2009                          |   |  | 2008                          |   |  |                 |  
|                                                    |  |                               |   |  | Percent                       |   |  |                 |  
|                                                    |  |                               |   |  | of                            |   |  |                 |  
|                                                    |  | Amount                        |   |  | Revenue                       |   |  | Amount          |  
|Sales revenue                                       |  | zl
      82,848               |   |  | 100%                          |   |  | zl
      92,939 |  
|Cost of sales                                       |  | 35,272                        |   |  | 43%                           |   |  | 40,818          |  
|Gross profit                                        |  | 47,576                        |   |  | 57%                           |   |  | 52,121          |  
|Administrative expenses                             |  | 6,466                         |   |  | 8%                            |   |  | 6,054           |  
|Selling expenses                                    |  | 51,303                        |   |  | 62%                           |   |  | 42,057          |  
|Total Expenses                                      |  | 57,769                        |   |  | 70%                           |   |  | 48,111          |  
|Gain (loss) on
      disposal of fixed assets, net  |  | (2,016                        | ) |  | (2%                           | ) |  | 6               |  
|Interest income                                     |  | 12                            |   |  | 0%                            |   |  | 75              |  
|Interest expense                                    |  | 1,726                         |   |  | 2%                            |   |  | 1,710           |  
|Gain (loss) on transaction in
      foreigncurrency |  | (231                          | ) |  | 0%                            |   |  | 1,443           |  
|Income before
      income taxes                    |  | (14,153                       | ) |  | (17%                          | ) |  | 3,824           |  
|Income taxes                                        |  | 1,459                         |   |  | 2%                            |   |  | (1,269          | )
|Net income
      (loss) from ContinuingOperations   |  | (zl 12,694                    | ) |  | (15%                          | ) |  | zl 2,558        |  
|Income (loss) from DiscontinuedOperations           |  | (2,994                        | ) |  | (4%                           | ) |  | 1,721           |  
|Net (Loss)
      Income                             |  | (zl
      15,688              | ) |  | (19%                          | ) |  | zl
      4,279  |  

Revenues. Our total net revenues for the year
ended December 31, 2009 amounted to $26,586,000 (including foreign operations),
which is $11,991,000, or 31%, lower than in 2008, during which we had net
revenues of $38,577,000. Such decrease was primarily a result of appreciation of
USD to PLN by 23%. Total net revenues, as denominated in PLN, dropped by 11%,
which is the effect of decrease in sales in foreign network by 36% and
approximately 8% in Polish retail network. The decrease in sales was a net
effect of an increase of average retail prices by 18.9%, as well as of a
decrease in total quantity of apparel sold by approximately 19.3%.

Gross Profit as a Percentage of Total Revenue.
Gross profit as a percentage of total revenue increased by 1.3% in 2009 as
compared to 2008. There was an increase of 3.4% of gross margin in Polish retail
network, offset by a 1.9% drop in gross margin in our foreign network. Such a
cumulative increase was principally due to the ability to increase our retail
price during the first 3 quarters of 2009. The effect of this increase was
reversed in the fourth quarter when we had to decrease our average retail prices
in order to match the market. Furthermore, our gross margin in the fourth
quarter was decreased due to recording a provision of $288,000 for slow moving
inventory.

Gross Profit. Gross profit was $15,267,000 for
the year ended December 31, 2009, compared to $21,634,000 for the year ended
December 31, 2008, which was a decrease of $6,367,000 or 29%. The decrease was
mainly a result of decrease in net sales for 2009 compared to 2008.

Operating Expenses. Operating expenses consist of
the following expenses: selling and marketing expenses and general and
administrative expenses. Our total operating expenses in fiscal year 2009
amounted to $18,538,000 which is $1,431,000, or 7%, less than that of fiscal
year 2008, during which we had operating expenses of $19,970,000. The decrease
in our operating expenses is primarily the result of an appreciation of USD to
PLN by 23%. As denominated in PLN, total operating expenses rose by 20%. The
increase in operating expenses was mainly due to increase in selling and
marketing expenses.

- Selling and Marketing Expenses. Selling and marketing expenses in
  2009 were $16,463,000 (62% of net sales), $993,000 or nearly 6% less than the
  $17,457,000 (45% of net sales) that we spent on selling and marketing during
  2008. A decrease in our selling and marketing expenses is mainly a net effect
  of the following factors: i) an appreciation of U.S. dollar to Polish zloty by
  23%; ii) an increase in average rent costs due to appreciation of Euro to
  Polish zloty by 18%; iii) a decrease in average salaries of selling staff by
  10%. As denominated in PLN selling and marketing expenses rose by 22%, and
  this increase can be predominantly justified by a higher cost of rents which
  are principally denominated in Euro.

31

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- Administrative Costs. Administrative expenses were $2,075,000 (10%
  of net sales) and $2,513,000 (7% of net sales) in the fiscal year ended
  December 31, 2009 and December 31, 2008, respectively. As denominated in PLN
  administrative costs increased by 7% or $411,000. An increase in our general
  administration expenses was due to increase in cost related with
  reorganization of our business and cost related with prospectus preparation.

Gain (loss) on disposal of fixed assets. Loss on
disposal of fixed assets amounted to $647,000 in the fiscal 2009. In fiscal 2008
there was a gain on sale of fixed asset amounting to $3,000. The higher cost of
disposal of fixed assets are related with closures of retail outlets that were
not fully depreciated as of the date of shutting down. There were 18 retail
outlets closures during the year 2009, while there were 19 closures in the year
2008. While in 2008 there were predominantly closures of old fashioned retail
outlets, in the year 2009 we had to close several modern retail outlets due to
economic reasons.

Interest Expense and Financing Costs. Interest
expenses were $554,000 for the fiscal year ending December 31, 2009 and $710,000
for fiscal year ending December 31, 2008. A decrease in total interest expense
in 2009 as compared to 2008 is the result of changes of translation rate of PLN
to USD. As denominated in PLN the interest expenses remained stable. Also
reduction in interest expense can be explained by a reduction in LIBOR (London
Inter Bank Offer Rate).

Result on transactions in foreign currency. The
loss on transaction in foreign currency amounted to $74,000 in the twelve months
period ended December 31, 2009. In the same period in 2008, we had a gain on
transaction in foreign currency amounting to $599,000. A decrease in transaction
in foreign currency by $673,000 is a result of appreciation of US dollar to
Polish zloty during the year 2009.

Income taxes. Income tax expense accounted for
10% of pre-tax income for the year ended December 31, 2009 as compared to 33% of
pre-tax income for the year ended December 31, 2008. We had an income tax credit
of $468,000 in the year ended December 31, 2009, as compared to income tax
charge of $527,000 in the year ended December 31, 2008. An increase in income
tax credit is primarily due to taxable losses for the year 2009 and recognition
of deferred tax asset resulting in deferred tax credit charge. Our effective tax
rate is predominantly driven by the statutory Corporate Income Tax rate in
Poland which is 19%. The statutory Corporate Income Tax rates in other countries
do not significantly affect our tax charge since their share in the net profit
or loss of the Group is not significant. The effective tax rate in the year 2008
amounted to 33% as there was a significant portion of permanent non taxable
cost. The effective tax rate in the year 2009 amounted to 10% due to recognized
allowance for deferred tax asset amounting to $416,000.

Net income/loss from continuing operationsWe had
a net loss from continuing operations of $4,074,000 for the year ended December
31, 2009 and a net income from continuing operations of $1,062,000 for the year
ended December 31, 2008. The decrease of $5,135,000 in the net income was
principally due to lower net sales as compared to the prior year. Our operating
costs did not decrease in line with our net sales which is primarily a result of
high operating leverage, resulting mainly from our lease agreements denominated
in Euro.

Net income/loss (profit after taxes). We had a
net loss of $5,034,000 for the year ended December 31, 2009 and net income of
$1,776,000 for the year ended December 31, 2008. A decrease of $6,810,000 in net
income was principally due to lower result from continuing operations of
$5,135,000 as well as due to a loss of $961,000 reported on production segment,
which we classified according to ASC 360-10 as available for sale and therefore
presented in discontinued operations.

Operating segment analysis

Our management identifies operating segments based on, among
other things, differences in products sold and the way the Company's management
organizes the components of the Company's business for purposes of allocating
resources and assessing performance. Our operations are comprised of two
reportable segments: production and retail. Segment revenues are generated from
manufacturing and the sale of suits and accessories through wholesale channels
and in our own retail locations. The production segments include design,
manufacture and wholesale operations with third party department and other
stores. The retail segment includes operations by the our Polish and foreign
stores. We define segment profit as operating income before net interest
expense, goodwill impairment charges, equity in earnings of unconsolidated
affiliates and income taxes. Summarized below are our revenues, income and total
assets by reportable segments.

32

---

(All amounts, other than percentages, in thousands of US
dollars)

|                                   |   | Year Ended
      December31, 2009 |   |  | **Year Ended December 31,**2008 |   |   |        | 
|---------------------------------- | - | --------------------------------- | - |  | ------------------------------- | - | - | ------ | 
|                                   |   |                                   |   |  | Percent                         |   |   |        | 
|                                   |   |                                   |   |  | of                              |   |   |        | 
|                                   |   | Amount                            |   |  | Revenue                         |   |   | Amount | 
|Production(DiscontinuedOperations) |   |                                   |   |  |                                 |   |   |        | 
|Revenue                            | $ | 10,424                            |   |  | 100%                            |   | $ | 15,931 | 
|Gross profit                       |   | 1,209                             |   |  | 12%                             |   |   | 2,934  | 
|Operating expense                  |   | 1,605                             |   |  | 15%                             |   |   | 1,448  | 
|Operating income (loss)            |   | (395                              | ) |  | (4%                             | ) |   | 1,487  | 
|Retail                             |   |                                   |   |  |                                 |   |   |        | 
|Revenue                            | $ | 26,586                            |   |  | 100%                            |   | $ | 38,577 | 
|Gross profit                       |   | 15,267                            |   |  | 57%                             |   |   | 21,634 | 
|Operating expense                  |   | 18,515                            |   |  | 70%                             |   |   | 19,970 | 
|Operating income
      (loss)      |   | (3,248                            | ) |  | (12%                            | ) |   | 1,665  | 

|                                   |  | **Year Ended December 31, 2009** |   |  | Year Ended December 31, 2008 |   |  |                 | 
|---------------------------------- |  | -------------------------------- | - |  | ---------------------------- | - |  | --------------- | 
|                                   |  |                                  |   |  | Percent                      |   |  |                 | 
|                                   |  |                                  |   |  | of                           |   |  |                 | 
|                                   |  | Amount                           |   |  | Revenue                      |   |  | Amount          | 
|Production(DiscontinuedOperations) |  |                                  |   |  |                              |   |  |                 | 
|Revenue                            |  | zl 32,484                        |   |  | 100%                         |   |  | zl 38,381       | 
|Gross profit                       |  | 3,769                            |   |  | 36%                          |   |  | 7,069           | 
|Operating expense                  |  | 5,000                            |   |  | 48%                          |   |  | 3,488           | 
|Operating income (loss)            |  | (1,231                           | ) |  | (12%                         | ) |  | 3,582           | 
|Retail                             |  |                                  |   |  |                              |   |  |                 | 
|Revenue                            |  | zl
      82,848                  |   |  | 100%                         |   |  | zl
      92,940 | 
|Gross profit                       |  | 47,576                           |   |  | 57%                          |   |  | 52,120          | 
|Operating expense                  |  | 57,697                           |   |  | 70%                          |   |  | 48,111          | 
|Operating income
      (loss)      |  | (10,121                          | ) |  | (12%                         | ) |  | 4,011           | 

Production segment(Discontinued Operations)

Revenues.Total revenue in the production segment for
the year 2009 amounted to $10,424,000 and decreased by 35% or $5,507,000 as
compared to 2008 when it amounted to $15,931,000. Such a decrease resulted
primarily from appreciation of U.S. dollar to Polish zloty by 23%. As
denominated in PLN sales decreased by 15%. The decrease in production segment
net sales as denominated in Polish zloty was mainly a result of: i) lower sales
to retail segment in the year 2009 as compared to the year 2008 as a consequence
of lower demand and; ii) lower sales to corporations in the year 2009 as
compared to the year 2008.

Gross Profit as a Percentage of Total Revenue. Gross
margin in production amounted to 12% and 18% for the year 2009 and 2008,
respectively. A decrease of gross margin for production segment by 37% is a
result of lower wholesale in the year 2009 as compared to the year 2008. Our
usual gross margin on manufacturing activity is in the range from 10% to 14%.
Margin realized on wholesale contracts to corporations are higher. Higher
wholesale realized in the year 2008 made our gross margin on production segment
of 18% in the year 2008. We did not realized significant sale to corporation in
the year 2009, therefore our gross margin for the year 2009 amounted to 12%.

33

---

Operating expenses.Operating expenses in production
were $1,605,000 and $1,448,000 in the fiscal year ended December 31, 2009 and
December 31, 2008, respectively. An increase in operating expenses of $157,000
or nearly 11% was alleviated by an appreciation of U.S. dollar to PLN during the
year 2009. As denominated in PLN, operating expenses increased by 1,512,000 PLN
or 43%. The increase in operating expenses in production segment is
predominantly a result of higher cost associated with development of the
corporate sales which we incurred during the year 2009 in anticipation to expand
our operations through this channel of distribution.

Operating income.We had an operating loss of 395,000
and operating income of 1,487,000 for the year ended December 31, 2009 and
December 31, 2008, respectively. Such a decrease was due to lower sales, lower
gross margin and higher operating expenses as explained above.

Retail segment

Revenues.Total revenue in retail segment for the year
2009 amounted to $26,586,000 and decreased by 31% or $11,991,000 as compared to
2008 when it amounted to $38,577,000. Such a decrease resulted primarily from
appreciation of U.S. dollar to Polish zloty by 23%. As denominated in PLN sales
decreased by 11%. A decrease in retail segment was a cumulative result of a
decrease in net sales in our foreign network by 36% and a decrease in Polish
retail network by 8%. The decrease in sales in our foreign retail network was
due to worse economic conditions in the Czech Republic and in the Baltic states
in the year 2009. Gross Domestic Product dropped by 4.3% in Czech Republic,
16.8% in Lithuania, 17.8% in Latvia and 15.3% in Estonia. The decrease in sales
of retail network in Poland was a net effect of an increase of average retail
prices by 18.9%, as well as of a decrease in total quantity of apparel sold by
approximately 19.3%. Worse economic outlook in Poland in the fourth quarter of
2009 was a notable negative factor that affected our net sales in the period
from October to December 2009. We reported lower customer demand in the fourth
quarter of 2009, than we had usually reported in the comparative periods in the
past.

Gross Profit as a Percentage of Total Revenue.Gross margin in retail amounted to 57% and 56% for the years 2009 and 2008,
respectively. An increase of gross margin for retail segment by 1.3% is a
cumulative result of an increase of 3.4% of gross margin of retail network in
Poland and a decrease in gross margin in foreign retail network by 1.9%. Our
foreign retail network experienced notably worse economic outlook caused by a
global financial crisis. Gross Domestic Product dropped by 4.3% in Czech
Republic, 16.8% in Lithuania, 17.8% in Latvia and 15.3% in Estonia. Also, in
Poland a negative impact of global economic crisis notably occurred in the
fourth quarter of 2009. Due to lower than expected sales in the fourth quarter
of 2009 we were not able to keep our retail prices at the level we kept during
the first three quarters of 2009. Moreover our gross margin in the fourth
quarter was decreased due to recording a provision for slow moving inventory and
stock count shortages.

Operating expenses.Operating expenses in retail were
$18,515,000 and $19,970,000 in the fiscal year ended December 31, 2009 and
December 31, 2008, respectively. A decrease in operating expenses of $1,454,000
or nearly 7% was alleviated by an appreciation of U.S. dollar to PLN during the
year 2009. In fact, as denominated in PLN, operating expenses increased by
9,586,000 PLN or 20%. The increase in operating expenses in retail segment is
predominantly a result of higher cost of rents for our retail outlets which are
mainly denominated in Euro.

Operating income.We had an operating loss of $3,248,000
and operating income of $1,665,000 for the year ended December 31, 2009 and
December 31, 2008, respectively. Such a decrease was due to lower sales and
higher operating expenses as explained above.

34

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Balance Sheet Analysis

(All amounts, other than percentages, in thousands of US
dollars)

|                                          |   | December
      31, |  |   | December
      31, |  |  | Year to
      Year |  
|----------------------------------------- | - | ------------------ |  | - | ------------------ |  |  | ------------------ | -
|                                          |   | 2009               |  |   | 2008               |  |  | Change             |  
|ASSETS                                    |   |                    |  |   |                    |  |  |                    |  
|Total current assets                      | $ | 9,482              |  | $ | 11,320             |  |  | (16%               | )
|Total
      non-current assets            |   | 16,164             |  |   | 13,852             |  |  | 17%                |  
|Total assets                              | $ | 25,646             |  | $ | 25,172             |  |  | 2%                 |  
|LIABILITIES
      AND STOCKHOLDERS EQUITY |   |                    |  |   |                    |  |  |                    |  
|Total current liabilities                 | $ | 19,020             |  | $ | 14,845             |  |  | 28%                |  

|Total
      non-current liabilities                                       |   | 12,807          |   |  | 11,076          |   |  | 16%               |  
|------------------------------------------------------------------------- | - | --------------- | - |  | --------------- | - |  | ----------------- | -
|Total stockholders equity                                                 |   | (6,181          | ) |  | (749            | ) |  | (926%             | )
|Total
      liabilities and stockholders' equity                          | $ | 25,646 $        |   |  | 25,172          |   |  | 2%                |  
|                                                                          |   |                 |   |  |                 |   |  |                   |  
|(All
      amounts, other than percentages, in thousands of Polish zloty) |  
|                                                                          |   |                 |   |  |                 |   |  |                   |  
|                                                                          |   |                 |   |  |                 |   |  | **Year
      to** |  
|                                                                          |   | December 31,    |   |  | December 31,    |   |  | Year              |  
|                                                                          |   | 2009            |   |  | 2008            |   |  | Change            |  
|ASSETS                                                                    |   |                 |   |  |                 |   |  |                   |  
|Total current
      assets                                                |   | zl
      27 027 |   |  | zl
      33 527 |   |  | (19%              | )
|Total non-current assets                                                  |   | 46 072          |   |  | 41 028          |   |  | 12%               |  
|Total assets                                                              |   | zl
      73 099 |   |  | zl
      74 555 |   |  | (2%               | )
|LIABILITIES AND STOCKHOLDERS
      EQUITY                                 |   |                 |   |  |                 |   |  |                   |  
|Total current
      liabilities                                           |   | zl
      54 213 |   |  | zl
      43 968 |   |  | 23%               |  
|Total non-current liabilities                                             |   | 36 504          |   |  | 32 804          |   |  | 11%               |  
|Total
      stockholders equity                                           |   | (17
      619   | ) |  | (2
      217    | ) |  | 695%              |  
|Total liabilities and
      stockholders' equity                          |   | zl 73 099       |   |  | zl 74 555       |   |  | (2%               | )

Current assets. Current assets as of
December 31, 2009 amounted to $9,482,000. Current assets as of December 31, 2008
amounted to $11,320,000. A decrease of $1,838,000 or 16% is a cumulative result
of a decrease in cash, decrease in inventories and a decrease in receivables.
Decrease in cash balance is a consequence of lower net sales in the fourth
quarter of the year 2009 as compared to fourth quarter of the year 2008. The
decrease in the inventory balance is due to recording in of a slow moving stock
provision amounting to $288,000 in the fourth quarter of 2009. Decrease in trade
receivables is a result of a decrease in receivables from our major shareholder
 Mr. Mirosław Kranik. As of December 31, 2009 current assets include
$3,690,000 of current assets held for sale associated with the sale of the
Fashion Service Sp. z o. o..

Non-current assets. Non-current assets as of
December 31, 2009 amounted to $16,164,000. Non-current assets as of December 31,
2008 amounted to $13,852,000. An increase of $2,312,000 or 17% is a cumulative
result of a decrease of PLN to USD foreign exchange rate by 4% and an increase
in long term investment by $1,602,000. This investment is in long term notes
payable in 2015. As of December 31, 2009 non-current assets include $7,694,000
of non-current assets held for sale linked with the sale of the Fashion Service
Sp. z o. o.. This mainly includes long lived assets.

Current liabilities. Current liabilities as of
December 31, 2009 amounted to $19,020,000. Current liabilities as of December
31, 2008 amounted to $14,845,000. An increase of $4,175,000 or 28% is a
predominantly a result of an increase in accounts payable. This increase in
accounts payable is a result of worsening liquidity of the Group being the
result of lower net sales. As of December 31, 2009 current liabilities include
$9,808,000 of current liabilities associated with asset held for sale linked
with the sale of the Fashion Service Sp. z o. o.. This mainly includes account
payable, social security tax payable and value added tax payable.

Non-Current liabilities. Non-current
liabilities as of December 31, 2009 amounted to $12,832,000. Whereas,
non-current liabilities as of December 31, 2008 amounted to $11,076,000. An
increase of $1,757,000 or 16% is a net effect of i) a decrease in long term debt
payable by $987,000; ii) an increase in social security tax payable to be
settled in the long term by $2,628,000; iii) an increase in other non-current
liabilities by $116,000. As of December 31, 2009 non-current liabilities include
$7,752,000 of non-current liabilities associated with asset held for sale linked
with the sale of the Fashion Service Sp. z o. o.. This mainly includes social
security tax payable to be settled in the long term and deferred tax liability
associated with long lived assets.

Stockholders' equity.Total stockholders'
deficiency as of December 31, 2009 amounted to 6,207,000. The stockholders'
deficiency as of December 31, 2008 amounted to 749,000. A decrease of $5,458,00
is a result of a net loss amounting to $5,034,000 and a translation adjustment
amounting to $423,000.

35

---

Liquidity and Capital Resources

The following table provides detailed information about our net
cash flow for all financial statements periods presented in this report. Our
principal uses of cash are for liabilities payments, capital expenditures and
long term borrowings repayments.

|Cash
      Flow                                                           |  
|------------------------------------------------------------------------- | -
|(All amounts in
      thousands of U.S. dollars)                          |  
|                                                                          |  
|                                                                          |  
|Net cash
      provided by (used in) operating activities                 | $
|Net cash provided by (used in)
      investing activities                 |  
|Net cash
      provided by (used in) financing activities                 |  
|Effect of foreign currency
      translation on cash and cash equivalents |  
|Net Cash Flow                                                             |  

|                                                                         |  | Twelve
      Months      |   |  | Twelve
      Months      |  
|------------------------------------------------------------------------ |  | ------------------------ | - |  | ------------------------ | -
|                                                                         |  | Ended December
      31, |   |  | Ended December
      31, |  
|                                                                         |  | 2008                     |   |  | 2007                     |  
|Net cash
      provided by (used in) operating activities                |  | 5,787                    |   |  | (17,174                  | )
|Net cash provided by (used in)
      investing activities                |  | (4,278                   | ) |  | (4,127                   | )
|Net cash
      provided by (used in) financing activities                |  | (3,482                   | ) |  | 21,300                   |  
|Effect of foreign currency
      translation on cash and cashequivalents |  | (250                     | ) |  | 182                      |  
|Net Cash Flow                                                            |  | (zl
      2,223          | ) |  | zl
      182             |  

Cash provided by operations was $1,857,000 for the twelve
months ended December 31, 2009. To provide this cash in the face of a $5,034,000
net loss for the twelve month period, the Company obtained a decrease in noncash
net operating assets (or increase in net operating liabilities) of $6,891,000.
Principally, the Company increased its accounts payable and other current
liabilities (i.e., received extended terms on its debts or simply delayed the
payment of its bills) to more than cover its loss. Included in our negative
working capital there are current assets amounting to $3,690,000 and current
liabilities amounting to $9,808,000 associated with Fashion Service, which is
held for sale at December 31, 2009. If the Company is unable to finance
operations by some combination of delaying the payment of certain of its
liabilities, speeding-up the collections of its accounts receivable, and not
replacing all of its inventory sold, the $3,420,000 negative working capital
would have to be financed during 2010.

Additionally, the $3,420,000 hypothetical shortfall assumes
that the Company needs to fully eliminate negative working capital and that over
the next twelve months it will not be able to repeat its positive cash flow from
operations because it would not be able finance its net loss through some
combination of delaying the payment of certain of its liabilities, speeding-up
the collections of its accounts receivable and reducing inventory balance on
hand. The Company, should, however, have the ability to delay the payment of
certain of its operating liabilities so as to continue in operation for the next
twelve months. The Company is also seeking $5,000,000 of additional loans for
which it is in the preliminary stages of its application as described under
"Troubled Debt Restructuring" below. There is a very significant possibility,
however, that the Company might not be able to obtain any of this additional
financing. Management has various plans for increasing the profitability and
cash flows of the Company as discussed above in the "Overview" section. Each of
the plans carries significant uncertainty as to its achievability and carries
risks that it might actually decrease profitability and cash flows. Several of
the plans are particularly risky in the near term even if successful in the
long-term, because investment in additional working capital and leasehold
improvements are required in the short-term. Also, even the existing facilities
will require some capital expenditures to replace depreciated property and
equipment. Consequently, there is a significant risk that the Company will be
unable to continue its operations through December 31, 2010.

If the short-term cash flow requirements can be met, there are
still significant long-term risks. In the longer term the tax liabilities will
still need to be repaid regardless of the extension. In addition to the negative
working capital of $3,420,000 million the Company has long-term liabilities of $12,832,000 at
December 31, 2009. Of the $12,832,000 of long-term liabilities, approximately
$4,942,000 are long term debt which, under the terms negotiated with banks, as
discussed in greater detail below under "Repayments of Debt" and in Note 14 to
both the December 31, 2009 and 2008 financial statements, are due until 2013.
That leaves $$8,362,000 of obligations to be repaid in the five years following
the balance sheet date.

36

---

To clarify the effect of the past due tax liabilities on the
analysis in the previous paragraph, the negative working capital of $9,538,000
includes $3,665,549 of tax liabilities due March 10, 2010, much of it later
extended to November 2010 and the $134,000 of current portion of the past due
social security obligations. Long-term liabilities of $19,020,000 includes $
7,429,000 of past due social security obligations. On March 12, 2010 management
of Fashion Service Sp. z o. o.  applied to Polish tax authorities for an
extension of its obligation to pay $3,665,549 of certain tax liabilities on
March 10, 2010 to later in 2010, principally in November. No response has
been received.

If the net operating income for the twelve months ended
December 31, 2010 were to be at least $2,000,000 and the net operating income
for the twelve months ended December 31, 2011 were to be at least $3,400,000 as
management forecasts in its projections the Company would have sufficient funds
to restore its financial situation. Nevertheless the Company does not have the
ability to make a meaningful forecast or projection because of the uncertainties
and variables involved. With the Company's collateral and an income generating
business, management believes that refinancing to the $6,765,000 level of
long-term debt would not be difficult. The Company would also need additional
cash to replace depreciated property and for additional property and equipment
and working capital for expansion. The shortfall would have to be made up by
some combination of 1) success of management's plans for improving profitability
and cash flow as discussed in the "overview section", 2) additional financing
and 3) improvement of profitability during the five year period because of the
end of the world recession. Management is optimistic about its plans but as
discussed above, management's plans all carry risk that they will not be
successful and even entail risk that they will use, rather than provide cash
flow. There is also significant risk that additional financing cannot be
obtained. Even if it could be obtained, additional debt would mean additional
interest expense and additional equity financing would mean dilution of the
currently outstanding shareholders. There is a significant possibility that the
world recession will not end during the period or not end in a manner beneficial
to the Company.

Operating activities. Net cash provided by
operating activities was $1,857,000 for the year ended December 31, 2009, as
compared to $7,128,000 used in operating activities during 2008. The increase in
net cash provided by operating activities was mainly due to increase in our net
operating liabilities.

Investing activities. Net cash used in investing
activities for the year ended December 31, 2009 was $1,373,000, as compared to
$1,713,000 net cash used in investing activities in 2008. The decrease in net
cash used in investing activities was mainly a result of an appreciation of U.S
Dollar to Polish złoty by 23%. As denominated in Polish złoty net cash
used investing activities remained stable.

Financing activities. Net cash used in financing
activities for the year ended December 31, 2009 was $1,117,000, as compared to
$8,841,000 net cash provided by financing activities in 2008. The decrease of
net cash provided by financing activities was mainly attributable to the payment
of long term debt and lack of any equity financing in the year 2009. In the year
2008 there were payments of long term debt that decreased net proceeds from
common stock issue amounting to $11,225,000 that took place on May 30, 2008.

Repayments of Debt.Repayments of debt in the
year ended December 31, 2009 amounted to $1,001,000, compared to repayments of
$2,235,000 made in the year ended December 31, 2008. Part of our long term debt
is denominated in PLN. As a result, variances in our net borrowings repayment
tend to be driven by changes in foreign exchange rate fluctuations.

37

---

The following table outlines our current long-term schedule of
repayments as of December 31, 2009:

|                                                                                                                                                                                                                                                                                                                                                 | Year Ending  | Year Ending  | Year Ending  | Year Ending  |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------ | ------------ | ------------ | ------------ | ----------
|                                                                                                                                                                                                                                                                                                                                                 | December 31, | December 31, | December 31, | December 31, |           
|                                                                                                                                                                                                                                                                                                                                                 | 2010         | 2011         | 2012         | 2013         | Total     
|Secured Notes due 2013, net of
    unamortized discount, in USD (BGŻ) with interest at LIBOR+2.5% p.a.                                                                                                                                                                                                                                           | $372,000     | $756,000     | $1,044,000   | $1,612,451   | $3,784,451
|The agreements underlying these
    Secured Notes are Credit Agreements dated October 3, 2000 and October 6,
    2000, as amended by the Restructuring Agreement, August 19, 2005, and
    assumed pursuant to the Assumption Agreement, dated May 15, 2007, which are
    more fully discussed below in the section entitled "Loan Facilities."
|Secured Notes due 2012, net of
    unamortized discount, in USD (Meritum) with interest at LIBOR+3.0% p.a.                                                                                                                                                                                                                                       | 63,209       | 69,509       | 207,911      | 0.00         | 340,629   
|The agreement underlying these
    Secured Notes is a Credit Agreement dated November 1, 2000, as amended,
    which is more fully discussed below in the section entitled "Loan
    Facilities."                                                                                                                                               
|Secured Notes due 2012, net of
    unamortized discount, in USD (Meritum) with interest at LIBOR+2.6% p.a.                                                                                                                                                                                                                                       | 15,510       | 17,055       | 51,014       | 0.00         | 83,579    
|The agreement underlying these
    Secured Notes is a Credit Agreement dated December 30, 1997, as amended,
    which is more fully discussed below in the section entitled "Loan
    Facilities."                                                                                                                                              
|Secured Notes due 2013, net of
    unamortized discount, in PLN (BGŻ) with interest at WIBOR+1.5% p.a.                                                                                                                                                                                                                                           | 130,512      | 147,353      | 164,193      | 282,463      | 724,521   
|The agreement underlying these
    Secured Notes is a Credit Agreement dated February 28, 2000 as amended by
    the Restructuring Agreement, August 19, 2005, and assumed pursuant to the
    Assumption Agreement, dated May 15, 2007, which is more fully discussed
    below in the section entitled "Loan Facilities."                     
|Secured Notes due 2012, net of
    unamortized discount, in PLN (Meritum) with interest at WIBOR+3.0% p.a.                                                                                                                                                                                                                                       | 175,926      | 193,456      | 578,648      | 0.00         | 948,030   
|The agreement underlying these
    Secured Notes is a Credit Agreement dated April 12, 1998, as amended, which
    is more fully discussed below in the section entitled "Loan Facilities."                                                                                                                                                     
|Secured Notes due 2010, net of
    unamortized discount, in PLN (Bank Śląski) with interest at WIBOR+2.0% p.a.                                                                                                                                                                                                                                   | 517,840      | 310,404      | 0.00         | 0.00         | 828,244   
|The agreement underlying the
    Secured Notes is a Credit Agreement dated March 1, 2000, as amended by a
    Restructuring Agreement, dated February 2, 2007, and assumed pursuant to the
    Assumption Agreement, dated February 8, 2007, which is more fully 
    discussed below in the section entitled "Loan Facilities."                
|Total                                                                                                                                                                                                                                                                                                                                            | $1,274,997   | $1,493,776   | $2,045,767   | $1,894,914   | $6,709,455
|The above schedule does not
    include current or future period interest. Accrued interest as of December
    31, 2009 amounts to $55,766 and is included on the balance sheet as part of
    long-term debt.                                                                                                                                  

38

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Loan Facilities

|The following table illustrates our
      credit facilities and the outstanding loan balances as of December 31,
      2009 |                                                                                                                                                                                        
|--------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Lender                                                                                                                      | ING Bank Śląski S.A.                                                                                                                                                                   
|GoverningAgreement                                                                                                          | Credit Agreement, dated March 1, 2000, as amended by a Restructuring Agreement, dated February 2, 2007, and assumed pursuant to the Assumption Agreement, dated
      February 8, 2007.
|MaturityDate                                                                                                                | The loan is payable in monthly installments and matures on December 29, 2011.                                                                                                          
|InterestRate                                                                                                                | 1 month WIBOR+2%                                                                                                                                                                       
|Covenants and
      Restrictions                                                                                            |  The Company must maintain an account with the Lender, and cash flows on such account must be in proportion to the percentage of the bank's financing of the Company;                 
|                                                                                                                            | Bank consent is required when the investments exceed PLN 200,000 (approximately $84,388);                                                                                             
|                                                                                                                            | No
      guarantee shall be made nor any liability incurred
      without prior consent of the bank;                                                                                  

39

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|                                                                      |                                                                                                                      |                                                                                                                                                               |                                                                                                                                                   |             |                                                |            
|--------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ---------------------------------------------- | -----------
|                                                                      | The Company may not take up any loan or credit without the consent of the
      bank;                               | Accession to debt of AC Market Sp. z o.o. and Sunset Textile Ewelina-Ligocka
      Kranik and satisfaction of payment obligations arising
      there under. | Accession to debt of AC Market Sp. z o.o. and Sunset Textile Ewelina- Ligocka Kranik and satisfaction of payment obligations arising there under |             |                                                |            
|                                                                      | The entire profit should be added to the company's own capital;                                                     |                                                                                                                                                               | .                                                                                                                                                 |             |                                                |            
|                                                                      | Renewal of the insurance policies of the assets serving as collateral;                                              |                                                                                                                                                               |                                                                                                                                                   |             |                                                |            
|                                                                      | Bank consent is required for any further encumbrances of the assets of the Company;                                 |                                                                                                                                                               |                                                                                                                                                   |             |                                                |            
|                                                                      | The Company shall assure the equal ranking (pari passu) of the bank's claims and the claims of its other creditors. |                                                                                                                                                               |                                                                                                                                                   |             |                                                |            
|PrincipalAmount ofLoan                                                | 5,387,201 PLN (approximately 1,697,665USD)                                                                           | 4,714,555 USD                                                                                                                                                 | 3,045,046 PLN (approximately 959,583 USD)                                                                                                         | 136,138 USD | 4,403,955 PLN (approximately 1,387,816 USD)    | 554,863 USD
|PrincipalAmountOutstanding                                            | 2,280,743 PLN (approximately 800,177 USD)                                                                            | 3,132,350 USD                                                                                                                                                 | 1,761,376 PLN (approximately 617,962 USD)                                                                                                         | 87,157 USD  | 2,820,251 PLN (approximately 989,458 USD       | 355,531 USD
|AccruedInterestOutstanding, including:                                | 10,740 PLN (approximately 3,768 USD)                                                                                 | 625,804 USD                                                                                                                                                   | 345,647 PLN (approximately 121,267 USD)                                                                                                           | 1,438 USD   | 69,643 PLN (approximately 24,434 USD)          | 5,875 USD  
|Currentperiodaccruedinterest                                          | 3,768 USD                                                                                                            | 14,431 USD                                                                                                                                                    | 16,590 PLN (approximately 5,820
      USD)                                                                                                        | 1,438 USD   | 24,434 USD                                     | 5,875 USD  
|Accruedinterest
      forthe period2005
       2007to be paid in2013 | -                                                                                                                    | 611,373 USD                                                                                                                                                   | 329,057 PLN (approximately 115,447 USD)                                                                                                           | -           | -                                              | -          
|Total Outstanding                                                     | 2,291,483 PLN (approximately 803,944.51 USD)                                                                         | 3,758,155 USD                                                                                                                                                 | 2,107,023
      PLN (approximately 739,228.67USD)                                                                                                 | 88,595 USD  | 2,889,894 PLN (approximately 1,013,891.30 USD) | 361,406 USD

|Interest Suspended* | 902,136 USD | 503,653 USD | 1,719,798 USD | - | 12,186 USD | 42,599 USD
|------------------- | ----------- | ----------- | ------------- | - | ---------- | ----------

* Interest suspended will be forgiven, if the loan is paid in
full on the maturity date.

40

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Also, these types of covenants are customary under Polish
banking practice and their import is relatively well understood. We note that
each of the accounts referred to in our disclosure is a bank account that we
maintain with the lender and each such account must comply with the requirements
of satisfactory cash flows.

We believe that we are in material compliance with the terms of
all of the credit facilities described above.

Principal Factors Affecting Our Liquidity

We currently expect to generate a positive net cash flow in the
fiscal 2010. There can be no assurance that this estimate will prove to be
accurate. Unforeseen events, including changes in our net income, or working
capital requirements, could occur, which could cause our cash flow to vary
significantly from this estimate.

Liquidity

Our current ratio was 0.50 as at December 31, 2009 and 0.76 as
at December 31, 2008. This significant decrease of the current ratio is a result
of: (i) significant financial loss for the year 2009; (ii) increase in current
liabilities by $4,175,000; (iii) decrease in current assets by $1,838,000. On
March 26, 2010 Sunset Suits S.A. sold Fashion Service Sp. z o. o. to XCRITO Ltd.
(an unrelated third party). As the result of the transaction the group will
divest current assets amounting to approximately $3,690,000 and current
liabilities amounting to approximately $9,808,000. This means that the Company
would improve its working capital by $6,118,000. Should the Company divest
current assets and current liabilities of Fashion Service Sp. z o. o., our
current ratio as of December 31, 2009 would have amounted to 0.63.

The sources of liquidity related with sale of Fashion Service
Sp. z o. o. will be cash from purchase consideration, decrease in fixed cash
outflows for production maintenance, payroll and other.

Working Capital

Our negative working capital amounted to $9,538,000 and
$3,525,000 as of December 31, 2009 and December 31, 2008, respectively. Decrease
in working capital is a result of deterioration of our liquidity, which was
mainly a result of worse net sales achieved in the fourth quarter of 2009. On
March 26, 2010 Sunset Suits S.A. sold Fashion Service Sp. z o. o. to XCRITO
Ltd. As the result of the transaction the group will divest current assets
amounting to approximately $3,690,000 and current liabilities amounting to
approximately $9,808,000. This means that the Company would improve its working
capital by $6,118,000. Should the Company divest current assets and current
liabilities of Fashion Service Sp. z o. o., our negative working capital as of
December 31, 2009 would have amounted to $3,420,000.

The negative working capital is regarded as a serious going
concern threat. On June 10, 2009 the Polish social security administration
accepted our application for a settlement according to which overdue social
insurance tax payable is due in the years 2009  2016. This has decreased
current liabilities by approximately $6,500,000 as measured at December 31, 2009,
and would have decreased current liabilities by $6,500,000 as measured at
December 31, 2008 compared to what it would be otherwise.

On November 4, 2009, the Polish tax authorities issued a
decision with respect to the deferment of delinquent tax obligations of Sunset
Suits amounting to $1,179,000. According to a decision Sunset Suits is obliged
to pay delinquent tax obligations up to November 2010 with bullet payment
amounting to $999,000 on November 2, 2010.

41

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On November 9, 2009 the Polish tax authorities issued a
decision with respect to the deferment of delinquent tax obligations of Fashion
Service amounting to $1,307,000. According to this decision, Fashion Service is
obliged to pay delinquent tax obligations up to November 2010 with a balloon
payment amounting to $1,163,000 on November 15, 2010.

Troubled Debt

We plan to re-pay approximately $6,735,000 of long term notes
in the years 2010  2013. We expect to be able to generate sufficient cash flow
in the future to be able to pay these notes but we might not be able to achieve
this. See the discussion above in the Overview section of Management's
Discussion and Analysis for a more detailed discussion of the basis of this
estimate including its assumptions and limitations. As of December 31, 2009,
based on exchange rates in effect at that time, the principal payments due in
future years total $1,274,997 in 2010, $1,493,776 in 2011, $2,045,766 in 2012,
$1,920,390 in 2013.

Management took actions to mitigate negative effect of the
world's financial crisis on realization of our key strategies which would make
our plans to re-pay our debts unachievable. In order to safeguard our short and
medium term liquidity, management applied for two long term loans amounting to
$5,000,000 approximately. The objectives of the loan application are:

- Consolidation and restructuring of our current long term debt;
- Improvement of our future import supplies credit terms; and
- Improvement of our current liquidity ratios by applying for bank
  guarantees that would release our paid in deposits to our outlet landlords.

We are in the preliminary stages of our applications for these
two loans so there is a significant possibility that we will not be successful
in our application. As discussed above under Liquidity and Capital Resources,
we have been able to negotiate an extension of its obligation to pay $3,665,549
of certain tax liabilities on March 10, 2010 to later in 2010, principally in
November.

Capital Expenditures

Our capital expenditures paid in cash for the year ended
December 31, 2009 were $1,373,000, compared with $1,713,000 for the year ended
December 31, 2008. This slight decrease was the result of the average value of
the PLN being about 23% lower in 2009 than in 2008. As denominated in PLN, cash
paid for capital expenditures increased by approximately 4%. This increase was
primarily due to rearrangement of the new retail stores openings as a result of
delays opening of new commercial space by developers.

Foreign Currency Exposure

Financial statement translation exposure

We use PLN as our functional currency. Transactions in
currencies during the year in other than PLN are translated into PLN at the
exchange rates as of the specific transaction dates. Monetary assets and
liabilities denominated in currencies other than PLN as of the date of our
balance sheet are translated into PLN at the exchange rates prevailing as of
such date. All transaction differences are recorded in the income statement.

Our consolidated financial statements are presented in USD.
Foreign currency translation is accounted for in accordance with ASC
830(formerly SFAS No. 52, Foreign Currency Translation.) Accordingly, all
assets and liabilities are translated from PLN to USD at the exchange rates
prevailing as of the date of the balance sheet and all income and expenditure
items are translated at the average rates for each of the years presented. Gains
and losses resulting from foreign currency translation are accumulated as
separate components of stockholders equity. The exchange rate adopted for the
foreign exchange transactions are the rates of exchange quoted by the Polish
National Bank.

The translation of PLN into USD has been made as follows:

|December 31, 2009 |                           
|----------------- | --------------------------
|Balance sheet     | PLN
      2.8503 toUS$1.00

|Statement of income and comprehensive income | PLN 3.1162 to US$1.00      
|-------------------------------------------- | ---------------------------
|                                             |                            
|December 31, 2008                            |                            
|Balance sheet                                | PLN 2.9618 to
      US$1.00
|Statement of income and comprehensive income | PLN 2.4092 to US$1.00      

42

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Operating exposure

Most of our transactions of were settled in PLN. Our financial
results are susceptible to foreign currency exposure risk. As described in Note
14 to our consolidated financial statements included in this report, part of our
long term debt is denominated in U.S. dollars. Therefore, our financial results
are exposed to the U.S. dollar to PLN foreign exchange rate fluctuations.

Our operating results are also vulnerable to foreign currency
exposure risk. As described in Note 16 to our consolidated financial statements
included in this report, the majority of rental agreements for retail and
factory outlet stores space are denominated in foreign currencies. Therefore our
operating results are exposed to fluctuations in the exchange rates between the
U.S. dollar and the Euro to the PLN.

Obligations Under Material Contracts

Below is a brief summary of the payment obligations under
material contracts to which we are a party other than our credit facilities,
which are described in the table above.

Material Contracts

On August 1, 2008, our subsidiary Sunset Suits, entered into a
services agreement, with Ernst & Young Advisory Sp. z o. o., or Ernst &
Young. Under this agreement Ernst & Young acts as the advisor in the process
of redesign and implementation of Sunset Suits Holdings Inc., Sunset Suits and
Fashion Service internal control procedures, in order comply with Section 404 of
Sarbanes Oxley Act of 2002. The contract fee is based upon total working hours.
Management estimates that the overall budget for this arrangement will not
exceed $150,000. The significant part of the work will be performed in 2010.

On December 24, 2007, Sunset Suits entered into a Cooperative
Services Agreement, or CSA, with Halter Financial Group L.P., or HFG, which was
amended on January 24, 2008. Under the CSA, HFG agreed to provide Sunset Suits
S.A. with financial advisory and consulting services in implementing a
restructuring plan, advising Sunset Suits on matters related to a capital
raising transaction and facilitating Sunset Suits' going public transaction. In
consideration for these services, HFG was paid a fee of $555,000 upon the
closing of the going public transaction. This fee is included in our
Consolidated Statement of Stockholder's Equity as a reduction of the proceeds
from the issuance of securities in our May 2008 private placement. Former shell
Companys former sole director and officer, Timothy P. Halter, is the Chairman of
HFG.

Troubled Debt Restructuring

Defaults of certain long term debts by our affiliates in the
past resulted in settlements where part of the interest was suspended. If such
bank settlements are breached, the interest may be claimed by financial
institutions. Total suspended interest amounted to $3.2 million as of December
31, 2009.

Operating Leases

In the normal course of business, we rent retail and factory
outlet stores space under operating lease agreements. The operating lease
agreements generally contain renewal options that may be exercised at our
discretion after the completion of the original term of the lease. Certain
agreements provide for payment of occupancy costs. In addition, many of the
rental agreements provide for payment by us of a percentage of outlet net sales
or increases to the base rental rate upon the outlet turnover or at specified
intervals, which usually occur on an annual basis. Sales outlets are leased for
initial periods ranging from 5 to 10 years. As of December 31, 2009 the term of
our rental agreements ranged from 3 months up to 10 years. As of December 31,
2009, we had a future minimum lease payments amounting to $18,628,000.

43

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Tax and Social Security Payment Obligations

The predecessor of Fashion Service, Men's Fashion, failed to
make all required payments to the Polish tax authorities during the period from
2004 through 2007, and to the Polish social security administration during the
period from 2002 through 2007. As a result of our acquisition of all or
substantially all of the assets of Men's Fashion, our subsidiary, Fashion
Service, became jointly and severally liable with our Chief Executive Officer
and President, Mirosław Kranik, for a portion of these delinquent payments.

A February 13, 2008, decision by Polish tax authorities
required that payments in the total amount of PLN 13,284,628 (approximately
$4,042,919) be made in monthly installments of PLN 50,000 (approximately
$15,217), with the final payment of PLN 12,044,628 (approximately $3,665,549)
due on March 10, 2010. Before the due date of the final payment, Men's Fashion
and Fashion Service applied to the Polish tax authorities for dividing this
final payment into further installments. Polish tax authorities may allow the
deferment of this final payment into further installments, taking into account
whether Fashion Service has made timely payment of the monthly installments
under the February 13, 2008 decision and of current tax obligations. The Company
is actively monitoring the payment of these tax obligations, and to our
knowledge, Fashion Service is currently in compliance. On November 4 and 9,
2009, as disclosed more fully below, the tax authorities extended the March 10,
2010 payment obligations to dates later in 2010, primarily in November.

The past due social security obligations of Men's Fashion, as
of November 30, 2007, amounted to a total of PLN 33,399,627.85 (approximately
$10,164,530). As of as of November 30, 2007, all tax and social security
obligations of Men's Fashion had been transferred to Fashion Service.

On May 12, 2008, the social security authority issued a formal
decision confirming the joint and several responsibility of Men's Fashion and
Fashion Service for outstanding social security obligations of PLN 24,268,853.21
(approximately $7,385,755). In the decision, the social security authority
determined that Fashion Service is not jointly and severally liable for the
remaining PLN 9,224,184.35 (approximately $3,749,480) portion of the outstanding
social security obligations. This liability has been reclassified in the
consolidated balance sheet as of September 30, 2008 from social security
liability to Mr. Kranik related party. As of the date of this report this
liability has been already settled between parties.

As of May 31, 2008, the total amount of these past due payments
amounted to of PLN 26,139,581.55 (approximately $7,955,075). This amount
represents the social security liability immediately following our May 21, 2008,
private placement transaction and the first payment to the social security
administration on June 5, 2008.

On June 5, 2008, the amount of PLN 8,439,205.86 (approximately
$3,879,202.883) was paid to the social security authority for the past due
social security obligations out of the proceeds of a private placement that
closed on May 21, 2008. Formal applications for the deferment of the remaining
payment were filed by Mirosław Kranik and Fashion Service with the social
security authority on June 6, 2008.

Additionally, on June 5, 2008, the amount of PLN 2,986,708.75
(approximately $1,372,883.82) was paid to the social security authority for the
past due social security obligations on behalf of Mr. Kraniks sole liability
out of the proceeds of a private placement that closed on May 30, 2008. The
remaining payable to Mr. Kranik for the social security liabilities was PLN
6,237,475.60. During the remainder of 2008 additional payments totaling PLN
1,364,996.78 (approximately $532,100.25) were made to reduce the payable to Mr.
Kranik to PLN 4,872,478.82 as of December 31, 2008 which was shown at the USD
equivalent of $1,645 thousand. There were further payments to Mr. Kranik related
to his sole liability to social security. As the result, as of the date of this
report, the liability has been fully settled between the parties. The net
payments of PLN 4,872,478.82 during the first half of 2009 were equivalent to
approximately $1,453,126.

On June 10, 2009, Men's Fashion and Fashion Service entered in
a deferment agreement with the social security authority with respect to the
deferment of all delinquent social security obligations.

Under the deferral agreement, delinquent social security
obligations in the amount of PLN 12,295,244 (approximately $3,874,592) for which
Men's Fashion and Fashion Service were deemed jointly and severally liable under
the March 24, 2008 decision, were divided into 84 installments due in the years
2009 through 2016. A deferral fee of PLN 3,725,144 (approximately $1,173,902),
representing interest to be charged for the deferment subsequent to the June 10,
2009 settlement, and interest of PLN 5,377,500 (approximately $1,694,608),
representing interest on the late payments through June 10, 2009, was added
respectively to the installments. The installments increase gradually from PLN
15,797 (approximately $4.978) in 2009 through PLN 519,972 (approximately
$163,858) in 2016, except for the last payment, which amounts to PLN 2,688,070
(approximately $847,090). The deferment fee is being recorded as interest
expense prospectively from June 10, 2009 on the interest method. The
amounts labeled by the social security authority as interest has been recorded
as interest expense through June 10, 2009.

44

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As a result of the June 10, 2009 deferral agreement for which
Men's Fashion and Fashion Service were deemed jointly and severally liable, the
social security authority imposed an obligation on Fashion Service to pay past
due interest (which is entirely discretionary on the part of the social security
authority) amounting to PLN 5,377,500 (approximately $1,694,608) as discussed in
the previous paragraph. As of the issuance of the June 30, 2009 financial
statements management's best estimate of interest to be paid was PLN 3,700,443
(approximately $1,166,118). Management seriously considered an appeal from the
deferment agreement in order to decrease overall interest due liability.
Finally, in September 2009, after consultation with its solicitors, Fashion
Service renounced from submitting an appeal and agreed to the final social
security interest due liability. Consequently the Company had to increase its
estimate of interest to be paid by PLN 1,677,057 ($528,000 approximately).

Additionally, the June 10, 2009 decision of the social security
authority holds Men's Fashion and Fashion Service jointly and severally liable
for enforcement procedure costs in the amount of PLN 39,712.30 (approximately
$12,515), payable in 12 installments due in 2009 through 2010.

During the lengthy process of obtaining the deferment
agreement, Fashion Service's management and the social security authority were
not able to come to an agreement on how to treat the amount paid on June 5,
2008, and subsequent amounts paid, in particular whether these payments should
be allocated to reduce the delinquent obligations, if agreement on deferment was
reached, or as a pre-payment of future social security obligations. In
connection with the deferment agreement, Fashion Service and the social security
authority agreed to a final allocation of all amounts paid from 2008 through the
date of the decision. In this final allocation, it was determined that Fashion
Service was delinquent with respect to some current payments in 2008 and 2009.
Thus, on June 10, 2009, Fashion Service independently entered into two
additional separate agreements with the social security authority with respect
to deferment of these current delinquent social security obligations.

Pursuant to these additional two agreements, delinquent social
security obligations in the amount of PLN 809,454 (approximately $255,083),
including deferment charges and interest, were divided into 84 installments due
over the period of 2009 through 2016. Deferment fees (representing interest for
future periods) of PLN 153,328 (approximately $48,318) and interest
(representing past due interest) of PLN 35,200 (approximately $11,092) were
added respectively to the installments. The installments rise gradually from PLN
10,215 (approximately $3,219) in 2009 to PLN 11,075 (approximately $3,490) in
2016, except for the last payment which amounts to PLN 9,937 (approximately
$3,131).

The following table shows the amounts we intend to pay by
period to satisfy our obligations pursuant to the deferment agreements described
above as of December 31, 2009:

|                                   |   | 2010    |  |   | 2011    |  |   | 2012    |  |   | 2013    |  |   | 2014      |  |   | 2015      |  |   | 2016      |  |   | Total     | 
|---------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | --------- |  | - | --------- |  | - | --------- |  | - | --------- | 
|Social security premium            | $ | 98,265  |  | $ | 209,798 |  | $ | 309,933 |  | $ | 560,422 |  | $ | 971,224   |  | $ | 1,242,206 |  | $ | 1,160,574 |  | $ | 4,552,423 | 
|Interest due                       |   | 50,292  |  |   | 121,897 |  |   | 180,455 |  |   | 305,625 |  |   | 516,207   |  |   | 434,678   |  |   | 267,475   |  |   | 1,876,629 | 
|Deferment fee                      |   | 7,180   |  |   | 26,728  |  |   | 55,246  |  |   | 132,586 |  |   | 276,827   |  |   | 419,035   |  |   | 441,590   |  |   | 1,359,194 | 
|Enforcement
      procedures costs |   | 6,966   |  |   | 0       |  |   | 0       |  |   | 0       |  |   | 0         |  |   | 0         |  |   | 0         |  |   | 6,966     | 
|Total                              | $ | 162,703 |  | $ | 358,424 |  | $ | 545,634 |  | $ | 998,634 |  | $ | 1,764,258 |  | $ | 2,095,920 |  | $ | 1,869,639 |  | $ | 7,795,213 | 

The above schedule includes only overdue social security tax
payable of our subsidiary  Fashion Service. The total social security
reconciliation with our financial statements as of December 31, 2009 is as
follows:

|Total Fashion Service social
      security tax payable according to the schedule:                         | $ | 7,795 | 
|---------------------------------------------------------------------------------------------------------- | - | ----- | 
|Less deferment fee relating to the future periods:                                                         |   | 1,359 | 
|Fashion Service overdue social
      security tax payable obligation:                                      |   | 6,435 | 
|Fashion Service current period social security tax
      payable:                                          |   | 186   | 
|Total Fashion Service social
      security tax payable obligation:                                        |   | 6,621 | 
|Sunset Suits S.A. social security tax payable:                                                             |   | 1,479 | 
|Bohemia, Sunset Suits Vilnius,
      Sunset Riga, OU Posnania social security tax payable:                 |   | 176   | 
|Total
      Sunset Suits Group social security tax payable as per consolidated
      financial statements: | $ | 1,655 | 

45

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The Company has classified all amounts of the delinquent tax
and social security obligations assumed by Fashion Service, as deferred pursuant
to the decision by the Polish tax authorities and the deferment agreements with
the Polish social security authority, as liabilities in the Company's financial
statements contained in this report, regardless of their recognition by the
social security authority as joint and several. Moreover, despite the
recognition by the social security authority of certain of the delinquent social
security liabilities as being obligations solely of Men's Fashion, Men's Fashion
is, under Polish commercial law, entitled to reimbursement from Fashion Service
for any amounts paid to the social security authority under these obligations.
Consequently, the financial statements contained in this report depict the full
amount of these obligations as being those of Sunset Suits Holdings, Inc. and
subsidiaries for all periods presented, regardless of their recognition by the
social security authority as solely the obligation of Men's Fashion.

On November 4, 2009, the tax authority issued two decisions
regarding the deferment of the past due tax payments of Sunset Suits.

Pursuant to the first tax decision of November 4, 2009, the
past due tax payments were divided into installments as follows:

- Withholdings for personal income tax payments for the period October 2008
   December 2008, in the total principle amount of PLN 273,843 (approximately
  $94,913), together with interest for delayed payments of PLN 6,486
  (approximately $2,248) calculated as of March 3, 2009, were divided into 12
  installments with payment dates from December 2009 through November 2010. The
  installments amount to approximately PLN 8,000 (approximately $2,772) each for
  the first eleven payments, and a final balloon payment of approximately PLN
  213,140 (approximately $73,873); and
- Value added tax payments for December 2008, January 2009, May 2009, and
  June 2009, in the total principle amount of PLN 1,345,721 (approximately
  $466,422), together with interest for delayed payments of PLN 7,766
  (approximately $2,691) calculated as of March 3, 2009, were divided into 12
  installments with payment dates from December 2009 through November 2010. The
  installments amount to approximately PLN 32,000 (approximately $11,091) each
  for the first eleven payments, and a final balloon payment of approximately
  PLN 1,099,000 (approximately $380,909).

The amounts indicated above include an aggregate deferment fee
of PLN 118,298 (approximately $41,001).

Pursuant to the second tax decision of November 4, 2009, the
past due corporate income tax payments of Sunset Suits for the year 2008 in the
total principle amount of PLN 1,708,703 (approximately $592,230), together with
interest for delayed payments of PLN 59,838 (including interest for delayed
payments of PLN 58,855) (approximately $20,398), were divided into 12
installments with payment dates from December 2009 through November 2010. The
installments amount to approximately PLN 10,000 (approximately $3,465) each for
the first eleven payments, and a final balloon payment of approximately PLN
1,791,559 (approximately $620,947). The amounts indicated above include an
aggregate deferment fee of PLN 133,018 (approximately $46,103).

On November 9, 2009, the tax authority issued three decisions
regarding the deferment of the past due tax payments of Fashion Service.

Under the first decision of November 9, 2009, the past due
corporate income tax payments of Fashion Service for the year 2008 in the total
principle amount of PLN 1,622,177 (approximately $562,240), together with
interest for delayed payments of PLN 933 (approximately $323), were divided into
12 installments with payment dates from December 2009 through November 2010. The
installments amount to PLN 17,500 (approximately $6,065) each for the first
eleven payments, and a final balloon payment of PLN 1,557,553 (approximately
$539,842). The amounts indicated above include an aggregate deferment fee of PLN
126,943 (approximately $43,998).

Under the second tax decision of November 9, 2009, the past due
withholdings from personal income tax payments of Fashion Service for the period
from June 2008 through December 2008 in the total principle amount of PLN
605,024 (approximately $209,699), together with interest for delayed payments of
PLN 33,030 (approximately $11,448), were divided into 12 installments with
payment dates from December 2009 through November 2010. The installments amount
to PLN 6,500 (approximately $2,253) each for the first eleven payments, and a
final balloon payment of approximately PLN 614,000 (approximately $212,810). The amounts indicated above
include a deferment fee of PLN 47,494.00 (approximately $16,461).

46

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Under the third tax decision of November 9, 2009, the past due
value added tax payments for December 2008, July 2009, and August 2009, in the
total principle amount of PLN 1,493,688 (approximately $517,706), together with
interest for delayed payments of PLN 16,446 (approximately $5,700), were divided
into 12 installments with payment dates from December 2009 through November
2010. The installments amount to PLN 16,000 (approximately $5,545) each for the
first eleven payments, with a final balloon payment of PLN 1,436,333
(approximately $497,828).

As of December 31, 2009 in the balance sheet there is 3,066,103
PLN ($1,076,000) of social security and other tax liability which relate to
Fashion Service Sp. z o.o.

Market Risk  interest and exchange rate sensitivity

Financial instruments held by us include cash equivalents and
long-term debt. Interest rates on our long-term debt are variable. Therefore, a
change in rates would have an effect on our interest expense. Note 14,
Long-Term Debt in the Notes to Consolidated Financial Statements included in
this report outlines the principal amounts, interest rates and other terms
required to evaluate the expected sensitivity of interest rate changes on the
fair value of our variable rate long-term debt. Given our balance of long-term
debt and the current interest rates on bank deposits, the effect of an even
insignificant change in long-term interest rates on our interest cost would be
material.

Cash and cash equivalents held by us are affected by short-term
interest rates. Therefore, a change in short-term interest rates would have an
impact on our interest income. Given our balance of cash and cash equivalents
and the current interest rates on bank deposits, the effect of a change in
short-term interest rates on our interest income would not be material.

Principally all of our revenue and expenses, except for retail
space rentals, are currently denominated in PLN. Translation to U.S. dollars
exposes us to fluctuations in foreign currency exchange rates, the rate of
exchange of the United States dollar against PLN.

Approximately 75% of our lease agreements require us to pay in
Euro based on the exchange rate as of the day of payment, as is common in Polish
agreements for rentals of retail outlets.

Moreover, certain of our long-term debts are denominated in
United States dollars as presented in the Note 14, Long-Term Debt in the Notes
to Consolidated Financial Statements included in this report. Thus, we are
primary exposed to the exchange rate changes during and up to the day of the
long-term debts payments, as well as we are exposed to the exchange rate changes
at the balance sheet date. During times of a strengthening U. S. dollar, our
result on transaction in foreign currency will be negatively impacted, and
during times of a weakening U. S. dollar, our result on transaction in foreign
currency will be favorably impacted.

Our foreign wholesale operations are denominated in PLN.
Therefore we are not directly exposed to the change of foreign exchange rates of
other currencies to PLN. An increase in PLN could make our products less
competitive to foreign buyers while a decrease in PLN could make us more
competitive.

Seasonality

Like most other retail businesses, our business is seasonal.
The best sales month is December, in which our total non-discounted sales
increase. The last quarter of the year is the best sales period when customers
purchase coats, occasional suits and business suits from an autumn-winter
collection. We also typically experience increased sales during the Spring
(March, April). During this period consumers typically purchase menswear for
various special occasions including weddings, first communion and other special
events. During these periods of increased sales, products are also sold without
price reductions.

We reduce our prices during the Summer and Fall to encourage
sales. As a result, our margins are reduced during these seasons. In order to
make up for these reduced margins, we will often create special collections that
we sell at higher prices during the Summer and Fall.

47

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Concentration Risk

We have no significant concentration risk regarding our
revenues. Over 95% of total revenues are generated through retail sales to
individual customers.

We have no significant concentration risk regarding suppliers
and accounts payable. We operate with several suppliers who do not have a
significant bargaining power on our operations.

Inflation

Inflationary factors, such as increases in the cost of our
product and overhead costs, could impair our operating results. Although we do
not believe that inflation has had a material impact on our financial position
or results of operations to date, a high rate of inflation in the future may
have an adverse effect on our ability to maintain current levels of gross margin
and selling, general and administrative expenses as a percentage of sales
revenue if the selling prices of our apparel do not increase with these
increased costs.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity or capital expenditures or capital resources that is
material to an investor in our securities.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires our
management to make assumptions, estimates and judgments that affect the amounts
reported in the financial statements, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We consider our critical
accounting policies to be those that require the more significant judgments and
estimates in the preparation of financial statements, including the
following:

Accounts Receivable

Accounts receivable are reported at amounts management expects
to be collected, net of trade discounts and an allowance for estimated sales
returns.

Outstanding account balances are reviewed individually for
collectability. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is
considered remote. None of Sunset Suits Holding, Inc., Sunset Suits S.A.,
Fashion Service Sp. z o. o., Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA
Sunset Riga and OU Posnania have any off-balance-sheet credit exposure to any of
their customers.

Inventories and Cost of Sales

Inventories are valued at the lower of cost or market. The
Group reduces the carrying cost of inventories for obsolete or slow moving items
as necessary to properly reflect the inventorys net realizable value. The cost
elements included in inventory consist of all direct costs of merchandise (net
of purchase discounts and vendor allowances), allocated overhead (primarily
design and indirect production costs), inbound freight and import fees.

Cost of sales includes the inventory cost elements listed above
as well as warehouse outbound freight and internally transferred merchandise
freight. The Group's cost of sales may not be comparable to those of other
entities, since some entities include all of the costs associated with their
distribution functions in cost of sales while the Group includes these costs in
selling, general and administrative expenses.

Property, Plant, Equipment and Depreciation and Amortization

Property, plant and equipment are recorded at cost.
Depreciation and amortization are computed by the straight-line method over the
estimated useful lives of the assets. Leasehold improvements recorded at the
inception of a lease are amortized using the straight-line method over the life
of the lease or the useful life of the improvement, whichever is shorter; for
improvements made during the lease term, the amortization period is the shorter
of the useful life or the remaining lease term (including any renewal periods that are deemed to be reasonably
assured). Property under capital leases is amortized over the lives of the
respective leases or the estimated useful lives of the assets, whichever is
shorter.

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The exact historical cost of buildings, machinery and equipment
and leasehold improvements acquired prior to 2006, substantially all of which
(except leasehold improvements, that were acquired in the 2000s) were acquired
in the mid to late 1990s, could not be reasonably determined due to a lack of
accounting documentation. For buildings and machinery and equipment groups of
tangible fixed assets, all of which were acquired in the mid to late 1990s, the
historical cost was estimated using, as a starting point, an engineers estimate
of the historical cost of past investment. Management is of the opinion that
this valuation is the reasonable estimation of historical cost for these groups
of tangible fixed assets. For leasehold improvements, all of which were acquired
in the 2000s, historical cost was recreated by identifying all bills and
invoices related to retail outlets fittings, even if, they were not properly
recorded in the accounting system in the past.

Operating Leases

Total rent payments under operating leases that include
scheduled payment increases and rent holidays are amortized on a straight-line
basis over the term of the lease. Rent expense on our buildings and retail
stores is classified as an SG&A expense and, for certain stores, includes
contingent rents that are based on a percentage of retail sales over stated
levels. Landlord allowances are amortized by the straight-line method over the
original term of the lease as a reduction of rent expense.

Foreign Currency Translation

The Group uses the Polish zloty (PLN) as its functional
currency. Transactions in currencies during the year in other than PLN are
translated into PLN at the exchange rates as of the specific transaction dates.
Monetary assets and liabilities denominated in currencies other than PLN as of
the date of the balance sheet are translated into PLN at the exchange rates
prevailing as of such date. All transaction differences are recorded in the
income statement.

The Groups consolidated financial statements are presented in
USD. Foreign currency translation is accounted for in accordance with SFAS No.
52, Foreign Currency Translation (now ASC 830-10). Accordingly, all assets and
liabilities are translated from PLN to USD at the exchange rates prevailing as
of the date of the balance sheet and all income and expenditure items are
translated at the average rates for each of the years presented. Gains and
losses resulting from foreign currency translation are accumulated as a separate
component of stockholders' equity in accumulated other comprehensive income. The
exchange rates adopted for the foreign exchange transactions are the rates of
exchange quoted by the Polish National Bank.

Income Taxes

The Group uses the asset and liability method of accounting for
income taxes. Current tax assets and liabilities are recognized for the
estimated corporate income taxes payable or refundable on the tax returns for
the current year. The taxes are paid in the country where an entity
operates. Tax liability estimation is made separately for each entity using a
tax charge applicable for the country the entity operates. Deferred tax assets
and liabilities are recognized for the expected future tax consequences of
temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred income tax provisions are based on
the changes to the respective assets and liabilities from period to period.
Valuation allowances are recorded to reduce deferred tax assets when it is more
likely than not that they will not be realized.

Impairment of Long-lived Assets and Indefinite-lived
Intangible Assets

The Group evaluates the property and equipment and other
long-lived assets for impairment based on our classification as i) held for sale
or ii) to be held and used. Several criteria must be met before an asset is
classified as held for sale, including that management with the appropriate
authority commits to a plan to sell the asset at a reasonable price in relation
to its fair value and is actively seeking a buyer. For assets classified as held
for sale, we recognize the asset at the lower of carrying value or fair market
value less costs of disposal, as estimated based on comparable asset sales,
offers received, or a discounted cash flow model. We review assets to be held
and used for impairment whenever indicators of impairment exist. We then compare
the estimated future cash flows of the asset, on an undiscounted basis, to the
carrying value of the asset. If the undiscounted cash flows exceed the carrying
value, no impairment is indicated. If the undiscounted cash flows is below the
carrying value, then an impairment is recorded based on the fair value of the
asset, typically measured using a discounted cash flow model. If an asset is still under
development, future cash flows include remaining construction costs. All
recognized impairment losses, whether for assets to be held for sale or assets
to be held and used, are recorded as operating expenses.

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There are several estimates, assumptions and decisions in
measuring impairments of long-lived assets. First, management must determine the
usage of the asset. To the extent management decides that an asset will be sold,
it is more likely that an impairment may be recognized. Assets must be tested at
the lowest level for which identifiable cash flows exist. This means that some
assets must be grouped, and management has some discretion in the grouping of
assets. Future cash flow estimates are, by their nature, subjective and actual
results may differ materially from our estimates.

We review indefinite-lived intangible assets at least annually
and between annual test dates in certain circumstances. We perform our annual
impairment test for indefinite-lived intangible assets in the fourth quarter of
each fiscal year. The indefinite-lived intangible assets consist of a trademark,
which is tested for impairment using the relief-from-royalty method.

Use of estimates

The preparation of the Groups consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America (US GAAP) requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
financial statements include some amounts that are based on managements best
estimates and judgments. The most significant estimates relate to allowance for
uncollectible accounts receivable, inventory obsolescence, depreciation,
intangible asset valuations, taxes and contingencies. These estimates may be
adjusted as more information becomes available, and any adjustment could be
significant.

Recent Accounting Pronouncements

In April 2009, the FASB issued FASB Staff Position No. 107-1
and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments (FSP) 107-1 which amended SFAS No. 107, Disclosures about
Fair Values of Financial Instruments, to require disclosures about fair
value of financial instruments in interim financial statements as well as in
annual financial statements. It also amends Accounting Principles Board (APB)
Opinion No. 28, Interim Financial Reporting, to require those disclosures in
all interim financial statements. This guidance is effective for interim and
annual periods ending after June 15, 2009, with early application permitted. The
adoption of FSP 107-1 did not have a material impact on the Groups consolidated
financial statements or results of operations.

In May 2009, the FASB issued SFAS 165 Subsequent
Events. SFAS 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued. It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date. This guidance is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied
prospectively. The adoption of SFAS 165 did not have a material impact on the
Groups consolidated financial statements or results of operations.

In June 2009, the FASB issued guidance to change financial
reporting by enterprises involved with variable interest entities (VIEs). The
standard replaces the quantitative-based risks and rewards calculation for
determining which enterprise has a controlling financial interest in a VIE with
an approach focused on identifying which enterprise has the power to direct the
activities of a VIE and the obligation to absorb losses of the entity or the
right to receive the entitys residual returns. This accounting standard is
effective for fiscal years beginning after November 15, 2009. The Company has
evaluated the impact of the adoption of this pronouncement on its consolidated
financial statements and has determined there will be no impact of adoption on
its consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.

Not Applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The full text of our audited consolidated financial statements
as of December 31, 2009 and 2008 begins on page F-1 of this annual report.

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

None.

ITEM 9A(T). CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) that are designed to ensure that
information that would be required to be disclosed in Exchange Act reports is
recorded, processed, summarized and reported within the time period specified in
the SECs rules and forms, and that such information is accumulated and
communicated to our management, including to our Chief Executive Officer and
Acting Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our
management, including our Chief Executive Officer and Acting Chief Financial
Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of December 31, 2009. Based on that
evaluation, our Chief Executive Officer and Acting Chief Financial Officer
concluded that as of December 31, 2009, and as of the date that the evaluation
of the effectiveness of our disclosure controls and procedures was completed,
our disclosure controls and procedures were effective to satisfy the objectives
for which they are intended.

Managements Annual Report on Internal Control Over
Financial Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. The Exchange Act defines internal control
over financial reporting as a process designed by, or under the supervision of,
our principal executive and principal financial officers and effected by our
board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America and includes those
policies and procedures that:

- Pertain to the maintenance of records that in reasonable detail accurately
  and fairly reflect the transactions and dispositions of the assets of the
  Company;
- Provide reasonable assurance that transactions are recorded as necessary
  to permit preparation of financial statements in accordance with accounting
  principles generally accepted in the United States of America, and that our
  receipts and expenditures are being made only in accordance with
  authorizations of our management and directors; and
- Provide reasonable assurance regarding prevention or timely detection of
  unauthorized acquisition, use or disposition of our assets that could have a
  material effect on our financial statements.

All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2009. In making this assessment,
management used the framework set forth in the report entitled Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission, or COSO. The COSO framework summarizes each of the
components of a companys internal control system, including (i) the control
environment, (ii) risk assessment, (iii) control activities, (iv) information
and communication, and (v) monitoring. Based on our assessment we determined
that, as of December 31, 2009, our internal control over financial reporting is
effective at the reasonable assurance level based on those criteria.

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This annual report does not include an attestation report of
our registered public accounting firm regarding internal control over financial
reporting pursuant to temporary rules of the SEC that permit the Company to
provide only managements report in this annual report.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over
financial reporting during the fourth quarter of fiscal year 2009 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 9B. OTHER INFORMATION.

We have no information to disclose that was required to be
disclosed in a report on Form 8-K during fourth quarter of fiscal year 2009, but
was not reported.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.

Directors and Executive Officers

The following sets forth information about our directors and
executive officers and key employees as of the date of this report:

|NAME             | AGE | POSITION                                                                             
|---------------- | --- | -------------------------------------------------------------------------------------
|Mirosław Kranik  | 55  | Director, President,
      Chief Executive Officer and Acting Chief Financial Officer
|Eugeniusz Roszak | 41  | Treasurer and Secretary and Finance
      Director of Sunset Suits                   
|Donald Chodak    | 49  | Chairman of the Board of
      Directors                                             
|Tomasz Pawlik    | 46  | Production Director of Fashion Service                                               

MIROSŁAW KRANIK. Mr. Kranik has been our
director and our Chief Executive Officer and President since May 21, 2008, and
has served as Acting Chief Financial officer since March 21, 2009. Mr. Kranik is
the founder of our predecessor company, Men's Fashion (a sole proprietorship),
which commenced operations in 1987..

EUGENIUSZ ROSZAK. Mr. Roszak became our Treasurer and
Secretary on March 21, 2009. Mr. Roszak has also served as the Finance Director
of Sunset Suits S.A. since September 1, 2008. Prior to joining Sunset Suits S.A.
from May 2005, Mr. Roszak has served as the Chairman of the Board of Polskie
Drewno Sp. z o.o., a Polish company in the wood products sector. From August
2006 to June 2008, Mr. Roszak served as Chairman of the Board and Chief
Accounting Officer for Luna Arts Sp. z o.o., a Polish company also in the wood
products sector. From June 2003 to December 2004, Mr. Roszak served as the Chief
Accountant of Forests and Wood Products Sp. z o.o. Since June 2001, Mr. Roszak
has worked as an independent consultant providing financial advisory services to
various Polish companies, and from March 2003 to December 2007 served as a
judicial expert on financial and accounting matters for the district courts in
Warsaw and Poznan. Previously, Mr. Roszak served as the Director of Finance for
Kreisel Technika Budowlana Ltd. and BMT Leasing SA.

DONALD CHODAK. Mr. Chodak became the Chairman of our
Board of Directors on May 21, 2008. From May 2002 until present, Mr. Chodak has
acted as a business and management consultant to various enterprises, including
Detecon International GmbH, Ernst & Young Poland, and Andersen Business
Consulting Poland. From 1997 until May 2002, Mr. Chodak was the Chief Financial
Officer of Telekomunikacja Polska S.A., a telecommunications company, which was
listed on the Warsaw Stock Exchange and London Stock Exchange.

TOMASZ PAWLIK. Mr. Pawlik became the Production Director
of Fashion Service in December 2007. During the period from 1987 through
November 2007, he was the Production Director of our predecessor, Men's Fashion
(a sole proprietorship).

There are no agreements or understandings for any of our
executive officers or director to resign at the request of another person and no
officer or director is acting on behalf of nor will any of them act at the
direction of any other person.

Directors are elected until their successors are duly elected
and qualified.

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Family Relationships

There are family relationships among our directors or officers.
Bartosz Kranik, a member of the Supervisory Board (board of directors
equivalent) of Sunset Suits, is the son of Mirosław Kranik.

Involvement in Certain Legal Proceedings

On July 30, 2005, Mirosław Kranik was fined by the V
Municipal Division of the Regional Court in Poznań, Poland for failure to pay
personal income tax on time. Pursuant to the final decision of the court on
August 25, 2005, Mr. Kranik received a fine of PLN 5,000 (approximately $1,500
at the then applicable exchange rate). Mr. Kranik has paid this fine.

To the best of our knowledge, except as set forth above, none
of our directors or executive officers has been convicted in a criminal
proceeding, excluding traffic violations or similar misdemeanors, or has been a
party to any judicial or administrative proceeding during the past five years
that resulted in a judgment, decree or final order enjoining the person from
future violations of, or prohibiting activities subject to, federal or state
securities laws, or a finding of any violation of federal or state securities
laws, except for matters that were dismissed without sanction or settlement.
Except as set forth in our discussion below in Item 13, Certain Relationships
and Related Transactions, and Director Independence, none of our directors,
director nominees or executive officers has been involved in any transactions
with us or any of our directors, executive officers, affiliates or associates
which are required to be disclosed pursuant to the rules and regulations of the
SEC.

Promoters and Certain Control Persons

We did not have any promoters at any time during the past five
fiscal years.

Section 16(A) Beneficial Ownership Reporting Compliance

We are not subject to Section 16(A) of the Exchange Act.

Code of Ethics

We have not adopted a code ethics. However, we intend to adopt
a code of ethics in the future. We envision that the code of ethics will apply
to all of our employees, officers and directors.

Material Changes to Director Nomination Procedures

There have been no material changes to the procedures by which
stockholders may recommend nominees to our board of directors since such
procedures were last disclosed.

Audit Committee and Audit Committee Financial Expert

We do not have an audit committee or an audit committee
financial expert serving on the audit committee. Our entire board of directors
currently is responsible for the functions that would otherwise be handled by an
audit committee. However, we intend to establish an audit committee of the board
of directors in the near future. We envision that the audit committee will be
primarily responsible for reviewing the services performed by our independent
auditors, evaluating our accounting policies and our system of internal
controls. Upon the establishment of an audit committee, the board will determine
whether any of the directors qualify as an audit committee financial expert.

ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation Table  2009 and 2008

The following table sets forth information concerning all cash
and non-cash compensation awarded to, earned by or paid to the named persons for
services rendered in all capacities during the noted periods. No other executive
officer received total annual salary and bonus compensation in excess of
$100,000.

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|                                       |      |         |       | Stock  | Option | All Other        |        
|-------------------------------------- | ---- | ------- | ----- | ------ | ------ | ---------------- | -------
|                                       |      | Salary  | Bonus | Awards | Awards | **Compensation** | Total  
|Name and Principal Position            | Year | ($)     | ($)   | ($)    | ($)    | ($)              | ($)    
|Mirosław Kranik,                       | 2009 | 99,737  |       |        |        |                  | 99.737 
|Chief Executive Officer (1)            | 2008 | 137,435 | -     | -      | -      | -                | 137,435
|Eugeniusz Roszak,                      |      |         |       |        |        |                  |        
|Treasurer and Secretary and Finance    | 2009 | 5,604   | -     | -      | -      | -                | 5,604  
|Director of Sunset Suits S.A.          | 2008 | 11,727  | -     | -      | -      | -                | 11,727 
|Tomasz Pawlik,                         |      |         |       |        |        |                  |        
|Production Director of Fashion Service | 2009 | 112,059 | -     | -      | -      | -                | 112,059
|Sp. z o. o.                            | 2008 | 95,551  | -     | -      | -      | -                | 95,551 



|(1) | On May 21, 2008, we acquired Sunset Suits in a reverse acquisition
      transaction that was structured as a share exchange and in connection with
      that transaction, Mr. Kranik was elected as our Chief Executive Officer
      and President and as a director of our Company effective immediately.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment Agreements

Fashion Service has entered into an employment agreement with
Mirosław Kranik, the President of the Management Board (executive
officer equivalent) of Fashion Service. The contract is for an indefinite period
of time, but in accordance with Polish law, may be terminated upon three months'
notice by either Sunsets Suits or Mr. Kranik. Mr. Kranik receives a base salary
of $12,489 per month. Mr. Kranik is entitled to receive a bonus in accordance
with the Fashion Service's bonus policies.

Sunset Suits has entered into an employment contract with
Eugeniusz Roszak, the Financial Director of Sunset Suits. The contract is for an
indefinite period of time, but may be terminated upon three months' notice by
either Sunset Suits or Mr. Roszak. Mr. Roszak receives a base salary of 3,930
PLN per month (approximately, $1,196 per month).

Outstanding Equity Awards at Fiscal Year End

No unexercised options or warrants were held by any of our
executive officers at year end. No equity awards were made during the year ended
December 31, 2009.

Compensation of Directors

No member of our board of directors received any compensation
for his services as a director during the year ended December 31, 2009.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Security Ownership of Certain Beneficial Owners and
Management

The following table sets forth information regarding beneficial
ownership of our common stock as of March 31, 2010 (i) by each person who is
known by us to beneficially own more than 5% of our common stock; (ii) by each
of our officers and directors; and (iii) by all of our officers and directors as
a group. Unless otherwise indicated, (a) each stockholder has sole voting power
and dispositive power with respect to the indicated shares and (b) the address
of each stockholder is c/o Sunset Suits S.A. ul. Starołęcka 18, 61-361
Poznań, Poland

54

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|                                |                      |                  | Amount & Nature |           
|------------------------------- | -------------------- | ---------------- | --------------- | ----------
|Name & Address of               |                      |                  | of Beneficial   | Percent of
|Beneficial Owner                | Office, if Any       | Title of Class   | Ownership(1)    | Class(2)  
|Officers and Directors         
|Mirosław Kranik                 | Director, President, | Common Stock,    | 4,495,161       | 35.96%    
|                                | CEO and Acting CFO   | $0.001 par value |                 |           
|Donald Chodak                   | Chairman             | Common Stock     | 250,000         | 2.0%      
|                                |                      | $0.001 par value |                 |           
|All officers and directors as a |                      | Common Stock     | 6,222,940       | 37.96%    
|group (2 persons named above)   |                      | $0.001 par value |                 |           
|3% Security Holders            
|Mirosław Kranik                 |                      | Common Stock     | 4,495,161       | 35.96%    
|                                |                      | $0.001 par value |                 |           
|Pershing LLC                    |                      | Common Stock     | 423,700         | 3.39%     
|PO Box 2050                     |                      | $0.001 par value |                 |           
|Jersey
      City, NJ 07303     |                      |                  |                 |           
|Małgorzata Świętosławska        |                      | Common Stock     | 396,592         | 3.17%     
|Długoszyńska 26 D               |                      | $0.001 par value |                 |           
|43-605 Jaworzno                 |                      |                  |                 |           
|Poland                          |                      |                  |                 |           
|Total Shares Owned by           |                      | Common Stock     | 7,222,940       | 42.52%    
|Persons
      Named above:      |                      | $0.001 par value |                 |           

* Less than 1%.

|(1) | Beneficial ownership is determined in accordance with the rules of the
      SEC and includes voting or investment power with respect to the common
      stock.                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                      
|(2) | A total of 12,499,645 shares of Common Stock as of March 31, 2010 are
      considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each
      beneficial owner above, any options exercisable within 60 days have been
      included in the denominator.

Changes in Control

There are no arrangements known to us, including any pledge by
any person of our securities, the operation of which may at a subsequent date
result in a change in control of the Company.

Securities Authorized for Issuance Under Equity Compensation
Plans

We do not have in effect any compensation plans under which our
equity securities are authorized for issuance and we do not have any outstanding
stock options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.

Transactions with Related Persons

The following includes a summary of transactions since the
beginning of the 2009 fiscal year, or any currently proposed transaction, in
which we were or are to be a participant and the amount involved exceeded or
exceeds the lesser of $120,000 or one percent of the average of our total assets
at year-end for the last two completed fiscal years, and in which any related
person had or will have a direct or indirect material interest (other than
compensation described under Item 11, Executive Compensation). We believe the
terms obtained or consideration that we paid or received, as applicable, in
connection with the transactions described below were comparable to terms
available or the amounts that would be paid or received, as applicable, in
arms-length transactions.

On August 31, 2008 Sunset Suits S.A., concluded a settlement
with Mr. Donald Chodak, the Chairman of our Board of Directors. Under this
settlement, Mr. Donald Chodak is compensated for professional services in
connection with the negotiation of the Make Good Agreement and the raising of
funds for the Company. The fee is contingent upon the successful outcome of Mr.
Chodak's undertakings. According to this agreement, Mr. Chodak was entitled to a
fee amounting to $360,000 for the year ended December 31, 2008, which was
associated with the successful consummation of the private placement in May
2008. Presently, Mr. Chodak is not entitled to any other compensation, unless a
new financing is consummated or a make good agreement is successfully
negotiated. However, pursuant to the settlement, in 2009, Mr. Donald Chodak
received a deposit amounting to $93,000 in connection with future services to be
rendered to the Company. If the negotiation process of a make good agreement is
successful, Mr. Donald Chodak will be entitled to an additional fee of $210,000
(including the realization of the prepayment).

In 2009, Fashion Service made wholesale sales of merchandise to
Sunset Suits Vilnius, OU Posnania, Sunset Riga, and Bohemia, which were
historically all owned by Mirosław Kranik, our President and Chief
Executive Officer, and Ewelina Ligocka-Kranik prior to the transfer of ownership to us as
indicated below. The following table shows the aggregate amount of such sales
for each entity for the periods indicated, prior to the transfer of the entities
to us.

55

---

|                     |   |                                     |  |   |                        | 
|-------------------- | - | ----------------------------------- |  | - | ---------------------- | 
|                     |   | Total Purchases for 12
      months |  |   |                        | 
|                     |   | Ended                               |  |   | Date that ownership of | 
|                     |   | December 31,                        |  |   | December 31,           | 
|Related
      Party  |   | 2009                                |  |   | 2008                   | 
|Bohemia              | $ | 1,311,000                           |  | $ | 1,477,000              | 
|Sunset Riga          |   | 506,000                             |  |   | 435,000                | 
|Sunset Suits Vilnius |   | 755,000                             |  |   | 984,000                | 
|OU Posnania          |   | 150,000                             |  |   | 128,000                | 
|Total                | $ | 2,723,000                           |  | $ | 3,024,000              | 

Although the above transaction occurred prior to the legal
acquisition of the related parties by us the financial statements included in
this report are consolidated with the above parties for all periods presented
and are treated for financial accounting purposes as if they had always been
owned by us.

Except as set forth in our discussion above, none of our
directors, director nominees or executive officers has been involved in any
transactions with us or any of our directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and
regulations of the SEC.

Director Independence

We currently do not have any independent directors, as the term
independent is defined by the rules of the Nasdaq Stock Market.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Independent Auditors Fees

The following is a summary of the fees billed to the Company by
its principal accountants for professional services rendered for the fiscal
years ended December 31, 2009 and 2008:

|                   |   | Fiscal Year Ended December 31, |    
|------------------ | - | ------------------------------ | ---
|                   |   | 2009                           |    
|Audit Fees         | $ | 112,741                        |    
|Audit-Related Fees |   | 0                              |    
|Tax Fees           |   | 0                              |    
|All Other Fees     |   | 2,407                          | (1)
|TOTAL              | $ | 115,148                        |    

(1) Includes fees related with compilation of an analytical
report prepared for Sunset Suits S.A. investors

Audit Fees consisted of the aggregate fees billed for
professional services rendered for the audit of our annual financial statements
and the reviews of the financial statements included in our Forms 10-Q and for
any other services that were normally provided in connection with our statutory
and regulatory filings or engagements.

Audit Related Fees consisted of the aggregate fees billed for
professional services rendered for assurance and related services that were
reasonably related to the performance of the audit or review of our financial
statements and were not otherwise included in Audit Fees.

Tax Fees consisted of the aggregate fees billed for
professional services rendered for tax compliance, tax advice and tax planning.
Included in such Tax Fees were fees for preparation of our tax returns and
consultancy and advice on other tax planning matters.

All Other Fees consisted of the aggregate fees billed for
products and services provided and not otherwise included in Audit Fees, Audit
Related Fees or Tax Fees.

56

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Pre-Approval Policies and Procedures

Under the Sarbanes-Oxley Act of 2002, all audit and non-audit
services performed by our auditors must be approved in advance by our board of
directors to assure that such services do not impair the auditors independence
from us. In accordance with its policies and procedures, our board of directors
pre-approved the audit and non-audit service performed by BDO Sp. z. o. o. for
our consolidated financial statements as of and for the year ended December 31,
2009.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

Financial Statements and Schedules

The financial statements are set forth under Item 8 of this
annual report on Form 10-K. Financial statement schedules have been omitted
since they are either not required, not applicable, or the information is
otherwise included.

Exhibit List

The following exhibits are filed as part of this report or
incorporated by reference:

|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         | Share Exchange Agreement, dated May 8, 2008, among the
      Registrant, Sunset Suits S.A. and its shareholders. [incorporated by
      reference to Exhibit 2.1 to the registrants registration statement on
      Form S-1 filed on July 3, 2008]                                                                                                                                                           
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|3.1         | Articles of Incorporation of the Registrant, as amended
      to date. [incorporated by reference to Exhibit 3.1 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                           
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|3.2         | Amended and Restated Bylaws of the Registrant, adopted
      June 9, 2008. [incorporated by reference to Exhibit 3.2 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|4.1         | Shareholder Rights Plan by the Registrant, dated June 9,
      2008. [incorporated by reference to Exhibit 4.1 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                             
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.1        | Form of Securities Purchase Agreement, dated May 21,
      2008. [incorporated by reference to Exhibit 10.1 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                                
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.2        | Make Good Escrow Agreement, dated May 21, 2008, by and
      among the Registrant, Mirosław Kranik, Wentworth Securities,
      Inc., Halter Financial Group, L.P. and Securities Transfer Corporation.
      [incorporated by reference to Exhibit 10.2 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                   
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.3        | Form of Escrow Agreement, dated May 21, 2008.
      [incorporated by reference to Exhibit 10.3 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                                             
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.4        | Stock Purchase Agreement, dated as of May 21, 2008, among
      Mirosław Kranik, Ewelina Ligocka-Kranik and the Registrant.
      [incorporated by reference to Exhibit 10.4 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                               
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.5        | Transfer Agreement, dated February 3, 2007, between
      Sunset Suits Men's FashionModa Męska and Sunset Suits S.A. (English
      Translation) [incorporated by reference to Exhibit 10.5 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]                                                                                                                               
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.6        | Assumption Agreement, dated February 8, 2007, between ING
      Bank Slaski S.A. and Sunset Suits S.A. (English Translation) [incorporated
      by reference to Exhibit 10.6 to the registrants registration statement on
      Form S-1 filed on July 3, 2008]                                                                                                                                              
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.7        | Assumption Agreement, dated May 15, 2007, between Bank
      Gospodarki Zywnosciowej S.A. and Sunset Suits S.A. (English Translation)
      [incorporated by reference to Exhibit 10.7 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                     
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.8        | Preferential Investment Loan Agreement (Annex 2), dated
      January 31, 2006, between Sunset Suits Men's FashionModa Męska and Bank
      Wspolpracy Europejskiej (BWE), as amended and assumed by operation of law by Fashion Service Sp. z.o.o. (English
      Translation) [incorporated by reference to Exhibit 10.8 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]

57

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|Exhibit
      No. | Description                                                                                                                                                                                                                                                                                                                                                        
|----------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9              | Investment Loan Agreement (Annex 3), dated January 31,
      2006, between Sunset Suits Men's FashionModa Męska and BWE, as amended
      and assumed by operation of law by Fashion Service Sp. z.o.o. (English
      Translation) [incorporated by reference to Exhibit 10.9 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.10             | Loan Agreement (Annex 3), dated January 31, 2006, between
      Men's FashionModa Męska and BWE, as amended and assumed by operation of
      law by Fashion Service Sp. z.o.o. (English Translation) [incorporated by
      reference to Exhibit 10.10 to the registrants registration statement on
      Form S-1 filed on July 3, 2008]                       
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.11             | Commercial Cooperation Agreement, dated November 15,
      2006, between Sunset Suits S.A. and S unset Suits Men's FashionModa
      Męska. (English Translation) [incorporated by reference to Exhibit 10.11
      to the registrants registration statement on Form S-1 filed on July 3,
      2008]                                                           
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.12             | Agreement for Regular Business Cooperation, dated April
      2, 2008, between Fashion Service Sp. z.o.o. and Sunset Suits S.A. (English
      Translation) [incorporated by reference to Exhibit 10.12 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]                                                                        
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.13             | Cooperative Services Agreement, dated December 24, 2007,
      between Halter Financial Group, L.P. and Sunset Suits S.A. [incorporated
      by reference to Exhibit 10.1. to the registrants registration statement
      on Form S-1 filed on July 3, 2008]                                                                                                    
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.14             | Fist Amended Cooperative Services Agreement, dated
      January 24, 2008, between Halter Financial Group, L.P. and Sunset Suits
      S.A. [incorporated by reference to Exhibit 10.14 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                        
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.15             | Lease Agreement, January 9, 2008, between Sunset Suits
      S.A. and Fashion Service Sp. z o.o. (English Translation) [incorporated by
      reference to Exhibit 10.15 to the registrants registration statement on
      Form S-1 filed on July 3, 2008]                                                                                                       
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.16             | Sublease Agreement, dated September 6, 2006, between
      Sunset Suits and Sunset Suits Men's FashionModa Męska. (English
      Translation) [incorporated by reference to Exhibit 10.16 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]                                                                                     
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.17             | Agreement for taking over a debt and accession into a
      loan debt dated December 23, 2008, among Bank Wspolpracy Europejskiej
      Spolka Akryjna, Fashion Service s.p. z.o.o. and Sunset Suits S.A.
      [incorporated by reference to Exhibit 10.17 to the registrants amended
      registration statement on Form S-1 filed on May 14, 2009]            
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.18             | Business Premises Lease Agreement, dated January 27, 2009
      between Przedsiebiorstwo Odziezowe Mikon Spolka Akcyjna w likwidacji and
      Fashion Service s.p. z.o.o. [incorporated by reference to Exhibit 10.18 to
      the registrants amended registration statement on Form S-1 filed on May
      14, 2009]                                         
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.19             | Annex No. 4 to the Restructuring Agreement dated February
      2, 2007, dated March 31, 2009 among ING Bank Slaski Spolka Akcyjna,
      Mirosław Kranik and Fashion Service s.p. z.o.o. [incorporated by
      reference to Exhibit 10.19 to the registrants amended registration
      statement on Form S-1 filed on May 14, 2009]                            
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.20             | Contract for the Provision of Services dated November 3,
      2008, between Sunset Suits S.A. and LST s.p. z.o.o. (English translation)
      [incorporated by reference to Exhibit 10.20 to the registrants amended
      registration statement on Form S-1 filed on July 10, 2009]                                                                            
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.21             | Advisory Services Agreement, dated August 1, 2008,
      between Sunset Suits S.A. and Ernst & Young (English translation)
      [incorporated by reference to Exhibit 10.21 to the registrants amended
      registration statement on Form S-1 filed on July 10, 2009]                                                                                          
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.22             | Employment Agreement dated October 1, 2008 between Sunset
      Suits S.A. and Eugeniusz Roszak (English translation) [incorporated by
      reference to Exhibit 10.22 to the registrants amended registration
      statement on Form S-1 filed on July 10, 2009]                                                                                               
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.23             | Employment Agreement dated February 1, 2008 between
      Fashion Service Sp. z o.o. and Miroslaw Kranik (English translation)
      [incorporated by reference to Exhibit 10.23 to the registrants amended
      registration statement on Form S-1
      filed on July 10, 2009]                                                                                

58

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|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                                              
|----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24       | Agreement on the Deferment of
      Social Security Obligations, dated June 10, 2009, among the Social
      Security Agency II Branch in Poznań, Men's Fashion and Fashion Service
      Sp. z.o.o. (English Translation) [incorporated by reference to Exhibit
      10.24 to the registrants amended registration statement on Form S-1 filed
      on July 10, 2009]
|            |                                                                                                                                                                                                                                                                                                                                                                          
|10.25       | Agreement on the Deferment of
      Social Security Obligations, dated June 10, 2009, between the Social
      Security Agency II Branch in Poznań and Fashion Service Sp. z.o.o.
      (English translation) [incorporated by reference to Exhibit 10.25 to the
      registrants amended registration statement on Form S-1 filed on July 10,
      2009]             
|            |                                                                                                                                                                                                                                                                                                                                                                          
|10.26       | Agreement on the Deferment of
      Social Security Obligations, dated June 10, 2009, between the Social
      Security Agency II Branch in Poznań and Fashion Service Sp. z.o.o.
      (English translation) [incorporated by reference to Exhibit 10.26 to the
      registrants amended registration statement on Form S-1 filed on July 10,
      2009]             
|            |                                                                                                                                                                                                                                                                                                                                                                          
|10.27       | Lease Agreement, dated June 22,
      2009, between Stomil-Poznan S.A. and Sunset Suits S.A. (English
      Translation) [incorporated by reference to Exhibit 10.27 to the
      registrants amended registration statement on Form S-1 filed on July 10,
      2009]                                                                                                  
|            |                                                                                                                                                                                                                                                                                                                                                                          
|14          | Code of Ethics, adopted June 9,
      2008. [incorporated by reference to Exhibit 14 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                 
|            |                                                                                                                                                                                                                                                                                                                                                                          
|21          | Subsidiaries of the Registrant.
      [incorporated by reference to Exhibit 21 to the registrants registration
      statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                          
|31.1        | Certifications of Chief
      Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002. *                                                                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                          
|31.2        | Certifications of Chief
      Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002. *                                                                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                          
|32.1        | Certification of Chief
      Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002. *                                                                                                                                                                                                                                                        
|            |                                                                                                                                                                                                                                                                                                                                                                          
|32.2        | Certification of Chief
      Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002. *                                                                                                                                                                                                                                                        

*Filed herewith.

59

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SIGNATURES

In accordance with section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereto duly authorized individual.

Date: April 15, 2010

|    | **SUNSET SUITS
      HOLDINGS, INC.**
|--- | -------------------------------------
|    |                                      
|By: | /s/ Mirosław Kranik                  
|    | Mirosław Kranik                      
|    | Chief Executive Officer
    and      
|    | Acting Chief Financial Officer       

In accordance with the Securities Exchange 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.

Each person whose signature appears below hereby authorizes
Mirosław Kranik and Donald Chodak, and each or any of them, as
attorneys-in-fact to sign on his or her behalf, individually, and in each
capacity stated below, and to file all amendments and/or supplements to this
annual report on Form 10-K.

|Signature                 | Title                                                                                 | Date          
|------------------------- | ------------------------------------------------------------------------------------- | --------------
|                          |                                                                                       |               
|/s/
      Mirosław Kranik | Director, President, Chief Executive
      Officer and Acting Chief Financial Officer | April 15, 2010
|Mirosław Kranik           | (Principal Executive Officer and
      Principal Financial and Accounting Officer)    |               
|                          |                                                                                       |               
|/s/ Donald Chodak         | Chairman of the Board of Directors                                                    | April 15, 2010
|Donald Chodak             |                                                                                       |               

60

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Supervisory Board of Sunset Suits Holdings, Inc.

We have audited the accompanying consolidated balance sheets
of Sunset Suits Holdings, Inc. ("the Company") as of December 31, 2009 and 2008
and the related consolidated statements of operations, stockholders equity and
cash flows for each of the two years in the period ended December 31, 2009.
These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Sunset Suits
Holding, Inc. as of December 31, 2009 and 2008, and the results of its
operations and its cash flows for the years then ended in conformity with the
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been
prepared on the assumption that Sunset Suits Holdings, Inc. will continue as a
going concern. As discussed in Note 1 to the consolidated financial statements,
Sunset Suits Holdings, Inc. has suffered losses from operations and has a
working capital deficiency that raises substantial doubt as to its ability to
continue as a going concern. The financial statements do not include any
adjustments that might be necessary as a result of this uncertainty. As
described in Note 1, the Company's management believes that the Group will be
able to continue as a going concern for the next 12 months.

Poznań, Poland

March 31 , 2010

BDO Spół

---

SUNSET SUITS HOLDINGS, INC.

US GAAP Consolidated Financial Statements

For the years ended 31 December 2009 and 2008

F-1

---

Sunset Suits Holdings, Inc. Consolidated Balance Sheets
(All amounts in thousands except per share data)

|Balance Sheet as of the end of                                               |   | December 31, |  |   | December 31, | 
|---------------------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
|                                                                             |   | 2009         |  |   | 2008         | 
|                                                                             |   |              |  |   | restated     | 
|ASSETS                                                                       |   |              |  |   |              | 
|Current assets:                                                              |   |              |  |   |              | 
|Cash and cash equivalents                                                    | $ | 379          |  | $ | 1,102        | 
|                                                                             |   |              |  |   |              | 
|                                                                             |   |              |  |   |              | 
|Accounts receivable                                                          |   | 1,261        |  |   | 3,397        | 
|Receivables from
      related parties                                       |   | 815          |  |   | 1,419        | 
|Other trade receivables                                                      |   | 446          |  |   | 1,978        | 
|Inventories                                                                  |   | 3,220        |  |   | 6,186        | 
|Deferred taxes                                                               |   | 734          |  |   | 527          | 
|Prepaid expenses and other current
      assets                              |   | 235          |  |   | 108          | 
|Assets held for sale                                                         |   | 3,653        |  |   | 0            | 
|Total current assets                                                         |   | 9,482        |  |   | 11,320       | 
|                                                                             |   |              |  |   |              | 
|Non-current assets                                                           |   |              |  |   |              | 
|Property and equipment, less accumulated
      depreciation and amortization |   | 3,767        |  |   | 10,857       | 
|Other intangible assets, net                                                 |   | 2,140        |  |   | 2,060        | 
|Deferred taxes                                                               |   | 24           |  |   | 0            | 
|Long term investments                                                        |   | 2,538        |  |   | 936          | 
|Assets held for sale                                                         |   | 7,694        |  |   |              | 
|Total non-current assets                                                     |   | 16,164       |  |   | 13,852       | 
|                                                                             |   |              |  |   |              | 
|Total assets                                                                 | $ | 25,646       |  | $ | 25,172       | 

F-2

---



|Balance Sheet as of the end of                                                               |   | December 31, |   |   | December 31, |  
|-------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                                                             |   | 2009         |   |   | 2008         |  
|                                                                                             |   |              |   |   | restated     |  
|                                                                                             |   |              |   |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                          |   |              |   |   |              |  
|Current liabilities:                                                                         |   |              |   |   |              |  
|Short-term borrowings                                                                        | $ | 41           |   | $ | 0            |  
|Current portion of finance lease payable                                                     |   | 3            |   |   | 124          |  
|Current portion of long-term debt                                                            |   | 1,823        |   |   | 1,394        |  
|Accounts payable, including:                                                                 |   | 3,335        |   |   | 3,152        |  
|Payables to related parties                                                                  |   | 0            |   |   | 596          |  
|Other trade payables                                                                         |   | 3,335        |   |   | 2,556        |  
|Income and other taxes payable                                                               |   | 3,300        |   |   | 9,371        |  
|Accrued employee compensation and benefits                                                   |   | 414          |   |   | 625          |  
|Deferred taxes                                                                               |   | 0            |   |   | 0            |  
|Accrued liabilities and other                                                                |   | 296          |   |   | 179          |  
|Liabilities associated with assets
      held for sale                                       |   | 9,808        |   |   | 0            |  
|Total current liabilities                                                                    |   | 19,020       |   |   | 14,845       |  
|                                                                                             |   |              |   |   |              |  
|Non-current liabilities:                                                                     |   |              |   |   |              |  
|Provisions                                                                                   |   | 138          |   |   | 97           |  
|Deferred taxes                                                                               |   | 0            |   |   | 1,335        |  
|Long-term debt                                                                               |   | 4,942        |   |   | 5,929        |  
|Long-term tax payable                                                                        |   | 0            |   |   | 3,691        |  
|Finance lease payable                                                                        |   | 0            |   |   | 24           |  
|Liabilities associated with assets held for sale                                             |   | 7,753        |   |   | 0            |  
|Total non-current liabilities                                                                |   | 12,832       |   |   | 11,076       |  
|                                                                                             |   |              |   |   |              |  
|Stockholders equity:                                                                         |   |              |   |   |              |  
|Preferred stock $0.001 par value,shares authorized
      and issued: none                    |   | 0            |   |   | 0            |  
|Common stock, $0.001 par value,
      shares authorized: 12,499,645 shares issued 12,499,645 |   | 12           |   |   | 12           |  
|Additional paid-in capital                                                                   |   | 11,883       |   |   | 11,883       |  
|Net income (loss)                                                                            |   | (5,034       | ) |   | 1,776        |  
|Retained earnings (deficit)                                                                  |   | (4,942       | ) |   | (6,718       | )
|Accumulated other comprehensive
      income (loss)                                          |   | (8,125       | ) |   | (7,701       | )
|Total stockholders equity                                                                    |   | (6,207       | ) |   | (749         | )
|                                                                                             |   |              |   |   |              |  
|Total liabilities and stockholders' equity                                                   | $ | 25,646       |   | $ | 25,172       |  

See accompanying notes to consolidated financial statement.

F-3

---

Sunset Suits Holdings, Inc. Consolidated Statement of
Operations (All amounts in thousands except per share data)

|Statement of Operations for the period of                     |   | Twelve Months Ended |   |   | Twelve Months Ended |  
|------------------------------------------------------------- | - | ------------------- | - | - | ------------------- | -
|                                                              |   | December 31,        |   |   | December 31,        |  
|                                                              |   | 2009                |   |   | 2008                |  
|                                                              |   |                     |   |   | restated            |  
|Net sales, retail shops                                       | $ | 26,586              |   | $ | 38,577              |  
|Net sales                                                     |   | 26,586              |   |   | 38,577              |  
|Cost of goods sold                                            |   | 11,319              |   |   | 16,942              |  
|Gross profit                                                  |   | 15,267              |   |   | 21,634              |  
|                                                              |   |                     |   |   |                     |  
|Operating expenses:                                           |   |                     |   |   |                     |  
|Sales and marketing, including:                               |   | 16,463              |   |   | 17,457              |  
|expenses from related
      parties                           |   | 1,871               |   |   | 2,675               |  
|other                                                         |   | 14,592              |   |   | 14,782              |  
|General and administrative, including:                        |   | 2,075               |   |   | 2,513               |  
|other                                                         |   | 2,075               |   |   | 2,513               |  
|Total operating expenses                                      |   | 18,538              |   |   | 19,970              |  
|Operating income(loss)                                        |   | (3,271              | ) |   | 1,665               |  
|                                                              |   |                     |   |   |                     |  
|Gain (loss) on disposal of fixed
      assets, net            |   | (647                | ) |   | 3                   |  
|                                                              |   |                     |   |   |                     |  
|Interest income                                               |   | 4                   |   |   | 31                  |  
|Interest expense                                              |   | 554                 |   |   | 710                 |  
|Gain (loss) on transaction in
      foreign currency          |   | (74                 | ) |   | 599                 |  
|                                                              |   |                     |   |   |                     |  
|Income (loss) before income taxes
      and minority interest |   | (4,542              | ) |   | 1,587               |  
|Income tax expense (benefit)                                  |   | 468                 |   |   | (527                | )
|                                                              |   |                     |   |   |                     |  
|Income (loss) from Continuing Operations                      | $ | (4,074              | ) | $ | 1,062               |  
|                                                              |   |                     |   |   |                     |  
|Discontinued Operations:                                      |   |                     |   |   |                     |  
|Net operating income (loss), net of
      tax                 |   | (961                | ) |   | 714                 |  
|Income (loss) from Discontinued Operations                    | $ | (961                | ) |   | 714                 |  
|                                                              |   |                     |   |   |                     |  
|Net Income (Loss)                                             | $ | (5,034              | ) |   | 1,776               |  
|                                                              |   |                     |   |   |                     |  
|Earnings (loss) per share                                     |   |                     |   |   |                     |  
|Continuing operations                                         | $ | (0.32               | ) | $ | 0.11                |  
|Discontinued operations                                       | $ | (0.08               | ) | $ | 0.07                |  
|                                                              |   |                     |   |   |                     |  
|                                                              |   |                     |   |   |                     |  
|Earnings (loss) per share (basic and
      diluted)           | $ | (0.40               | ) | $ | 0.18                |  
|                                                              |   |                     |   |   |                     |  
|Shares used in computing per share
      amounts:             |   |                     |   |   |                     |  
|Weighted
      average common shares outstanding              |   | 12,499,645          |   |   | 10,019,158          |  

See accompanying notes to consolidated financial
statements.

F-4

---

Sunset Suits Holdings, Inc. Consolidated Statements of
Stockholders Equity and Comprehensive Income (All amounts in thousands
except per share data)

|Equity and Comprehensive income                 |  |              |  |   |        |   |   |            |  |   |               |   |   |               |   |   |                  |  
|----------------------------------------------- |  | ------------ |  | - | ------ | - | - | ---------- |  | - | ------------- | - | - | ------------- | - | - | ---------------- | -
|                                                |  | Common stock |  |   |        |   |   |            |  |   | Accumu-       |   |   | Total         |  
|                                                |  | Number of    |  |   |        |   |   | Additional |  |   | Retained      |   |   | lated other   |   |   | stock-holder's   |  
|                                                |  | common       |  |   | Amount |   |   | paid-in    |  |   | earnings      |   |   | comrehensive  |   |   | equity (deficit) |  
|                                                |  | shares       |  |   |        |   |   | capital    |  |   |               |   |   | income        |   |   |                  |  
|                                                |  | outstanding  |  |   |        |   |   |            |  |   | (deficit)     |   |   | (loss)        |   |   |                  |  
|Balance, December 31, 2007                      |  | 6,121,250    |  | $ | 155    |   | $ | 515        |  | $ | (6,718        | ) | $ | (6,704        | ) | $ | (12,753          | )
|                                                |  |              |  |   |        |   |   |            |  |   |               |   |   |               |   |   |                  |  
|Year ended December 31,
      2008:             |  |              |  |   |        |   |   |            |  |   |               |   |   |               |   |   |                  |  
|Comprehensive income:                           |  |              |  |   |        |   |   |            |  |   |               |   |   |               |   |   |                  |  
|Net income                                      |  |              |  |   |        |   |   |            |  | $ | 1,776         |   |   |               |   | $ | 1,776            |  
|from
      continuing operations                |  |              |  |   |        |   |   |            |  | $ | 1,062         |   |   |               |   |   |                  |  
|from discontinued operations                    |  |              |  |   |        |   |   |            |  | $ | 714           |   |   |               |   |   |                  |  
|Foreign currency translation
      adjustments  |  |              |  |   |        |   |   |            |  |   |               |   | $ | (997          | ) | $ | (997             | )
|Total comprehensive
      income (loss)         |  |              |  |   |        |   |   |            |  | $ | 1,776         |   | $ | (997          | ) | $ | 779              |  
|                                                |  |              |  |   |        |   |   |            |  |   |               |   |   |               |   |   |                  |  
|Issuance of stock                               |  | 5,128,217    |  | $ | 5      |   | $ | 11,220     |  |   |               |   |   |               |   | $ | 11,225           |  
|Recapitalization transaction ("reverse merger") |  | 1,250,178    |  | $ | (148   | ) | $ | 148        |  |   |               |   |   |               |   | $ | 0                |  
|Balance, December 31, 2008
      (restated)     |  | 12,499,645   |  | $ | 12     |   | $ | 11,883     |  | $ | (4,942        | ) | $ | (7,701        | ) | $ | (749             | )
|                                                |  |              |  |   |        |   |   |            |  |   |               |   |   |               |   |   |                  |  
|Year ended December 31,
      2009:             |  |              |  |   |        |   |   |            |  |   |               |   |   |               |   |   |                  |  
|Comprehensive income (loss):                    |  |              |  |   |        |   |   |            |  |   |               |   |   |               |   |   |                  |  
|Net income (loss)                               |  |              |  |   |        |   |   |            |  | $ | (5,034        | ) |   |               |   | $ | (5,034           | )
|from continuing operations                      |  |              |  |   |        |   |   |            |  | $ | (4,074        | ) |   |               |   |   |                  |  
|from discontinued operations                    |  |              |  |   |        |   |   |            |  | $ | (961          | ) |   |               |   |   |                  |  
|Foreign currency translation
      adjustments  |  |              |  |   |        |   |   |            |  |   |               |   | $ | (424          | ) | $ | (424             | )
|Total comprehensive income
      (loss)         |  |              |  |   |        |   |   |            |  | $ | (5,034        | ) | $ | (424          | ) | $ | (5,458           | )
|                                                |  |              |  |   |        |   |   |            |  |   |               |   |   |               |   |   |                  |  
|Balance, December 31,
      2009                |  | 12,499,645   |  |   | 12     |   |   | 11,883     |  |   | (
      9,976 | ) |   | (
      8,125 | ) |   | (
      6,207    | )

See accompanying notes to consolidated financial statements.

F-5

---



|                                                                                                     |   | Twelve Months |   |   | Twelve Months |  
|---------------------------------------------------------------------------------------------------- | - | ------------- | - | - | ------------- | -
|Cash Flow for the period of                                                                          |   | Ended         |   |   | Ended         |  
|                                                                                                     |   | December 31,  |   |   | December 31,  |  
|                                                                                                     |   | 2009          |   |   | 2008          |  
|                                                                                                     |   |               |   |   | restated      |  
|Cash flows from operating
      activities:                                                          |   |               |   |   |               |  
|Net income (loss)                                                                                    | $ | (5,034        | ) | $ | 1,776         |  
|Adjustments to reconcile net income (loss)
      to cash provided by (used in) operating activities: |   |               |   |   |               |  
|Depreciation and amortization                                                                        |   | 1,017         |   |   | 941           |  
|Deferred income taxes                                                                                |   | (766          | ) |   | (580          | )
|Changes in assets and liabilities:                                                                   |   |               |   |   |               |  
|Accounts receivable                                                                                  |   | 2,858         |   |   | (4,138        | )
|Inventories                                                                                          |   | 351           |   |   | (1,590        | )
|Prepaid expenses and other current
      assets                                                      |   | (1,629        | ) |   | (438          | )
|Accounts payable                                                                                     |   | 1,636         |   |   | (3,383        | )
|Other liabilities                                                                                    |   | 2,835         |   |   | 284           |  
|                                                                                                     |   |               |   |   |               |  
|Net cash provided by (used in)
      operating activities                                            |   | 1,857         |   |   | (7,128        | )
|                                                                                                     |   |               |   |   |               |  
|Cash flows from investing
      activities:                                                          |   |               |   |   |               |  
|Purchases of property and equipment                                                                  |   | (1,372        | ) |   | (1,713        | )
|Proceeds from sale of property and
      equipment                                                   |   | 0             |   |   | 0             |  
|                                                                                                     |   |               |   |   |               |  
|Net cash provided by (used in)
      investing activities                                            |   | (1,373        | ) |   | (1,713        | )
|                                                                                                     |   |               |   |   |               |  
|Cash flows from financing
      activities:                                                          |   |               |   |   |               |  
|Issuances of common stock                                                                            |   | 0             |   |   | 11,225        |  
|Principal payments under capital
      lease                                                         |   | (142          | ) |   | (182          | )
|Proceeds from long term debt                                                                         |   | 26            |   |   | 33            |  
|Repayments of borrowings                                                                             |   | (1,001        | ) |   | (2,235        | )
|                                                                                                     |   |               |   |   |               |  
|Net cash provided by (used in)
      financing activities                                            |   | (1,117        | ) | $ | 8,841         |  
|                                                                                                     |   |               |   |   |               |  
|Effect of exchange rate changes on
      cash and equivalents                                        |   | (80           | ) |   | 76            |  
|                                                                                                     |   |               |   |   |               |  
|Net change in cash and equivalents
      during period                                               |   | (713          | ) |   | 75            |  
|                                                                                                     |   |               |   |   |               |  
|Cash and equivalents, beginning of
      period                                                      |   | 1,102         |   |   | 1,026         |  
|                                                                                                     |   |               |   |   |               |  
|Cash and equivalents, end of period                                                                  | $ | 388           |   | $ | 1,102         |  
|Less asset held for sale (discontinued operation)                                                    |   | 10            |   |   | 0             |  
|Cash and equivalents, end of period                                                                  | $ | 379           |   | $ | 1,102         |  

For the twelve months period ended December 31, 2009 and
December 3, 2008 total cash paid for interest and taxes amounted to $2,489
thousand and $6,925 thousand respectively.

See accompanying notes to consolidated financial statements.

F-6

---

1. ORGANIZATION AND BASIS OF PREPARATION
FINANCIAL STATEMENTS

Sunset Suits Holdings, Inc.

Sunset Suits Holdings, Inc.(Sunset Suits
Holdings, The Company or The Group) is a corporation
incorporated in accordance with the Laws of Nevada, United States of America.
Its former business name was SMSA III Acquisition Corp. Through the reverse
merger transaction dated May 21, 2008, SMSA III Acquisition Corp. acquired all
shares of Sunset Suits S.A., by which it took legal control over Sunset Suits
S.A., and changed its business name to Sunset Suits Holdings, Inc. As a result
of the reverse merger transaction, Mr. Mirosław Kranik became an owner
of 49% of the common equity of Sunset Suits Holdings, Inc..

Sunset Suits SA.

Sunset Suits S.A. (Sunset Suits) is a company
incorporated in Poland in July 2006 in accordance with the Laws of the Republic
of Poland by a sole shareholder, Bartosz Kranik, through a money contribution.
In February 2007 Mirosław Kranik contributed to Sunset Suits a part of
its sole proprietorship consisting of assets of the retail segment of Mens
Fashion. Currently Sunset Suits S.A. is wholly owned by Sunset Suits Holdings,
Inc., a corporation established in accordance with the laws of Nevada. Sunset
Suits S.A. is currently engaged in the sale and marketing of a broad range of
men's collection suits, coats, trousers, shirts, ties and suit accessories.
Sunset Suits S.A. sells products through a broad array of distribution channels
in Poland. It operates its own network of retail and factory outlet stores. The
activities of Sunset Suits S.A. are principally conducted in Poland.

Fashion Service Sp. z o. o.

Fashion Service Sp. z o. o.(Fashion Service)
was incorporated in Poland in November 2007 in accordance with the Laws of the
Republic of Poland. Fashion Service Sp. z o. o.was created through an in-kind
contribution consisting of assets of the manufacturing and wholesale segments of
Sunset Suits Mens Fashion Moda Męska. Currently, it is owned solely by Sunset
Suits S.A.. Fashion Service Sp. z o. o. designs, manufactures and engages in
wholesale sales of a broad range of men's collection suits, coats, trousers and
shirts. It contracts for manufacture and wholesale sales a range of mens ties
and suit accessories. All activities of Fashion Service Sp. z o. o. are
principally conducted in Poland.

Bohemia s.r.o.

Bohemia s.r.o. (Bohemia) is a corporation incorporated
in accordance with the Laws of the Czech Republic. On July 9, 2009 Bohemia was
acquired by Sunset Suits Holdings, Inc., from Mr. Mirosław Kranik, our
major shareholder. Currently, Bohemia is owned solely by Sunset Suits Holdings,
Inc. Bohemia sells products through its own network of 9 retail stores in the
Czech Republic.

UAB Sunset Suits Vilnius

UAB Sunset Suits Vilnius (Sunset Suits Vilnius) is a
corporation incorporated in accordance with the Laws of the Republic of
Lithuania. On August 25, 2009 Sunset Suits Vilnius was acquired by Sunset Suits
Holdings, Inc., from Mr. Mirosław Kranik, our major shareholder.
Currently, Sunset Suits Vilnius is owned solely by Sunset Suits Holdings, Inc..
Sunset Suits Vilnius sells products through its own network of 4 retail stores
in Lithuania.

SIA Sunset Riga

SIA Sunset Riga(Sunset Riga) is a corporation
incorporated in accordance with the Laws of the Republic of Latvia. On January
29, 2009 Sunset Riga was acquired by Sunset Suits Holdings, Inc., from Mr.
Mirosław Kranik, our major shareholder. Currently, Sunset Riga is
owned solely by Sunset Suits Holdings, Inc.. Sunset Riga sells products through
its own network of 3 retail stores in Latvia.

F-7

---

OU Posnania

OU Posnania (Posnania) is a corporation incorporated
in accordance with the Laws of the Republic of Estonia. Posnania was
incorporated by Mirosław Kranik in 2005, our major shareholder. On
July 10, 2009 Posnania was acquired by Sunset Suits Holdings, Inc., from Mr.
Mirosław Kranik, our major shareholder. Currently, Posnania is owned
solely by Sunset Suits Holdings, Inc..

Basis for preparation

The consolidated financial statements of Sunset Suits Holdings,
Inc. include the financial statements of Sunset Suits Holdings, Inc., and its
wholly-owned subsidiaries Sunset Suits S.A., Fashion Service Sp. z o. o.,
Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA Sunset Riga and OU Posnania (the
Group) for all periods presented and are presented in accordance with
accounting principles generally accepted in the United States of America (US
GAAP).

Intercompany transactions and intercompany balances have been
eliminated. All financial data in the consolidated financial statements is
expressed in thousands of US dollars, unless otherwise noted.

The Group classified the manufacturing operations of Fashion
Service as discontinued. Management decided to cease production in Poland and
sell its manufacturing segment to an unrelated party. The operations of Fashion
Service comprise all of the activities in the manufacturing segment. In
accordance with FAS 144 (now ASC 360-10), Accounting for the Impairment or
Disposal of Long-Lived Assets, the accompanying Consolidated Financial
Statements and notes have been reclassified to reflect the results of these
operations as discontinued operations. See Note 22 Discontinued Operations and
Note 23 Asset Held for Sale of Notes to Consolidated Financial Statements for
further discussion of these discontinued operations.

Going concern

As of the date these financial statements have been prepared,
the Group has a negative working capital amounting to $3,325 thousand.
Subsequent to December 31, 2009 the Group reported a decrease in total sales
with relative lower decrease in operating costs, which resulted in a net loss
and a further decrease of total shareholders equity. Management is aware of
this unfavorable financial situation of the Group and prepared a recovery plan.
The plan assumes: i) improvement of operating margin; ii) negotiations with
suppliers to extend payments terms; iii) negotiations with fiscal authorities to
extend payments of taxes; iv) negotiations with landlords to decrease operating
lease costs; iv) issuance of debt to finance current business activity. We have
already accomplished several extensions of tax payment due dates and several
lease payment due dates.

Subsequent steps to remedy the financial situation of the Group
depend on raising funds. The achievement of Management plans is dependent on the
final outcome of negotiations with suppliers and fiscal authorities. As of the
date of these financial statements, these negotiations are still undergoing and
their final outcome is uncertain. Therefore as of the date these financial
statements have been prepared, there is a substantial doubt about the Groups
ability to continue as a going concern. However, the December 31, 2009
consolidated financial statements of the Group have been prepared on the going
concern basis as Management believes the Group will be able to continue as a
going concern for the next 12 months.

Principles of consolidation

These consolidated financial statements include Sunset Suits
Holdings, Inc., and its wholly owned direct or indirect subsidiaries Sunset
Suits Holdings, Inc. including, Sunset Suits Holdings, Inc., Sunset Suits S.A.,
Fashion Service Sp. z o. o., Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA
Sunset Riga and OU Posnania. SIA Sunset Riga was not owned by Sunset Suits
Holdings until January 22, 2009, Bohemia s.r.o. was not owned by Sunset Suits
Holdings until July 2009, OU Posnania was not owned by Sunset Suits Holdings
until July 10, 2009 and UAB Sunset Suits Vilnius  was not owned by Sunset
Suits Holdings until August 25, 2009. Prior to these dates all of these entities
were solely owned by Mr. Miroslaw Kranik and hence they were under common
control with Sunset Suits Holdings, Inc.. Consistent with the provisions of FAS
141(R) par. 2, FAS 141(R) (now ASC 805-10-15-4) does not apply to transfer of
net assets or exchanges of shares between entities under common control. However
paragraphs D8D14 of Appendix D of FAS 141(R) (now within FASB ASC 805-50)
provide detailed guidance on consolidation. Since the transfer of net assets
from Sunset Suits Mens Fashion - Moda Męska to its successors  Sunset Suits
S.A. and Fashion Service Sp. z o. o. resulted in a change of reporting entity;
in practice the accounting method used for consolidation is similar to the
pooling of interest method. The accounts of all entities are included as if they
had always been consolidated. This method has been applied also to consolidation
of Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA Sunset Riga and OU Posnania for
the twelve months ended December 31, 2009 and comparative periods of twelve
months ended December 31, 2008 and twelve months ended December 31, 2008. The
recorded assets and liabilities of separate entities are consolidated in the
financial statements. The financial statements of the Group are therefore called
consolidated financial statements.

F-8

---

The consolidated financial statements, prepared in accordance
with US GAAP differ in certain material respects from financial statements of
Sunset Suits S.A., Fashion Service Sp. z o. o., Bohemia s.r.o., UAB Sunset Suits
Vilnius, SIA Sunset Riga and OU Posnania, which are prepared in accordance with
the accounting principles and the relevant financial regulations applicable to
enterprises incorporated in Poland (Polish GAAP), Czech Republic (Czech
GAAP), Lithuania (Lithuanian GAAP), Latvia (Latvian GAAP) and Estonia
(Estonian GAAP). The accompanying consolidated financial statements reflect
adjustments not recorded in the books and records of Sunset Suits S.A., Fashion
Service Sp. z o. o., Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA Sunset Riga
and OU Posnania to present them in conformity with US GAAP. All adjustments are
applied retrospectively and financial statements of the subsidiaries have been
restated. All significant intercompany accounts, transactions and cash flows are
eliminated on consolidation.

2. SUMMARY OF ACCOUNTING POLICIES

Cash and cash equivalents

Cash and cash equivalents include cash on hand, cash accounts,
interest bearing savings accounts and time certificates of deposit with a
maturity of three months or less when purchased.

Accounts Receivable

Accounts receivable are reported at amounts management expects
to be collected, net of trade discounts and an allowance for estimated sales
returns.

Outstanding account balances are reviewed individually for
collectability. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is
considered remote. None of Sunset Suits Holding, Inc., Sunset Suits S.A.,
Fashion Service Sp. z o. o., Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA
Sunset Riga and OU Posnania have any off-balance-sheet credit exposure to any of
their customers.

Inventories and Cost of Sales

Inventories are valued at the lower of cost or market. The
Group reduces the carrying cost of inventories for obsolete or slow moving items
as necessary to properly reflect the inventorys net realizable value. The cost
elements included in inventory consist of all direct costs of merchandise (net
of purchase discounts and vendor allowances), allocated overhead (primarily
design and indirect production costs), inbound freight and import fees.

Cost of sales includes the inventory cost elements listed above
as well as warehouse outbound freight and internally transferred merchandise
freight. The Group's cost of sales may not be comparable to those of other
entities, since some entities include all of the costs associated with their
distribution functions in cost of sales while the Group includes these costs in
selling, general and administrative expenses.

Property, Plant, Equipment and Depreciation and Amortization

Property, plant and equipment are recorded at cost.
Depreciation and amortization are computed by the straight-line method over the
estimated useful lives of the assets. Leasehold improvements recorded at the
inception of a lease are amortized using the straight-line method over the life
of the lease or the useful life of the improvement, whichever is shorter; for
improvements made during the lease term, the amortization period is the shorter
of the useful life or the remaining lease term (including any renewal periods
that are deemed to be reasonably assured). Property under capital leases is
amortized over the lives of the respective leases or the estimated useful lives
of the assets, whichever is shorter.

F-9

---

The exact historical cost of buildings, machinery and equipment
and leasehold improvements acquired prior to 2006, substantially all of which
(except leasehold improvements, that were acquired in the 2000s) were acquired
in the mid to late 1990s, could not be reasonably determined due to a lack of
accounting documentation. For buildings and machinery and equipment groups of
tangible fixed assets, all of which were acquired in the mid to late 1990s, the
historical cost was estimated using, as a starting point, an engineers estimate
of the historical cost of past investment. Management is of the opinion that
this valuation is the reasonable estimation of historical cost for these groups
of tangible fixed assets. For leasehold improvements, all of which were acquired
in the 2000s, historical cost was recreated by identifying all bills and
invoices related to retail outlets fittings, even if, they were not properly
recorded in the accounting system in the past.

Operating Leases

Total rent payments under operating leases that include
scheduled payment increases and rent holidays are amortized on a straight-line
basis over the term of the lease. Rent expense on our buildings and retail
stores is classified as an SG&A expense and, for certain stores, includes
contingent rents that are based on a percentage of retail sales over stated
levels. Landlord allowances are amortized by the straight-line method over the
original term of the lease as a reduction of rent expense.

Foreign Currency Translation

The Group uses the Polish zloty (PLN) as its functional
currency. Transactions in currencies during the year in other than PLN are
translated into PLN at the exchange rates as of the specific transaction dates.
Monetary assets and liabilities denominated in currencies other than PLN as of
the date of the balance sheet are translated into PLN at the exchange rates
prevailing as of such date. All transaction differences are recorded in the
income statement.

The Groups consolidated financial statements are presented in
USD. Foreign currency translation is accounted for in accordance with SFAS No.
52, Foreign Currency Translation (now ASC 830-10). Accordingly, all assets and
liabilities are translated from PLN to USD at the exchange rates prevailing as
of the date of the balance sheet and all income and expenditure items are
translated at the average rates for each of the years presented. Gains and
losses resulting from foreign currency translation are accumulated as a separate
component of stockholders' equity in accumulated other comprehensive income. The
exchange rates adopted for the foreign exchange transactions are the rates of
exchange quoted by the Polish National Bank.

Translation of amounts from PLN into United States dollars
(US$) has been made at the following exchange rates for the respective years:

|December 31, 2009                            |                            
|-------------------------------------------- | ---------------------------
|Balance sheet                                | PLN 2.8503 to
      US$1.00
|Statement of income and comprehensive income | PLN 3.1162 to US$1.00      
|                                             |                            
|                                             |                            
|December 31, 2008                            |                            
|Balance sheet                                | PLN 2.9618 to US$1.00      
|Statement of income and comprehensive income | PLN 2.4092 to
      US$1.00

Shipping and handling cost

Shipping and handling costs related to delivery of finished
goods are included in selling expenses.

Advertising Expense

We record national advertising campaign costs as an expense
when the advertising takes place and we expense advertising production costs as
incurred, net of reimbursements for cooperative advertising.

Income Taxes

The Group uses the asset and liability method of accounting for
income taxes. Current tax assets and liabilities are recognized for the
estimated corporate income taxes payable or refundable on the tax returns for
the current year. The taxes are paid in the country where an entity operates. Tax
liability estimation is made separately for each entity using a tax charge
applicable for the country the entity operates. Deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred income tax provisions are based on
the changes to the respective assets and liabilities from period to period.
Valuation allowances are recorded to reduce deferred tax assets when uncertainty
regarding their realizability exists.

F-10

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Impairment of Long-lived Assets and Indefinite-lived
Intangible Assets

The Group evaluates the property and equipment and other
long-lived assets for impairment based on our classification as i) held for sale
or ii) to be held and used. Several criteria must be met before an asset is
classified as held for sale, including that management with the appropriate
authority commits to a plan to sell the asset at a reasonable price in relation
to its fair value and is actively seeking a buyer. For assets classified as held
for sale, we recognize the asset at the lower of carrying value or fair market
value less costs of disposal, as estimated based on comparable asset sales,
offers received, or a discounted cash flow model. We review assets to be held
and used for impairment whenever indicators of impairment exist. We then compare
the estimated future cash flows of the asset, on an undiscounted basis, to the
carrying value of the asset. If the undiscounted cash flows exceed the carrying
value, no impairment is indicated. If the undiscounted cash flows do not exceed
the carrying value, then an impairment is recorded based on the fair value of
the asset, typically measured using a discounted cash flow model. If an asset is
still under development, future cash flows include remaining construction costs.
All recognized impairment losses, whether for assets to be held for sale or
assets to be held and used, are recorded as operating expenses.

There are several estimates, assumptions and decisions in
measuring impairments of long-lived assets. First, management must determine the
usage of the asset. To the extent management decides that an asset will be sold,
it is more likely that an impairment may be recognized. Assets must be tested at
the lowest level for which identifiable cash flows exist. This means that some
assets must be grouped, and management has some discretion in the grouping of
assets. Future cash flow estimates are, by their nature, subjective and actual
results may differ materially from our estimates.

We review indefinite-lived intangible assets at least annually
and between annual test dates in certain circumstances. We perform our annual
impairment test for indefinite-lived intangible assets in the fourth quarter of
each fiscal year. Indefinite-lived intangible asset for relevant reporting units
is tested for impairment using a discounted cash flow analysis based on our
budgeted future results discounted using a weighted average cost of capital,
developed using a standard capital asset pricing model based on guideline
companies in our industry, and market indicators of terminal year capitalization
rates. The indefinite-lived intangible assets consist of a trademark, which is
tested for impairment using the relief-from-royalty method.

There are several estimates inherent in evaluating these assets
for impairment. In particular, future cash flow estimates are, by their nature,
subjective and actual results may differ materially from our estimates. In
addition, the determination of capitalization rates and the discount rates used
in the goodwill impairment test are highly judgmental and dependent in large
part on expectations of future market conditions.

Use of estimates

The preparation of the Groups consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America (US GAAP) requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
financial statements include some amounts that are based on managements best
estimates and judgments. The most significant estimates relate to allowance for
uncollectible accounts receivable, inventory obsolescence, depreciation,
intangible asset valuations and useful lives, goodwill impairments, employee
benefit plans, environmental accruals, taxes and contingencies. These estimates
may be adjusted as more information becomes available, and any adjustment could
be significant.

3. RECENT CHANGES IN ACCOUNTING STANDARDS

In April 2009, the FASB issued FASB Staff Position No. 107-1
and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments (FSP) 107-1 which amended SFAS No. 107, Disclosures about
Fair Values of Financial Instruments, to require disclosures about fair value of
financial instruments in interim financial statements as well as in annual
financial statements. It also amends Accounting Principles Board (APB) Opinion
No. 28, Interim Financial Reporting, to require those disclosures in all
interim financial statements. This guidance is effective for interim and annual
periods ending after June 15, 2009, with early application permitted. The
adoption of FSP 107-1 did not have a material impact on the Groups consolidated
financial statements or results of operations.

F-11

---

In May 2009, the FASB issued SFAS 165 Subsequent
Events. SFAS 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued. It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date. This guidance is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied
prospectively. The adoption of SFAS 165 did not have a material impact on the
Groups consolidated financial statements or results of operations.

In June 2009, the FASB issued guidance to change financial
reporting by enterprises involved with variable interest entities (VIEs). The
standard replaces the quantitative-based risks and rewards calculation for
determining which enterprise has a controlling financial interest in a VIE with
an approach focused on identifying which enterprise has the power to direct the
activities of a VIE and the obligation to absorb losses of the entity or the
right to receive the entitys residual returns. This accounting standard is
effective for fiscal years beginning after November 15, 2009. The Company has
evaluated the impact of the adoption of this pronouncement on its consolidated
financial statements and has determined there will be no impact of adoption on
its consolidated financial statements.

4. CLASSIFICATION OF BUSINESS SEGMENTS IN
CONTINUING AND DISCONTINUED OPERATIONS

The Group classifies the results from operations of our
continuing and discontinued operations in our consolidated statements of income
based on the provisions of "Presentation of Financial Statements" in the
Accounting Standards Codification ("ASC"). Many of these provisions involve
judgment in determining whether a franchise will be reported as continuing or
discontinued operations. Such judgments include whether a part of our business
will be sold or terminated, the period required to complete the disposition and
the likelihood of changes to a plan for sale. If in future periods we determine
that a part of our business should be either reclassified from continuing
operations to discontinued operations or from discontinued operations to
continuing operations, previously reported consolidated statements of income
will be reclassified in order to reflect that classification. During the year
ended December 31, 2009, we designated our production segment to be held for
sale that was previously included in continuing operations. Therefore at
December 31, 2009 the production segment was presented as held for sale and
classified as discontinued operations. The details are presented in notes 23 and
24 below.

5. ACCOUNTS RECEIVABLE

Accounts receivable by major categories are summarized as
follows:

|                          |   | December 31, |  |   | December 31, | 
|------------------------- | - | ------------ |  | - | ------------ | 
|                          |   | 2009         |  |   | 2008         | 
|                          |   |              |  |   | restated     | 
|Related party receivables | $ | 815          |  | $ | 1,419        | 
|Other trade receivables   |   | 446          |  |   | 1,978        | 
|                          |   |              |  |   |              | 
|                          | $ | 1,261        |  | $ | 3,397        | 

All amounts in the above table are presented net of bad debt
allowance. As of December 31, 2009 and as of December 31, 2008 there was no
allowance for doubtful debts recorded.

F-12

---

6. INVENTORIES

Inventories are summarized as follows:

|                |   | December 31, |  |   | December 31, | 
|--------------- | - | ------------ |  | - | ------------ | 
|                |   | 2009         |  |   | 2008         | 
|                |   |              |  |   | restated     | 
|Finished goods  | $ | 0            |  | $ | 84           | 
|Work-in-process |   | 0            |  |   | 172          | 
|Raw materials   |   | 0            |  |   | 980          | 
|Merchandise     |   | 3,220        |  |   | 4,950        | 
|                |   |              |  |   |              | 
|                | $ | 3,220        |  | $ | 6,186        | 

Finished goods are manufactured products stored at the main
warehouse. Merchandise are manufactured products ready for sale stored in retail
stores.

All amounts in the above table are presented net of allowances
for any slow moving or obsolete inventory. As of December 31, 2009 the allowance
for slow moving stock amounted to $288. As of December 31, 2008 the allowance
for slow moving stock amounted to $0.

Inventories pledged to banks - At December 31, 2009 and at
December 31, 2008, all inventories amounting to $2,799 thousand and $6,186
thousand, respectively, were pledged to banks pursuant to loan agreements.

7. PROPERTY, PLANT AND EQUIPMENT

|                                                |   | December 31, |  |   | December 31, |  |  | Useful lives | 
|----------------------------------------------- | - | ------------ |  | - | ------------ |  |  | ------------ | 
|                                                |   | 2009         |  |   | 2008         |  |  | (years)      | 
|                                                |   |              |  |   | restated     |  |  |              | 
|Land                                            | $ | 0            |  | $ | 56           |  |  | N/a          | 
|Buildings                                       |   | 0            |  |   | 5,365        |  |  | 40           | 
|Leasehold improvements                          |   | 4,389        |  |   | 3,648        |  |  | 5 - 10       | 
|Machinery and equipment                         |   | 487          |  |   | 7,220        |  |  | 3 - 20       | 
|Vehicles                                        |   | 30           |  |   | 101          |  |  | 3 - 5        | 
|Furniture and fixtures                          |   | 68           |  |   | 0            |  |  | 3 - 8        | 
|Construction in progress                        |   | 335          |  |   | 718          |  |  | -            | 
|Gross                                           |   | 5,309        |  |   | 17,109       |  |  |              | 
|                                                |   |              |  |   |              |  |  |              | 
|Less: accumulated depreciation and amortization |   | 1,543        |  |   | 6,252        |  |  |              | 
|                                                |   |              |  |   |              |  |  |              | 
|Net                                             | $ | 3,767        |  | $ | 10,857       |  |  |              | 

$2,346 thousand (PLN 6,687 thousand) and $14,410 thousand (PLN
42,680 thousand) of historical costs at December 31, 2009 and December 31, 2008,
respectively, are presented at estimated historical cost as described in
Property, Plant, Equipment and Depreciation and Amortization policy Note
included in the Buildings, leasehold improvements and machinery and equipment
costs shown above.

Included in the group of vehicles and machinery and equipment
of property, plant and equipment are capitalized leases amounting to $113
thousand and $180 thousand (net book value) as of December 31, 2009 and December
31, 2008, respectively.

F-13

---

Depreciation and amortization expense relating to property,
plant and equipment (including capitalized leases) was $667 thousand and $941
thousand for the years ended December 31, 2009 and December 31, 2008,
respectively. At December 31, 2009 and December 31, 2008, we had no outstanding
commitments relating to the construction or remodeling of retail store
locations. At December 31, 2009, we had of approximately $126 thousand in
outstanding commitments relating to the design and implementation of new
computer software systems. During the twelve months of the year 2009 and twelve
months of the year 2008 we did not capitalize any interest as part of the cost
of major capital projects.

Management performs an annual impairment test for its long
lived assets. The Group performs tests for impairment in the fourth quarter of
each year using a non discounted cash flow analysis that requires that certain
assumptions and estimates be made regarding industry economic factors and future
profitability. As a result of the 2009 and 2008 impairment analyses, the Group
did not determine any long lived assets impairments. Accordingly, the Group did
not record any impairment.

Property Plant and Equipment pledged to banks - At December 31,
2009 and at December 31, 2008, all property plant and equipment amounting to
$3,013 thousand and $ 10,258 thousand, respectively, were pledged to banks
pursuant to loan agreements.

8. OTHER INTANGIBLE ASSETS

Trademark is an indefinite lived intangible asset that
represents the cost of acquired brand registered for the name of Sunset Suits
S.A.. The trademark has been registered since 1994 by Mens Fashion. In 2007 the
legal right to the Sunset Suits trademark was transferred from Mens Fashion to
Sunset Suits S.A. according to a transfer agreement of an in-kind contribution,
including the trademark.

The Group also possesses intangible assets such as technology
and know-how created by the company that management believes have substantial
value but have no identified historical cost and consequently cannot be
recognized under United States generally accepted accounting principles which
limits amounts recognized to historical cost.

The carrying value of the trademark, which has no determinable
life, constitutes its historical cost of acquisition. Management believes that
its current fair value is well in excess of this amount. Management believes
that the Group has other intangibles assets such as technology and know-how that
have significant value although not recognized under US GAAP.

Management performs an annual impairment test for its Sunset
Suit trademark. The Group performs tests for impairment in the fourth quarter of
each year using a discounted cash flow analysis that requires that certain
assumptions and estimates be made regarding industry economic factors and future
profitability. As a result of the 2009 and 2008 impairment analyses, the Group
did not determine any intangible assets impairment. Accordingly, the Group did
not record any impairment.

|          |   |       |  |  | December 31, |  |   |       |  |   |       |  |  | December 31, |  |   |       | 
|--------- | - | ----- |  |  | ------------ |  | - | ----- |  | - | ----- |  |  | ------------ |  | - | ----- | 
|          |   |       |  |  | 2009         |  |   |       |  |   |       |  |  | 2008         |  |   |       | 
|          |   |       |  |  |              |  |   |       |  |   |       |  |  |              |  |   |       | 
|          |   |       |  |  | Accumulated  |  |   |       |  |   |       |  |  | Accumulated  |  |   |       | 
|          |   | Gross |  |  | Amortization |  |   | Net   |  |   | Gross |  |  | Amortization |  |   | Net   | 
|Trademark | $ | 2,140 |  |  | $ 0          |  | $ | 2,140 |  | $ | 2,060 |  |  | $ 0          |  | $ | 2,060 | 
|          |   |       |  |  |              |  |   |       |  |   |       |  |  |              |  |   |       | 
|          | $ | 2,140 |  |  | $ 0          |  | $ | 2,140 |  | $ | 2,060 |  |  | $ 0          |  | $ | 2,060 | 

Intangible assets pledged to banks - At December 31, 2009 and
December 31, 2008, the trademark carrying value amounting to $2,140 thousand and
2,060 thousand, respectively, was pledged to banks pursuant to loan agreements.

F-14

---

Our trademark is part of our operation whose functional
currency is PLN. Its historical cost is denominated in PLN. The $80 thousand
increase in our trademark is a result of PLN/USD foreign exchange rate change
between December 31, 2008 and December 31, 2009.

9. LONG TERM INVESTMENTS

Long term investments consist of the following:

|                      |   | December 31, |  |   | December 31, | 
|--------------------- | - | ------------ |  | - | ------------ | 
|                      |   | 2009         |  |   | 2008         | 
|                      |   |              |  |   | restated     | 
|Deposits              | $ | 1,603        |  | $ | 936          | 
|Long term investments |   | 935          |  |   |              | 
|                      |   |              |  |   |              | 
|                      | $ | 2,538        |  | $ | 936          | 

The Group provides cash deposits to Landlords for rent
facilities. These deposits are returned upon the end of lease period. The
majority of the deposits are returned in nominal amount with no interest
accounted, according to lease agreements. The nominal value of the deposits
amounted to $1,645 thousand and $991 thousand, respectively, as of December 31,
2009 and December 31, 2008. Since the deposits are recoverable in more than one
year, the Group recorded the deposits at the present value of the eventual
deposit receipt. The difference between the present value and future value of
the deposits are accounted for as a discount and amortized over the term of the
lease, resulting in amortization of deposit discount amounting to $42 thousand
and $65 thousand, for the years ended December 31, 2009 and December 31, 2008,
respectively.

Long term notes receivable are from Market System Sp. z o. o..
As of December 30, 2009 OU Posnania, SIA Sunset Riga and UAB Sunset Suits sold
its former receivable from Mr. Mirosław Kranik to Market System Sp. z
o. o. at its nominal value amounting to $994 thousand. According to the
agreement the notes are receivable on January 2, 2015 and accrue a fixed
interest of 6% per annum payable together with the principal (zero coupon
notes). Pursuant to ASC 820-10 Management valued the notes as of December 31,
2009. The estimated annual market yield for the notes amounted to 7.33% per
annum and the fair market value of notes as of December 31, 2009 amounted to
$935 thousand. The note may represent a concentration of credit risk. The
Company maintains a provision for potential credit losses based on expected
collectability of the note, which the Company believes is adequate. As of
December 31, 2009 the provision is nil.

10. ACCOUNTS PAYABLE

Accounts payable by major categories are summarized as follows:

|                             |   | December 31, |  |   | December 31, | 
|---------------------------- | - | ------------ |  | - | ------------ | 
|                             |   | 2009         |  |   | 2008         | 
|                             |   |              |  |   | restated     | 
|Related party trade payables | $ | 0            |  | $ | 596          | 
|Other trade payables         |   | 3,335        |  |   | 2,556        | 
|                             |   |              |  |   |              | 
|                             | $ | 3,335        |  | $ | 3,152        | 

F-15

---



11. INCOME AND OTHER TAX PAYABLES

Income and other tax payables consist of the following:

|                             |   | December 31, |  |   | December 31, | 
|---------------------------- | - | ------------ |  | - | ------------ | 
|                             |   | 2009         |  |   | 2008         | 
|                             |   |              |  |   | restated     | 
|Corporate income tax payable | $ | 596          |  | $ | 1,147        | 
|Personal income tax payable  | $ | 490          |  |   | 719          | 
|Value added tax payable      | $ | 559          |  |   | 4,536        | 
|Social security tax payable  | $ | 1,655        |  |   | 6,660        | 
|                             |   |              |  |   |              | 
|                             | $ | 3,300        |  | $ | 13,063       | 
|                             |   |              |  |   |              | 
|Less: Settled in long term   |   | 0            |  |   | 3,691        | 
|                             |   |              |  |   |              | 
|                             | $ | 3,300        |  | $ | 9,371        | 

Personal income tax in Poland in the years 2008 and 2009 was
charged at 18 and 32% of the assessable personal income. Employee part of social
security tax in Poland is charged at approximately 19% on the employee gross
salaries. Personal income tax in Czech Republic, Lithuania, Latvia and Estonia
was charged at 15%, 20%, 23% and 21% of the assessable personal income
respectively.

Overdue Tax Payable

At December 31, 2009, corporate income tax payable amounting to
$1,259 thousand, was overdue. At December 31, 2009 and at December 31, 2008,
personal income tax payables amounting to $912 thousand and $484 thousand,
respectively, were overdue. At December 31, 2009 and December 31, 2008, value
added tax payables amounting to $5,104 thousand and $3,966 thousands were
overdue. There is a signed settlement with Polish tax authorities according to
which overdue personal income tax payable and value added tax payable amounting
to $3,921 thousand in total is due in the years 2009  2010.

On November 4, 2009 the Polish tax authorities issued a
decision with respect to the deferral of delinquent tax obligations of Sunset
Suits S.A. amounting to $1,194 thousand. According to a decision Sunset Suits
S.A. is obliged to pay delinquent tax obligations up to November 2010 with
balloon payment amounting to $1,011 thousand on November 2, 2010.

On November 9, 2009 the Polish tax authorities issued a
decision with respect to the deferral of delinquent tax obligations of Fashion
Service Sp. z o. o. amounting to $1,323 thousand. According to a decision
Fashion Service is obliged to pay delinquent tax obligations up to November 2010
with balloon payment amounting to $1,177 thousand on November 15, 2010.

At December 31, 2009 and at December 31, 2008, social security
tax payables amounting to $7,953 thousand and $5,914 thousand, respectively,
were overdue. In 2009 management submitted a final application for a settlement
with the Polish social security authority enclosing a proposed overdue social
security tax payable schedule according to which overdue social security tax
payable is due in the years 2009  2016. On June 10, 2009 Fashion Service
entered into a deferral agreement with the social security authority with
respect to the deferral of all delinquent social security obligations. As of
December 31, 2009 the settlement with social security authority includes an
agreed schedule of payment for past overdue social security tax payable
amounting to $4,552 for overdue social security premium, $1,877 for overdue
interest accrued, $1,359 for deferral fee (accounted for as additional interest
accruing over the term of the deferment) and $7 for enforcement procedures costs.

F-16

---

The following table shows the amounts we intend to pay by
period to satisfy our obligations pursuant to the deferral agreements described
above as of December 31, 2009:

|                                   |   | For the  |  |   | For the  |  |   | For the  |  |   | For the  |  |   | For the  |  |   | For the  |  |   | For the  |  |   |       | 
|---------------------------------- | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | ----- | 
|                                   |   | twelve   |  |   | twelve   |  |   | twelve   |  |   | twelve   |  |   | twelve   |  |   | twelve   |  |   | twelve   |  |   |       | 
|                                   |   | months   |  |   | months   |  |   | months   |  |   | months   |  |   | months   |  |   | months   |  |   | months   |  |   |       | 
|                                   |   | ended    |  |   | ended    |  |   | ended    |  |   | ended    |  |   | ended    |  |   | ended    |  |   | ended    |  |   |       | 
|                                   |   | December |  |   | December |  |   | December |  |   | December |  |   | December |  |   | December |  |   | December |  |   |       | 
|                                   |   | 31, 2010 |  |   | 31, 2011 |  |   | 31, 2012 |  |   | 31, 2013 |  |   | 31, 2014 |  |   | 31, 2015 |  |   | 31, 2016 |  |   | Total | 
|Social security premium            | $ | 98       |  | $ | 210      |  | $ | 310      |  | $ | 560      |  | $ | 971      |  | $ | 1,242    |  | $ | 1,161    |  | $ | 4,552 | 
|Interest due                       |   | 50       |  |   | 122      |  |   | 180      |  |   | 306      |  |   | 516      |  |   | 435      |  |   | 267      |  |   | 1,877 | 
|Deferment fee                      |   | 7        |  |   | 27       |  |   | 55       |  |   | 133      |  |   | 277      |  |   | 419      |  |   | 442      |  |   | 1,359 | 
|Enforcement
      procedures costs |   | 7        |  |   | 0        |  |   | 0        |  |   | 0        |  |   | 0        |  |   | 0        |  |   | 0        |  |   | 7     | 
|Total                              | $ | 163      |  | $ | 358      |  | $ | 546      |  | $ | 999      |  | $ | 1,764    |  | $ | 2,096    |  | $ | 1,870    |  | $ | 7,795 | 

12. INCOME TAXES

Corporate income tax in Poland is charged at 19% of the
assessable profit. Corporate income tax in the Czech Republic, Lithuania, Latvia
and Estonia is charged at 15%, 20%, 23% and 21% of the assessable profit
respectively. Members of the Group that are incorporated in Poland are subject
to Polish corporate income tax at the applicable tax rates on the taxable income
as reported in their Polish statutory accounts in accordance with the relevant
income tax laws applicable to foreign enterprises. Members of the Group that are
incorporated in the Czech Republic, Lithuania, Latvia and Estonia are subject to
Czech Republic, Lithuanian, Latvian and Estonian corporate income tax at the
applicable tax rates on the taxable income as reported in their the Czech
Republic, Lithuanian, Latvian and Estonian statutory accounts in accordance with
the relevant income tax laws applicable to foreign enterprises.

The following summarizes the provision for income taxes and a
summary of the significant components of the Groups deferred tax assets and
liabilities:

|                                            |   | December 31, |   |   | December 31, |  
|------------------------------------------- | - | ------------ | - | - | ------------ | -
|Corporate Income Tax:                       |   | 2009         |   |   | 2008         |  
|                                            |   |              |   |   | restated     |  
|Current                                     | $ | 0            |   | $ | (1,385       | )
|Deferred                                    |   | 468          |   |   | 568          |  
|                                            |   | 468          |   |   | (817         | )
|                                            |   |              |   |   |              |  
|Deferred tax assets (liabilities):          |   |              |   |   |              |  
|Nondeductible accruals and
      allowances | $ | 35           |   | $ | 26           |  
|Depreciation
      (Property and equipment) |   | 0            |   |   | (1,335       | )
|Loss and credit carryforwards               |   | 618          |   |   | 183          |  
|Deferred
      compensation                 |   | 404          |   |   | 318          |  
|Inventory valuation                         |   | 53           |   |   | 0            |  
|Other (net)                                 |   | 65           |   |   | 0            |  
|Valuation allowances                        |   | (416         | ) |   | 0            |  
|Net deferred tax
      asset (liability)    |   | 758          |   |   | (808         | )
|                                            |   |              |   |   |              |  
|Included in:                                |   |              |   |   |              |  
|Current assets                              | $ | 734          |   | $ | 527          |  
|Noncurrent
      assets                     |   | 24           |   |   | 0            |  
|Current liabilities                         |   | 0            |   |   | 0            |  
|Noncurrent
      liabilities                |   | 0            |   |   | 1,335        |  
|Net deferred tax asset (liability)          |   | 758          |   |   | (808         | )

F-17

---

A deferred tax liability is recognized primarily on our fixed
assets that has been already amortized for tax purposes but are still being
depreciated for accounting purposes.

A deferred tax asset is recognized primarily on deferred
compensation, and losses carried forward. Management is of the opinion that a
deferred tax asset is not fully recoverable and that the losses incurred in the
twelve months ended December 31, 2009 will not be fully utilized to offset
taxable income to be generated in future years as positive financial results are
expected in the next few fiscal years. As a result, management provided for a
deferred tax asset allowance amounting to $416 thousand. Management is therefore
of the opinion that deferred tax asset amounting to $758 thousand will be fully
utilized to offset taxable income to be generated in future years as positive
financial results are expected in the next few fiscal years.

A reconciliation of the expected income tax derived by the
application of the 34% U.S. corporate income tax rate to the Group's income
before income tax benefit is as follows:

|                                                                |   | December 31, |   |   | December 31, |  
|--------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                                |   | 2009         |   |   | 2008         |  
|                                                                |   |              |   |   | restated     |  
|Net income before income taxes                                  | $ | (4,519       | ) | $ | 2,592        |  
|Expected income tax charge at 34%                               |   | 1,536        |   |   | (881         | )
|Non deductible expenses                                         |   | (391         | ) |   | (360         | )
|Rate differential on foreign income invested
      indefinitely |   | ( 678        | ) |   | 424          |  
|Income tax charge recognized                                    |   | 468          |   |   | (817         | )

13. FINANCIAL INSTRUMENTS

At December 31, 2009 and December 31, 2008, the fair values of
cash and cash equivalents, receivables and accounts payable approximated
carrying values due to the short-term nature of these instruments. The fair
value of long-term debt approximated its carrying value because of the variable
rate interest rates of the debt.

As a result of the Groups credit facilities, the Group is
exposed to changes in interest rates and foreign currency exchange rates which
may adversely affect results of operations and financial condition. The Group
does not use derivative financial instruments to minimize the risks and or costs
associated with such risks.

14. LONG-TERM DEBT

Long-term debt consists of the following:

|                                                                                                                        |   | December 31, |  |   | December 31, | 
|----------------------------------------------------------------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
|                                                                                                                        |   | 2009         |  |   | 2008         | 
|                                                                                                                        |   |              |  |   |              | 
|Secured Notes
      due 2013, net of unamortized discount, in USD (BGŻ) with interest at
      LIBOR+2.5% p.a.          | $ | 3,758        |  | $ | 3,832        | 
|Secured Notes due 2012, net of
      unamortized discount, in USD (BWE) with interest at LIBOR+2.6% p.a.                |   | 361          |  |   | 101          | 
|Secured Notes
      due 2012, net of unamortized discount, in USD (BWE) with interest at
      LIBOR+2.6% p.a.          |   | 739          |  |   | 411          | 
|Secured Notes due 2013, net of
      unamortized discount, in PLN (BGŻ) with interest at WIBOR+1.5% p.a.                |   | 89           |  |   | 771          | 
|Secured Notes
      due 2012, net of unamortized discount, in PLN (BWE) with interest at
      WIBOR+3.0% p.a.          |   | 1,014        |  |   | 1,106        | 
|Secured Notes due 2011, net of
      unamortized discount, in PLN (Bank Śląski) with interest at
      WIBOR+2.0% p.a.* |   | 804          |  |   | 1,104        | 
|                                                                                                                        |   | 6,765        |  |   | 7,324        | 
|                                                                                                                        |   |              |  |   |              | 
|Less: current
      portion                                                                                             |   | 1,823        |  |   | 1,394        | 
|                                                                                                                        |   |              |  |   |              | 
|                                                                                                                        | $ | 4,942        |  | $ | 5,929        | 

F-18

---

All of our notes contain certain covenants, including, among
others, restrictions on liens and additional secured debt, and pay interest
semiannually. The weighted-average interest rate of our long-term debt was 4.56%
and 6.48% at December 31, 2009 and December 31, 2008, respectively. Long-term
debt maturities for each of the next five years are as follows:

|                                                                                                                  |   | 2010  |  |   | 2011  |  |   | 2012  |  |   | 2013  |  |   | Total | 
|----------------------------------------------------------------------------------------------------------------- | - | ----- |  | - | ----- |  | - | ----- |  | - | ----- |  | - | ----- | 
|Secured Notes due 2013,
      net of unamortized discount, in USD (BGŻ) with interest at
      LIBOR+2.5% p.a.    | $ | 372   |  | $ | 756   |  | $ | 1,044 |  | $ | 1,637 |  | $ | 3,809 | 
|Secured Notes due 2012, net of
      unamortized discount, in USD (BWE) with interest at LIBOR+2.6% p.a.          |   | 63    |  |   | 70    |  |   | 208   |  |   | 0     |  |   | 341   | 
|Secured Notes due 2012,
      net of unamortized discount, in USD (BWE) with interest at LIBOR+2.6% p.a.          |   | 16    |  |   | 17    |  |   | 51    |  |   | 0     |  |   | 84    | 
|Secured Notes due 2013, net of
      unamortized discount, in PLN (BGŻ) with interest at WIBOR+1.5% p.a.          |   | 131   |  |   | 147   |  |   | 164   |  |   | 282   |  |   | 725   | 
|Secured Notes due 2012,
      net of unamortized discount, in PLN (BWE) with interest at WIBOR+3.0% p.a.          |   | 176   |  |   | 193   |  |   | 579   |  |   | 0     |  |   | 948   | 
|Secured Notes due 2010, net of unamortized discount, in PLN (Bank
      Śląski) with interest at WIBOR+2.0% p.a.* |   | 518   |  |   | 310   |  |   | 0     |  |   | 0     |  |   | 828   | 
|Total                                                                                                             | $ | 1,275 |  | $ | 1,494 |  | $ | 2,046 |  | $ | 1,920 |  | $ | 6,735 | 

All loans are secured by the Companys assets.

LIBOR is the basis for variable interest rate for credits
denominated in USD defined as the London Inter Bank Offer Rate. WIBOR is the
basis for variable interest rate for credits denominated in PLN defined as the
Warsaw Inter Bank Offer Rate.

15. EMPLOYEE BENEFITS

Sunset Suits S.A. and Fashion Service Sp. z o. o. both
contribute to a pension scheme organized by the Polish government in respect of
their employees in Poland on a monthly basis and accrue for retirement benefits
that equal one monthly salary payable at the retirement of each employee who is
employed at that date. Bohemia, Sunset Suits Vilnius, Sunset Riga and OU
Posnania contribute to a pension scheme organized by the Czech, Lithuanian,
Latvian and Estonian government in respect of their employees employed in the
Czech Republic, Lithuania, Latvia and Estonia respectively, on a monthly basis
and accrue for retirement benefits that equal one monthly salary payable at the
retirement of each employee who is employed at that date. Other than the above,
neither Group member provides any other post-retirement or post-employment
benefits.

The Group incurred expenses relating to employee benefits
amounting to $964 thousand and $2,143 thousand for the year ended December 31,
2009 and December 31, 2008, respectively.

16. COMMITMENTS AND CONTINGENCIES

Contingent Liabilities

Members of the Group have been named as defendants in various
actions and proceedings, including actions brought by certain employees whose
employment has been terminated arising from the Groups ordinary business
activities. Although the amount of any liability that could arise with respect
to these actions cannot be accurately predicted, in our opinion, any such
liability will not have a material adverse effect on the Groups financial
position or results of operations.

Trouble Debt Restructuring

Predecessors or affiliates of the Group had defaulted on
payment on certain long term debt in the past. As a result of bank settlements,
part of the interest was suspended. If the bank settlements are breached, the
accrued interest might be claimed by financial institutions. Total interest
suspended amounted to $3,180 thousand at December 31, 2009 and it is not accrued
in the Groups financial statements. This suspended interest can be claimed by
the counterparty financial institutions should we fail to pay interest on the
existing bank notes in a timely manner. Management is of the opinion that the
risk of breaching the bank settlement agreement is low.

Operating Leases

In the normal course of business, the Group rents retail and
factory outlet stores space under operating lease agreements. The operating
lease agreements generally contain renewal options that may be exercised at the
applicable Group members discretion after the completion of the base rental
terms. Certain of the rental agreements provide for payment of occupancy costs. In addition, many of the rental agreements provide for
payment by us of a percentage of outlet net sales or at specified intervals,
which usually occur on an annual basis. Sales outlets are leased for initial
periods ranging from 5 to 10 years. As of December 31, 2009 there were lease
agreements that last from 3 months up to 10 years. The following table presents
the future minimum rental payments as of the date of the latest balance sheet
presented:

F-19

---

|                               |  |          |  |  |          |  |  |          |  |  |          |  |  |          |  |   |              | 
|------------------------------ |  | -------- |  |  | -------- |  |  | -------- |  |  | -------- |  |  | -------- |  | - | ------------ | 
|                               |  |          |  |  |          |  |  |          |  |  |          |  |  |          |  |   | Payments     | 
|                               |  | December |  |  | December |  |  | December |  |  | December |  |  | December |  |   | after        | 
|                               |  | 31,      |  |  | 31,      |  |  | 31,      |  |  | 31,      |  |  | 31,      |  |   | December 31, | 
|Twelve months ended            |  | 2010     |  |  | 2011     |  |  | 2012     |  |  | 2013     |  |  | 2014     |  |   | 2014         | 
|                               |  |          |  |  |          |  |  |          |  |  |          |  |  |          |  |   |              | 
|Future minimum rental payments |  | $ 5,535  |  |  | $ 4,597  |  |  | $ 3,009  |  |  | $ 2,126  |  |  | $ 1,176  |  | $ | 2,185        | 

The Group recognizes lease expense on a straight-line basis
over the term of the lease agreement. Contingent rent expense is recognized as
it is incurred. Total rent expense in continuing operations from operating lease
agreements (including occupancy costs) were $7,323thousand and $7,979 thousand
for the years ended December 31, 2009 and December 31, 2008, respectively.
Approximately 75% (in money terms) of lease agreements are denominated in
foreign currencies  U.S. dollars and Euro. These two foreign currencies are
commonly used in Poland in agreements for rentals of retail space.

Obligations under material contracts

On August 1, 2008, our subsidiary Sunset Suits S.A., entered
into a services agreement, with Ernst&Young Advisory Sp. z o. o.
(Ernst&Young). Under this agreement Ernst&Young acts as the advisor in
the process of re-design and implementation of Sunset Suits Holdings Inc.,
Sunset Suits S.A. and Fashion Service Sp. z o. o. internal control systems, in
order to make them compliant with Section 404 of Sarbanes Oxley Act of 2002. The
contract fee is based upon total working hours. Management estimates that the
overall budget for this arrangement will not exceed $150 thousand. The majority
of the work will be performed in 2009 and 2010. As of December 31, 2009
approximatelly 60% of the total estimated cost have been incurred.

17. SHAREHOLDERS EQUITY

Common Stock

The Board of Directors has authorized 12,499,645 of ordinary
shares at $0.001 PAR value. At May 21, 2008 Sunset Suits Holdings acquired
6,121,250 ordinary shares of Sunset Suits in a share exchange transaction. The
number of shares of the Company issued prior to the reverse takeover has been
restated to reflect the reverse takeover transaction. As a result of the reverse
takeover transaction a total number of 1,250,178 ordinary shares were
recapitalized. Following the acquisition of Sunset Suits, Sunset Suits Holdings
issued 5,128,217 ordinary shares in a private placement transaction. The
computation of loss per share was also affected by this transaction for all
years presented.

Reverse takeover transaction

Immediately following the acquisition of Sunset Suits S.A. in
2008, we completed a private placement in which we sold 5,128,217 new shares of
our common stock to 71accredited investors. As a result of this private
placement, we raised approximately $16,000 thousand in gross proceeds, which
left us with $11,225 thousand in net proceeds after the deduction of offering
expenses in the amount of approximately $4,775 thousand. As part of the private
placement, Mr. Kranik placed 1,514,006 of his shares is escrow to be returned to
him if a certain earnings goal was met in 2008 and to be given to the private
placement investors if they were not. The goal was not met and the shares were
transferred to the investors in June 2009. Following the distribution to the
investors Mr. Kranik owned 4,495,161 shares of our common stock as of December
31, 2009 which was approximately 36% of the shares outstanding.

F-20

---

International entities acquisition

Included in total stockholders equity are the net assets of
Bohemia s.r.o., UAB Sunset Vilnius, SIA Sunset Riga and OU Posnania amounting to
$698 thousand as of December 31, 2008. This capital contribution is a result of
acquisition of Bohemia s.r.o., UAB Sunset Vilnius, SIA Sunset Riga and OU
Posnania entities that had been under common control with the Company as it was
wholly owned by Mr. Mirosław Kranik the Company's CEO and major
shareholder. According to the provisions of Appendix D of FAS 141(R) paragraphs
D8D14 (now within FASB ASC 805-50) the transfer of net assets or exchanges of
shares between entities under common control are accounted for in consolidation
similar to a pooling of interests method.

18. EARNINGS PER SHARE

During the twelve months ended December 31, 2009 and the twelve
months ended December 31, 2008, the Group did not have any potentially dilutive
instruments outstanding.

19. SHIPPING AND HANDLING COST

Summarized below are shipping and handling costs related to
delivery of finished goods included in selling expenses:

|                           |   | December 31, |  |   | December 31, | 
|-------------------------- | - | ------------ |  | - | ------------ | 
|                           |   | 2009         |  |   | 2008         | 
|Shipping and handling cost | $ | 309          |  | $ | 273          | 
|                           | $ | 309          |  | $ | 273          | 

20. ADVERTISING EXPENSES

Summarized below are advertising and marketing expenses
included in selling expenses:

|                                   |   | December 31, |  |   | December 31, | 
|---------------------------------- | - | ------------ |  | - | ------------ | 
|                                   |   | 2009         |  |   | 2008         | 
|                                   |   |              |  |   | restated     | 
|Advertising and marketing expenses | $ | 479          |  | $ | 388          | 
|                                   | $ | 479          |  | $ | 388          | 

The Company expenses all advertising and marketing costs in the
period the campaign relate to.

21. BUSINESS SEGMENT GEOGRAPHIC AREA
INFORMATION

Business segment

Management identifies operating segments based on, among other
things, differences in products sold and the way the Groups management
organizes the components of the Groups business for purposes of allocating
resources and assessing performance. The Groups operations are comprised of two
reportable segments: production and retail. Segment revenues are generated from
manufacturing and the sale of suits and accessories through wholesale channels
and in the Groups own retail locations. The production segments include design,
manufacture and wholesale operations with third party departments and other
foreign stores. The retail segment includes operations by the Groups stores.
The Group defines segment profit as operating income before net interest
expense, goodwill impairment charges, equity in earnings of unconsolidated
affiliates and income taxes. Summarized below are the Groups revenues, income
and total assets by reportable segments.

F-21

---



|                                                       |   |             |   |   |         |   |   | Eliminations   |   |   |              |  
|------------------------------------------------------ | - | ----------- | - | - | ------- | - | - | -------------- | - | - | ------------ | -
|                                                       |   | Production  |   |   | Retail  |   |   | & other        |   |   | Consolidated |  
|For the year ended
      December 31, 2009:            |   |             |   |   |         |   |   |                |   |   |              |  
|Revenue                                                | $ | 10,424      |   | $ | 26,586  |   | $ | (9,695         | ) | $ | 27,315       |  
|from
      Continuing Operations                       |   | 0           |   |   | 26,586  |   |   | 0              |   |   | 26,586       |  
|from Discontinued
      Operations                     |   | 10,424      |   |   | 0       |   |   | ( 9,695        | ) |   | 729          |  
|Gross profit                                           |   | 1,209       |   |   | 15,267  |   |   | 26             |   |   | 16,502       |  
|from Continuing Operations                             |   | 0           |   |   | 15,267  |   |   | 0              |   |   | 15,267       |  
|from
      Discontinued Operations                     |   | 1,209       |   |   | 0       |   |   | 26             |   |   | 1,235        |  
|Operating expense                                      |   | 1,605       |   |   | 18,538  |   |   | 0              |   |   | 20,143       |  
|from
      Continuing Operations                       |   | 0           |   |   | 18,538  |   |   | 0              |   |   | 18,538       |  
|from Discontinued
      Operations                     |   | 1,605       |   |   | 0       |   |   | 0              |   |   | 1,605        |  
|Operating income (loss)                                |   | (395        | ) |   | (3,271  | ) |   | 26             |   |   | (3,640       | )
|from Continuing Operations                             |   | 0           |   |   | ( 3,271 | ) |   | 0              |   |   | ( 3,271      | )
|from
      Discontinued Operations                     |   | (
      395 | ) |   | 0       |   |   | 26             |   |   | (
      370  | )
|                                                       |   |             |   |   |         |   |   |                |   |   |              |  
|                                                       |   |             |   |   |         |   |   |                |   |   |              |  
|For the year ended December 31, 2008
      (restated): |   |             |   |   |         |   |   |                |   |   |              |  
|Revenue                                                | $ | 21,812      |   | $ | 38,577  |   | $ | (19,151        | ) | $ | 41,238       |  
|from Continuing Operations                             |   | 0           |   |   | 38,577  |   |   | 0              |   |   | 38,577       |  
|from
      Discontinued Operations                     |   | 21,812      |   |   | 0       |   |   | (
      19,151 | ) |   | 2,661        |  
|Gross profit                                           |   | 4,439       |   |   | 21,634  |   |   | (48            | ) | $ | 26,025       |  
|from
      Continuing Operations                       |   | 0           |   |   | 21,634  |   |   | 0              |   |   | 21,634       |  
|from Discontinued
      Operations                     |   | 4,439       |   |   | 0       |   |   | ( 48           | ) |   | 4,391        |  
|Operating expense                                      |   | 1,941       |   |   | 19,970  |   |   | 0              |   |   | 21,910       |  
|from Continuing Operations                             |   | 0           |   |   | 19,970  |   |   | 0              |   |   | 19,970       |  
|from
      Discontinued Operations                     |   | 1,941       |   |   | 0       |   |   | 0              |   |   | 1,941        |  
|Operating income (loss)                                |   | 2,498       |   |   | 1,665   |   |   | (48            | ) |   | 4,115        |  
|from
      Continuing Operations                       |   | 0           |   |   | 1,665   |   |   | 0              |   |   | 1,665        |  
|from Discontinued Operations                           |   | 2,498       |   |   | 0       |   |   | ( 48           | ) |   | 2,450        |  

F-22

---

The Group's segment total assets are analyzed as follows:

|                                                     |   | December 31, |   |   | December 31, |  
|---------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                     |   | 2009         |   |   | 2008         |  
|                                                     |   |              |   |   | restated     |  
|Production                                           | $ | 16,009       |   | $ | 15,375       |  
|Continuing Operations                                |   | 0            |   |   | 15,375       |  
|Discontinued Operations
      (Assets held for sale) |   | 16,009       |   |   | 0            |  
|Retail                                               |   | 20,055       |   |   | 17,907       |  
|Elimination&Other                                    |   | (10,418      | ) |   | (8,110       | )
|Total
      assets                                   | $ | 25,646       |   | $ | 25,172       |  

Geographical Information

The Group's sales by geographic destination are analyzed as
follows:

|                |   | Twelve Months Ended |  |   | Twelve Months Ended | 
|--------------- | - | ------------------- |  | - | ------------------- | 
|                |   | December 31,        |  |   | December 31,        | 
|                |   | 2009                |  |   | 2008                | 
|                |   |                     |  |   | restated            | 
|Poland          | $ | 22,841              |  | $ | 32,225              | 
|                |   |                     |  |   |                     | 
|Other countries |   | 3,745               |  |   | 6,352               | 
|Czech Republic  |   | 1,946               |  |   | 3,240               | 
|Latvia          |   | 588                 |  |   | 1,072               | 
|Lithuania       |   | 1,112               |  |   | 1,751               | 
|Estonia         |   | 99                  |  |   | 289                 | 
|                |   |                     |  |   |                     | 
|                | $ | 26,586              |  | $ | 38,577              | 

The Group's segment total assets by geographic location are
analyzed as follows:

|                                                     |   | December 31, |   |   | December 31, |  
|---------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                     |   | 2009         |   |   | 2008         |  
|                                                     |   |              |   |   | restated     |  
|Poland                                               | $ | 33,224       |   | $ | 29,399       |  
|Continuing Operations                                |   | 17,215       |   |   | 29,399       |  
|Discontinued Operations
      (Assets held for sale) |   | 16,009       |   |   | 0            |  
|Other countries                                      |   | 2,840        |   |   | 3,883        |  
|Czech Republic                                       |   | 1,240        |   |   | 2,103        |  
|Latvia                                               |   | 593          |   |   | 563          |  
|Lithuania                                            |   | 942          |   |   | 1,107        |  
|Estonia                                              |   | 65           |   |   | 111          |  
|Elimination&Other                                    |   | (10,418      | ) |   | (8,110       | )
|Total
      assets                                   | $ | 25,646       |   | $ | 25,172       |  



|December 31, | December 31,
|------------ | ------------

F-23

---



|                                                     |   | 2009   |  |   | 2008     | 
|---------------------------------------------------- | - | ------ |  | - | -------- | 
|                                                     |   |        |  |   | restated | 
|Poland                                               | $ | 11,083 |  | $ | 10,258   | 
|Continuing Operations                                |   | 3,389  |  |   | 10,258   | 
|Discontinued Operations
      (Assets held for sale) |   | 7,694  |  |   | 0        | 
|Other  European Countries                           |   | 378    |  |   | 599      | 
|Czech Republic                                       |   | 260    |  |   | 539      | 
|Latvia                                               |   | 73     |  |   | 24       | 
|Lithuania                                            |   | 45     |  |   | 36       | 
|Total
      assets                                   | $ | 11,461 |  | $ | 10,857   | 

F-24

---

22. DISCONTINUED OPERATIONS

Statement of Operations

Management approved a plan to exit production in Poland in the
fourth quarter of 2009. For some time, the cost of maintaining of production
facility in Krzyżanowo has been increasing due to the diseconomies of scale.
As a consequence on March 26, 2010, Sunset Suits S.A. completed the sale of its
100% equity interest in Fashion Service to Sp. z o. o. to XCRITO
Ltd., headquartered in Limassol, Cyprus. The sale was part of a restructuring
plan initiated in the fourth quarter of fiscal year 2009 to improve the
Companys operating margin. The Group decided to increase sourcing its
merchandise through a supply chain from the Far East instead of own production.
Consequently Management has approved the plan to sell Fashion Service. With the
recent exit, the Company will no longer have continuing involvement with
production in Poland. However a small service outlet will be maintained.

As a result of selling the production operations at the
Krzyzanowo facility, the operations of the production segment have now been
classified as discontinued operations. In accordance with FAS 144 (now ASC
360-10), Accounting for the Impairment or Disposal of Long-Lived Assets, the
accompanying Consolidated Financial Statements and notes have been restated to
reflect the results of these operations as discontinued operations.

The Group currently estimates that the pre-tax charges related
to exit activities at Krzyżanowo facility will be approximately nil.

In accordance with FASB Statement No. 144 (now ASC 360-10),
Accounting for the Impairment or Disposal of Long-Lived Assets, the production
facility has been classified as discontinued operations, whereby its operating
results are presented on the Loss from Discontinued Operations, Net of Tax line
of the Consolidated Statements of Operations and all prior periods have been
restated.

Operating results of the discontinued production operations
were as follows:

|                                                   |   | December 31, |   |   | December 31, |  
|-------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                   |   | 2009         |   |   | 2008         |  
|                                                   |   |              |   |   |              |  
|Net sales                                          | $ | 729          |   | $ | 2,661        |  
|Total cost of goods sold and operating expenses    |   | 1,099        |   |   | 210          |  
|Operating income(loss)                             |   | (370         | ) |   | 2,450        |  
|                                                   |   |              |   |   |              |  
|Gain (loss) on disposal of fixed
      assets, net |   | 38           |   |   | (68          | )
|                                                   |   |              |   |   |              |  
|Interest expense                                   |   | 859          |   |   | 342          |  
|Gain (loss) on transaction in foreign currency     |   | 148          |   |   | (1,036       | )
|Loss before income taxes                           |   | (1,042       | ) |   | 1,005        |  
|Income tax provision                               |   | 82           |   |   | (290         | )
|                                                   |   |              |   |   |              |  
|Net income
      (loss)                            | $ | (961         | ) | $ | 714          |  

Assets Held for Sale

As a result of the production exit plan described in note 23
above, at December 31, 2009, factory assets totaling $11,348 thousand were
classified as held for sale, including $7,694 for a long lived assets and $3,654
thousand for current asset. At December 31, 2009, liabilities related to this
exit plan totaled $28,908 thousand, including $3,085 of accounts payable, $12,497 of tax payables and $1,978 thousand of other payables
of the factory asset held for sale. The Company subsequently sold the factory
assets and liabilities held for sale on March 26, 2010 for $16 thousand cash.

F-25

---

Balance sheet of discontinued operations was as follows:

|                                                                                     |   | December 31, |  
|------------------------------------------------------------------------------------ | - | ------------ | -
|                                                                                     |   | 2009         |  
|ASSETS                                                                               |   |              |  
|Current assets                                                                       |   |              |  
|Cash                                                                                 | $ | 10           |  
|Accounts receivable                                                                  |   | 915          |  
|Inventories                                                                          |   | 2,400        |  
|Other current assets                                                                 |   | 329          |  
|Non current assets                                                                   |   |              |  
|Property, plant and equipment, net                                                   |   | 7,694        |  
|TOTAL ASSET HELD FOR SALE                                                            | $ | 11,348       |  
|                                                                                     |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                  |   |              |  
|Current liabilities                                                                  |   |              |  
|Current portion of finance lease
      payable                                       |   | 36           |  
|Accounts payable                                                                     |   | 3,085        |  
|Income and other taxes payable                                                       |   | 6,178        |  
|Accrued employee compensation and benefits                                           |   | 509          |  
|Non current liabilities                                                              |   |              |  
|Provisions                                                                           |   | 69           |  
|Deferred taxes                                                                       |   | 1,299        |  
|Long-term tax payable                                                                |   | 6,319        |  
|Finance lease payable                                                                |   | 65           |  
|Total liabilities associated with assets held for
      sale                         | $ | 17,560       |  
|                                                                                     |   |              |  
|Stockholders equity:                                                                 |   |              |  
|Retained earnings (deficit)                                                          |   | ( 6,212      | )
|                                                                                     |   |              |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
      ASSOCIATED WITH ASSETS HELD FOR SALE | $ | 11,348       |  

F-26

---

At December 31, 2009, all property plant and equipment
amounting to $7,694, were pledged to banks pursuant to loan agreements.

At December 31, 2009, all inventories amounting to $2,400
thousand and were pledged to banks pursuant to loan agreements.

$12,628 thousand (PLN 35,993 thousand)) of historical costs at
December 31, 2009, are presented as described in Property, Plant, Equipment
and Depreciation and Amortization Note included in the Buildings, leasehold
improvements and machinery and equipment costs shown above.

23. RELATED PARTY TRANSACTIONS

The Group reported related party transactions with Mr. Miroslaw
Kranik our major shareholder and Chief Executive Officer. The Group also
reported transactions with Donald Chodak  our Chairman of the Board of
Directors.

Following tables disclose the Group's related party
transactions:

|Receivables from related party |   | Twelve Months Ended |  |   | Twelve Months Ended | 
|------------------------------ | - | ------------------- |  | - | ------------------- | 
|                               |   | December 31,        |  |   | December 31,        | 
|                               |   | 2009                |  |   | 2008                | 
|                               |   |                     |  |   |                     | 
|Mirosław Kranik                | $ | 815                 |  | $ | 1,419               | 
|                               |   |                     |  |   |                     | 
|Total                          | $ | 815                 |  | $ | 1,419               | 

The presented above receivables from Mr. Miroslaw Kranik is
mainly resulting from prepayments for retail outlets construction on behalf of
Mr. Kranik.

|Expenditures to related party |   | Twelve Months Ended |  |   | Twelve Months Ended | 
|----------------------------- | - | ------------------- |  | - | ------------------- | 
|                              |   | December 31,        |  |   | December 31,        | 
|                              |   | 2009                |  |   | 2008                | 
|                              |   |                     |  |   |                     | 
|Miroslaw Kranik, including:   | $ | 1,871               |  | $ | 5,956               | 
|Inventories                   |   | 0                   |  |   | 694                 | 
|Property and equipment        |   | 994                 |  |   | 2,211               | 
|Materials & services          |   | 877                 |  |   | 3,051               | 
|                              |   |                     |  |   |                     | 
|Donald Chodak                 |   | 120                 |  |   | 0                   | 
|                              |   |                     |  |   |                     | 
|Total                         | $ | 1,991               |  | $ | 5,956               | 

The presented above expenditures to related party results from
purchases of services and furniture and fixtures from Mirosław Kraniks Mens Fashion sole proprietorship.

In the year 2008 the Group incurred expenditures as a result of
common share issue amounting to $360 thousand to Mr. Donald Chodak, our Chairman
of the Board of Directors. These expenditures reduced the net proceeds from
private placement and were fully settled as of December 31, 2008. These
expenditures were not any kind of renumeration for Mr. Chodak. They were
expensed based on the agreement for equity issue.

F-27

---

During the year 2009 Mr. Chodak purchased 250,000 of common
shares of Sunset Suits Holdings, Inc. from Mr. Kranik, which constituted 2% of
our common shares. This purchase of shares was not any kind of renumeration for
Mr. Chodak.

|Payables to related party |   | Twelve Months Ended |  |   | Twelve Months Ended | 
|------------------------- | - | ------------------- |  | - | ------------------- | 
|                          |   | December 31,        |  |   | December 31,        | 
|                          |   | 2009                |  |   | 2008                | 
|                          |   |                     |  |   |                     | 
|Miroslaw Kranik           | $ | 0                   |  | $ | 596                 | 
|                          |   |                     |  |   |                     | 
|Total                     | $ | 0                   |  | $ | 596                 | 

The presented above payables resulted from the purchase of
Mirosław Kraniks Mens Fashion sole proprietorship.

As a result of the reverse merger transaction described in the
Note 15, Mr. Mirosław Kranik acquired 6,070,340 of common stock of
Sunset Suits Holdings, Inc.. On November 17, 2008 Mr. Mirosław Kranik
acquired additional 50,000 of common stock of Sunset Suits Holdings, Inc.. On
January 23, 2009 Mr. Kranik acquired 102,600 common shares of Sunset Suits
Holdings Inc. On February 24, 2009 Mr. Kranik sold 250,000 common shares of
Sunset Suits Holdings Inc. and in August 2009 Mr. Kranik transferred 1,477,779
common shares to other shareholders pursuant to Make Good Agreement as described
in note 17 Shareholders Equity. At December 31, 2009 Mr. Mirosław Kranik owed 35.96% of the share equity of Sunset Suits Holdings, Inc.

24. SUBSEQUENT EVENTS

Management has evaluated, for potential recognition and
disclosure, events subsequent to the date of the balance sheet through the date
the financial statements were available to be issued.

On March 26, 2010 Sunset Suits S.A. sold its 100% equity
interest in Fashion Service to Sp. z o. o. to XCRITO Ltd. with headquarters in
Limassol, Cyprus. The purchase consideration for this transaction was $16
thousand in cash payable within 30 days after the transaction date. According to
the sales purchase agreement with XCRITO Ltd., the purchaser will takeover the
whole business of Fashion Service Sp. z o. o., including all assets and all
liabilities, except for liabilities resulting from long term debts. Fashion
Service long term debt will be transferred to Sunset Suits S.A..

Poznań, March 31, 2010

Mirosław Kranik Chief Executive Officer Sunset Suits
Holdings, Inc.

F-28

---

EXHIBIT INDEX

|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         | Share Exchange Agreement, dated May 8, 2008, among the
      Registrant, Sunset Suits S.A. and its shareholders. [incorporated by
      reference to Exhibit 2.1 to the registrants registration statement on
      Form S-1 filed on July 3, 2008]                                                                                                                                                           
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|3.1         | Articles of Incorporation of the Registrant, as amended
      to date. [incorporated by reference to Exhibit 3.1 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                           
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|3.2         | Amended and Restated Bylaws of the Registrant, adopted
      June 9, 2008. [incorporated by reference to Exhibit 3.2 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|4.1         | Shareholder Rights Plan by the Registrant, dated June 9,
      2008. [incorporated by reference to Exhibit 4.1 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                             
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.1        | Form of Securities Purchase Agreement, dated May 21,
      2008. [incorporated by reference to Exhibit 10.1 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                                
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.2        | Make Good Escrow Agreement, dated May 21, 2008, by and
      among the Registrant, Mirosław Kranik, Wentworth Securities,
      Inc., Halter Financial Group, L.P. and Securities Transfer Corporation.
      [incorporated by reference to Exhibit 10.2 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                   
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.3        | Form of Escrow Agreement, dated May 21, 2008.
      [incorporated by reference to Exhibit 10.3 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                                             
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.4        | Stock Purchase Agreement, dated as of May 21, 2008, among
      Mirosław Kranik, Ewelina Ligocka-Kranik and the Registrant.
      [incorporated by reference to Exhibit 10.4 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                               
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.5        | Transfer Agreement, dated February 3, 2007, between
      Sunset Suits Men's FashionModa Męska and Sunset Suits S.A. (English
      Translation) [incorporated by reference to Exhibit 10.5 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]                                                                                                                               
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.6        | Assumption Agreement, dated February 8, 2007, between ING
      Bank Slaski S.A. and Sunset Suits S.A. (English Translation) [incorporated
      by reference to Exhibit 10.6 to the registrants registration statement on
      Form S-1 filed on July 3, 2008]                                                                                                                                              
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.7        | Assumption Agreement, dated May 15, 2007, between Bank
      Gospodarki Zywnosciowej S.A. and Sunset Suits S.A. (English Translation)
      [incorporated by reference to Exhibit 10.7 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                     
|            |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.8        | Preferential Investment Loan Agreement (Annex 2), dated
      January 31, 2006, between Sunset Suits Men's FashionModa Męska and Bank
      Wspolpracy Europejskiej (BWE), as amended and assumed by operation of law by Fashion Service Sp. z.o.o. (English
      Translation) [incorporated by reference to Exhibit 10.8 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]

---



|Exhibit
      No. | Description                                                                                                                                                                                                                                                                                                                                                        
|----------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9              | Investment Loan Agreement (Annex 3), dated January 31,
      2006, between Sunset Suits Men's FashionModa Męska and BWE, as amended
      and assumed by operation of law by Fashion Service Sp. z.o.o. (English
      Translation) [incorporated by reference to Exhibit 10.9 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.10             | Loan Agreement (Annex 3), dated January 31, 2006, between
      Men's FashionModa Męska and BWE, as amended and assumed by operation of
      law by Fashion Service Sp. z.o.o. (English Translation) [incorporated by
      reference to Exhibit 10.10 to the registrants registration statement on
      Form S-1 filed on July 3, 2008]                       
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.11             | Commercial Cooperation Agreement, dated November 15,
      2006, between Sunset Suits S.A. and S unset Suits Men's FashionModa
      Męska. (English Translation) [incorporated by reference to Exhibit 10.11
      to the registrants registration statement on Form S-1 filed on July 3,
      2008]                                                           
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.12             | Agreement for Regular Business Cooperation, dated April
      2, 2008, between Fashion Service Sp. z.o.o. and Sunset Suits S.A. (English
      Translation) [incorporated by reference to Exhibit 10.12 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]                                                                        
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.13             | Cooperative Services Agreement, dated December 24, 2007,
      between Halter Financial Group, L.P. and Sunset Suits S.A. [incorporated
      by reference to Exhibit 10.1. to the registrants registration statement
      on Form S-1 filed on July 3, 2008]                                                                                                    
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.14             | Fist Amended Cooperative Services Agreement, dated
      January 24, 2008, between Halter Financial Group, L.P. and Sunset Suits
      S.A. [incorporated by reference to Exhibit 10.14 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                        
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.15             | Lease Agreement, January 9, 2008, between Sunset Suits
      S.A. and Fashion Service Sp. z o.o. (English Translation) [incorporated by
      reference to Exhibit 10.15 to the registrants registration statement on
      Form S-1 filed on July 3, 2008]                                                                                                       
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.16             | Sublease Agreement, dated September 6, 2006, between
      Sunset Suits and Sunset Suits Men's FashionModa Męska. (English
      Translation) [incorporated by reference to Exhibit 10.16 to the
      registrants registration statement on Form S-1 filed on July 3, 2008]                                                                                     
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.17             | Agreement for taking over a debt and accession into a
      loan debt dated December 23, 2008, among Bank Wspolpracy Europejskiej
      Spolka Akryjna, Fashion Service s.p. z.o.o. and Sunset Suits S.A.
      [incorporated by reference to Exhibit 10.17 to the registrants amended
      registration statement on Form S-1 filed on May 14, 2009]            
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.18             | Business Premises Lease Agreement, dated January 27, 2009
      between Przedsiebiorstwo Odziezowe Mikon Spolka Akcyjna w likwidacji and
      Fashion Service s.p. z.o.o. [incorporated by reference to Exhibit 10.18 to
      the registrants amended registration statement on Form S-1 filed on May
      14, 2009]                                         
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.19             | Annex No. 4 to the Restructuring Agreement dated February
      2, 2007, dated March 31, 2009 among ING Bank Slaski Spolka Akcyjna,
      Mirosław Kranik and Fashion Service s.p. z.o.o. [incorporated by
      reference to Exhibit 10.19 to the registrants amended registration
      statement on Form S-1 filed on May 14, 2009]                            
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.20             | Contract for the Provision of Services dated November 3,
      2008, between Sunset Suits S.A. and LST s.p. z.o.o. (English translation)
      [incorporated by reference to Exhibit 10.20 to the registrants amended
      registration statement on Form S-1 filed on July 10, 2009]                                                                            
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.21             | Advisory Services Agreement, dated August 1, 2008,
      between Sunset Suits S.A. and Ernst & Young (English translation)
      [incorporated by reference to Exhibit 10.21 to the registrants amended
      registration statement on Form S-1 filed on July 10, 2009]                                                                                          
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.22             | Employment Agreement dated October 1, 2008 between Sunset
      Suits S.A. and Eugeniusz Roszak (English translation) [incorporated by
      reference to Exhibit 10.22 to the registrants amended registration
      statement on Form S-1 filed on July 10, 2009]                                                                                               
|                  |                                                                                                                                                                                                                                                                                                                                                                    
|10.23             | Employment Agreement dated February 1, 2008 between
      Fashion Service Sp. z o.o. and Miroslaw Kranik (English translation)
      [incorporated by reference to Exhibit 10.23 to the registrants amended
      registration statement on Form S-1
      filed on July 10, 2009]                                                                                

---



|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                                              
|----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24       | Agreement on the Deferment of
      Social Security Obligations, dated June 10, 2009, among the Social
      Security Agency II Branch in Poznań, Men's Fashion and Fashion Service
      Sp. z.o.o. (English Translation) [incorporated by reference to Exhibit
      10.24 to the registrants amended registration statement on Form S-1 filed
      on July 10, 2009]
|            |                                                                                                                                                                                                                                                                                                                                                                          
|10.25       | Agreement on the Deferment of
      Social Security Obligations, dated June 10, 2009, between the Social
      Security Agency II Branch in Poznań and Fashion Service Sp. z.o.o.
      (English translation) [incorporated by reference to Exhibit 10.25 to the
      registrants amended registration statement on Form S-1 filed on July 10,
      2009]             
|            |                                                                                                                                                                                                                                                                                                                                                                          
|10.26       | Agreement on the Deferment of
      Social Security Obligations, dated June 10, 2009, between the Social
      Security Agency II Branch in Poznań and Fashion Service Sp. z.o.o.
      (English translation) [incorporated by reference to Exhibit 10.26 to the
      registrants amended registration statement on Form S-1 filed on July 10,
      2009]             
|            |                                                                                                                                                                                                                                                                                                                                                                          
|10.27       | Lease Agreement, dated June 22,
      2009, between Stomil-Poznan S.A. and Sunset Suits S.A. (English
      Translation) [incorporated by reference to Exhibit 10.27 to the
      registrants amended registration statement on Form S-1 filed on July 10,
      2009]                                                                                                  
|            |                                                                                                                                                                                                                                                                                                                                                                          
|14          | Code of Ethics, adopted June 9,
      2008. [incorporated by reference to Exhibit 14 to the registrants
      registration statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                 
|            |                                                                                                                                                                                                                                                                                                                                                                          
|21          | Subsidiaries of the Registrant.
      [incorporated by reference to Exhibit 21 to the registrants registration
      statement on Form S-1 filed on July 3, 2008]                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                          
|31.1        | Certifications of Chief
      Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002. *                                                                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                          
|31.2        | Certifications of Chief
      Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002. *                                                                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                          
|32.1        | Certification of Chief
      Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002. *                                                                                                                                                                                                                                                        
|            |                                                                                                                                                                                                                                                                                                                                                                          
|32.2        | Certification of Chief
      Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002. *                                                                                                                                                                                                                                                        

*Filed herewith.

---