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

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2002

                                       or

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

                For the transition period from ______ to _______

                         Commission File Number: 0-26430

                              TARRANT APPAREL GROUP
             (Exact name of registrant as specified in its charter)

           California                                         95-4181026
  (State or other jurisdiction                             (I.R.S. Employer
of incorporation or organization)                       Identification Number)

                         3151 East Washington Boulevard
                          Los Angeles, California 90023
               (Address of principal executive offices) (Zip code)

       Registrant's telephone number, including area code: (323) 780-8250

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

                                      None

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

                                  Common Stock

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

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

         Indicate by check mark whether the registrant is  an accelerated  filer
(as defined in Rule 12b-2 of the Act).  Yes [_]  No [X]

         As of June 28,  2002,  the  aggregate  market value of the Common Stock
held by  non-affiliates  of the Registrant was  approximately  $38,126,931 based
upon the closing price of the Common Stock on that date.

         Number of shares of Common Stock of the  Registrant  outstanding  as of
March 15, 2003: 15,846,315.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the  Registrant's  definitive  Proxy  Statement to be filed
with the  Securities  and  Exchange  Commission  pursuant to  Regulation  14A in
connection with the 2003 Annual Meeting are  incorporated by reference into Part
III of this Report.  Such Proxy  Statement will be filed with the Securities and
Exchange Commission not later than April 30, 2003.



<PAGE>


                                     PART I

            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

         This  2002  Annual  Report  on  Form  10-K  contains  statements  which
constitute  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.  Those  statements  include  statements  regarding our
intent, belief or current expectations. Prospective investors are cautioned that
any such forward-looking statements are not guarantees of future performance and
involve risks and  uncertainties,  and that actual results may differ materially
from  those  projected  in  the  forward-looking   statements.  Such  risks  and
uncertainties  include,  among other things,  our ability to profitably manage a
vertically integrated sourcing and distribution business, the financial strength
of our  major  customers,  the  continued  acceptance  of our  existing  and new
products by our existing and new  customers,  dependence on key  customers,  the
risks of foreign manufacturing,  competitive and economic factors in the textile
and apparel markets,  the  availability of raw materials,  the ability to manage
growth,  weather-related delays,  dependence on key personnel,  general economic
conditions, China's entry into WTO, global manufacturing costs and restrictions,
and other  risks and  uncertainties  that may be detailed  herein.  See "Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations -- Factors That May Affect Future Results."

ITEM 1.  BUSINESS

GENERAL

         Tarrant  Apparel  Group is a leading  provider of private  label casual
apparel,  serving specialty retail, mass merchandise and department store chains
and  major  international  brands  located  primarily  in the  United  States by
designing,  merchandising,  contracting for the  manufacture  of,  manufacturing
directly  and selling  casual,  moderately-  priced  apparel for women,  men and
children.  Since 1988, when we began designing and supplying private label denim
jeans to a single  specialty retail store chain, we have  successfully  expanded
our product  lines and customer  base to service over 25 customers  during 2002.
Since 1999,  we have  transformed  Tarrant  from  sourcing  apparel  solely from
contract  manufacturers  in the Far East to also being a  vertically  integrated
manufacturer in Mexico, where we operate cutting,  sewing, washing and finishing
facilities. Our current products are manufactured in a variety of woven and knit
fabrications and include jeans wear, casual pants,  t-shirts,  shorts,  blouses,
shirts and other tops, dresses and jackets. See " --Products and --Customers."

         We achieved a compound annual growth rate in net sales of approximately
19% from $205  million in 1995 to $395 million in 1999.  In 2000,  our net sales
remained  flat. In 2001,  our net sales  decreased by 16.4% to $330 million.  In
2002, our net sales increased by 5.2% to $347 million as compared with 2001, but
this growth included $77 million in net sales of United Apparel  Ventures,  LLC,
an entity in which we have a 50.1% ownership  interest and  consolidate  100% of
its revenues. See  "--Acquisitions-General."  In 2001 and 2002, we experienced a
net loss of $2.9  million  and $1.2  million,  respectively,  before  cumulative
effect of accounting  change,  and $2.9 million and $6.1 million,  respectively,
after  cumulative  effect  of  accounting  change.  See  "Item  7.  Management's
Discussion and Analysis of Financial Condition of Results of Operations."

         At inception, we relied primarily on independent contract manufacturers
located primarily in the Far East.  Commencing in the third quarter of 1997, and
taking  advantage  of the North  American  Free Trade  Agreement,  or NAFTA,  we
substantially  expanded our use of  independent  cutting,  sewing and  finishing
contractors  in Mexico,  primarily for basic  garments.  Commencing in 1999, and
concluding in December 2002 with the purchase of a denim and twill manufacturing
plant in Tlaxacala, Mexico,


                                       2
<PAGE>


we  engaged  in  an  ambitious  program  to  develop  a  vertically   integrated
manufacturing  operation in Mexico while  maintaining our sourcing  operation in
the Far East.  We believe  that the dual  strategy  of  maintaining  independent
contract manufacturers in the Far East and operating manufacturing facilities in
Mexico  can best serve the  different  needs of our  customers  and enable us to
capitalize on advantages  offered by both markets.  We believe this  diversified
approach  also helps to mitigate  the risks of doing  business  abroad,  such as
transportation   delays,   economic   and   political   instability,    currency
fluctuations,  restrictions  on the  transfer  of funds  and the  imposition  of
tariffs, export duties, quota, and other trade restrictions.

         Major  apparel   retailers   are   increasingly   outsourcing   apparel
merchandise   management   programs  to  minimize   inventory  risks,   increase
profitability and return on investment,  and enable them to replenish  inventory
rapidly.  Many retailers are also consolidating the number of their suppliers to
ensure the best  service and the volume  required  for lower cost  products.  We
believe  that  both our  sourcing  operation  in the Far  East  and our  Mexican
manufacturing operations are well positioned to capitalize on these trends.

         The  continuing  predominance  of casual wear in the  workplace and the
emphasis on a casual,  active  lifestyle  has  increased  the demand for casual,
moderately priced, private label products. We believe our flexibility to produce
both denim and twill  products in Mexico,  and our  sourcing  ability in the Far
East,  can satisfy the  different  requirements  of our various  customers.  See
"--Products."

         We have entered into a program of sharing Mexican production facilities
with Azteca Production  International  Inc.  ("Azteca"),  a company owned by the
brothers of Gerard  Guez,  the  Chairman of the  Company,  which we believe will
improve  utilization of our facilities,  lower unit costs,  and favorably impact
margins for apparel products sourced from Mexico.  In order to manage the shared
utilization,  new procedures  have been adopted,  which we believe will maintain
control and appropriately allocate costs.

         China's  entry  into the  World  Trade  Organization  ("WTO")  may pose
serious  challenges to Mexican products due to the elimination of U.S. quotas on
Chinese  apparel  products in 2005.  Because we still maintain a strong sourcing
operation  in the Far East,  we  believe  we will be able to take  advantage  of
improved pricing from China. Our Mexican operation will continue to maintain its
competitiveness  due to the tariff  advantages  afforded by NAFTA.  See "Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations."

BUSINESS STRATEGY

         We believe that the following  trends are currently  affecting  apparel
retailing and manufacturing:

         o        The continued  predominance of casual apparel in the workplace
                  and the emphasis on a casual, active lifestyle, have increased
                  the  demand  for  casual,   moderately  priced  private  label
                  products.

         o        Consolidation  among apparel  retailers  has  increased  their
                  ability   to  demand   value-added   services   from   apparel
                  manufacturers,  including fashion  expertise,  rapid response,
                  just-in-time   delivery,   Electronic  Data   Interchange  and
                  favorable pricing.

         o        Increased competition among retailers due to consolidation has
                  resulted in an  increased  demand for private  label  apparel,
                  which generally  offers  retailers  higher margins and permits
                  them to differentiate their products.

         o        The current  fashion  cycle  requires  more design and product
                  development,  in  addition to quickly  responding  to emerging
                  trends.  Apparel  manufacturers  that offer these capabilities
                  are in demand.


                                       3
<PAGE>


         o        From  the  end  of  2000  through  2002,   the  U.S.   economy
                  experienced an economic downturn, which was exacerbated by the
                  events of September 11, the  potential  threat of a war in the
                  Middle East and the threat of terrorism.

         We believe  that we have the  capabilities  to take  advantage of these
trends and to become a  principal  value-added  supplier  of casual,  moderately
priced, private label apparel due to the following:

         DESIGN  EXPERTISE.  As one of the very few sourcing  companies with our
own design team,  we believe  that we have  established  a  reputation  with our
customers as a fashion  resource and  manufacturer  that is capable of providing
design assistance to customers in the face of rapidly changing fashion trends.

         RESEARCH AND DEVELOPMENT  CAPABILITIES.  We believe our design team and
our two sample rooms in Mexico and China have made significant  contributions to
customers in developing new fabrics, washes and finishes.

         SAMPLE-MAKING  AND  MARKET-TESTING  CAPABILITIES.  We seek  to  support
customers  with our design  expertise,  sample-making  capability and ability to
rapidly produce small test orders of products.

         ON-TIME   DELIVERY.   We  have  developed  a  diversified   network  of
international  contract  manufacturers and fabric suppliers which, together with
our vertically integrated Mexican manufacturing operations,  enable us to accept
orders of varying  sizes and delivery  schedules and to produce a broad range of
garments at varying prices  depending upon lead time and other  requirements  of
the  customer.  We believe  our  Mexican  operation  has the added  geographical
advantage  of being  capable of  delivering  large  quantities  of  garments  to
retailers  in the  United  States  with much  shorter  lead-times  than would be
available if sourced outside of North America.

         QUALITY  AND  COMPETITIVELY  PRICED  PRODUCTS.  While  we  continue  to
maintain a quality sourcing  operation in the Far East, we have also developed a
vertically  integrated  manufacturing  operation in Mexico. We believe that this
strategy  has  increased  our sales  capacity,  increased  our control  over the
production process, improved quality control and shortened lead times.

         PRODUCT  DIVERSIFICATION.  Our modern spinning and weaving equipment in
Mexico  has the  flexibility  to  produce  both  denim and twill  garments.  See
"--Products".

         REDUCED PRODUCTION COSTS. We believe we have put strategies in place to
maintain a low cost structure in this period of  uncertainty.  We have continued
to take steps to lower production costs in Mexico. To maximize  utilization,  we
have agreed to share  appropriate  production  capacity  with Azteca  Production
International Inc., to eliminate duplicate overhead.

ACQUISITIONS --GENERAL

         UNITED APPAREL VENTURES

         On July 1, 2001, we formed an entity to jointly  market,  share certain
risks and achieve economies of scale with Azteca Production International, Inc.,
called United Apparel  Ventures,  LLC. This entity was created to coordinate the
production  of apparel for a single  customer of our  branded  business.  UAV is
owned 50.1% by Tag Mex, Inc., our wholly owned subsidiary,  and 49.9% by Azteca.
The results of UAV have been consolidated into our results  commencing July 2001
with the  minority  partner's  share of earnings  (losses)  provided  for in our
financial statements.  Since October, 2002, both parties contributed the Express
relationship and future orders into this entity.


                                       4
<PAGE>


ACQUISITIONS--VERTICAL INTEGRATION

         In December 2002, we acquired,  through our  subsidiaries,  a denim and
twill  manufacturing  plant in  Tlaxacala,  Mexico,  including all machinery and
equipment  used in the plant,  the  buildings,  and the real estate on which the
plant is  located.  We made the  acquisition  pursuant to an  Agreement  for the
Purchase of Assets and Stock, dated as of December 31, 2002, by and among us and
certain  of  our  subsidiaries,  Trans  Textil  International,   S.A.  de  C.V.,
Inmobiliaria  Cuadros,  S.A. de C.V., Rosa Lisette Nacif  Benavides,  Gazi Nacif
Borge, Jorge Miguel Echevarria Vazquez,  and Kamel Nacif Borge.  Pursuant to the
purchase  agreement,  we acquired  from Trans  Textil all of the  machinery  and
equipment  used in and  located at the plant,  and  acquired  from Jorge  Miguel
Echevarria  Vazquez  and  Rosa  Lisette  Nacif  Benavides,  all the  issued  and
outstanding  capital  stock of  Inmobiliaria,  which owns the buildings and real
estate.  The  purchase  price  for  the  machinery  and  equipment  was  paid by
cancellation  of $42  million in  indebtedness  owed by Trans  Textil to us. The
purchase price for the  Inmobiliaria  shares consisted of a nominal cash payment
to the Inmobiliaria shareholders of $500, and the subsequent repayment by us and
our affiliates of approximately $34.7 million in indebtedness of Inmobiliaria to
Kamel Nacif Borge,  his daughter  Rosa Lisette Nacif  Benavides,  and certain of
their  affiliates.  The repayment of this indebtedness was made by: (a) delivery
to Rosa  Lisette  Nacif  Benavides  of one  hundred  thousand  shares of a newly
created,  non-voting  Series A  Preferred  Stock of  Tarrant,  which will become
convertible into three million shares of common stock if our common shareholders
approve the conversion at our 2003 annual shareholders  meeting; (b) delivery to
Rosa Lisette Nacif Benavides of an ownership interest  representing twenty- five
percent  of the  voting  power of and profit  participation  in our  subsidiary,
Tarrant Mexico, S. de. R.L. de C.V.; and (c) cancellation of approximately $14.9
million of indebtedness of Mr. Nacif and his affiliates.

         With the  acquisition  of the  plant in  Tlaxacala,  we  completed  our
four-year plan to vertically  integrate our business in Mexico.  Key elements of
this strategy included (i) establishing  cutting,  sewing,  washing,  finishing,
packing,  shipping and distribution  activities in company-owned  facilities and
through the  acquisition of  established  contractors,  and (ii)  establishing a
fabric  production  capability  through the  acquisition of established  textile
mills and the  construction  of new  mills.  Our  vertical  integration  efforts
included the following:

         o        In March  2001,  we  acquired  a sewing  facility  located  in
                  Ajalpan,  Mexico for $11 million. The facility contains 98,702
                  square feet and eight sewing lines containing up to 840 sewing
                  machines, which can generate a maximum capacity of six million
                  units per year. The assets acquired  included land,  buildings
                  and all  equipment,  in addition  to a trained  labor force in
                  place of approximately 2,000 employees.

         o        On June 2000, we signed an exclusive production agreement with
                  Manufactures  Cheja through February 2002. We have agreed on a
                  new  contract  to  extend  the  agreement  for  an  additional
                  quantity of 6.4 million units beginning  April 1, 2002,  which
                  was amended on November 8, 2002, for the  manufacturing of 5.7
                  million units through  September 30, 2004. We have  unrecouped
                  advances to Cheja of approximately $2.9 million related to the
                  production agreement to be recouped out of future production.

         o        In August 1999,  we acquired  Industrial  Exportadora  Famian,
                  S.A. de C.V. and Coordinados Elite, S.A. de C.V., both Mexican
                  corporations,   which   operated   seven  apparel   production
                  facilities in and near  Tehuacan,  Mexico.  The purchase price
                  consisted   of  (i)   $1,000,000   cash,   (ii)  a  $3,000,000
                  non-interest  bearing  promissory  note, and (iii)  $8,000,000
                  payable in  installments  through  September 30, 2002.  During
                  2000,  we  invested   approximately  $6  million  to  increase
                  capacity at Grupo  Famian by expanding  six sewing  facilities
                  consisting  of  approximately  46,000 square feet and 6 sewing
                  lines.  As a result,  total sewing capacity has been increased
                  to 220,000 units per week, and laundry and finishing  capacity
                  has been increased to 200,000 units per week.


                                       5
<PAGE>


         o        In April  1999,  we  acquired a denim mill  located in Puebla,
                  Mexico.  The purchase price consisted of $22.0 million in cash
                  and 1,724,000 shares of our common stock,  which was valued at
                  $45.3 million.

         We believe  that our  production  capabilities  in Mexico  will  reduce
product costs, allow us to better control production variances, and make us more
competitive in today's apparel industry. These operations,  however, are subject
to  the  customary  risks  associated  with  owning  a  manufacturing  business,
including the maintenance and management of manufacturing facilities, equipment,
employees and inventories.  See "Item 7. Management's Discussion and Analysis of
Financial  Condition and Results of Operations -- Factors That May Affect Future
Results."

PRODUCTS

         Women's jeans historically have been, and continue to be, our principal
product.  In recent  years,  we have  expanded  our sales of  moderately  priced
women's apparel to include casual,  denim and non-denim,  including twill, woven
tops and bottoms,  and in 1998,  we commenced  the sale of men's and  children's
apparel.  Our women's  apparel  products  currently  include jeans wear,  casual
pants, t-shirts,  shorts,  blouses,  shirts and other tops, dresses and jackets.
These products are manufactured in petite, standard and large sizes and are sold
at a variety of wholesale prices generally  ranging from less than $4.00 to over
$20.00 per garment.

         Over the past three years,  approximately 68% of net sales were derived
from the sale of pants and jeans,  approximately 10% from the sale of shorts and
approximately 5% from the sale of shirts.  The balance of net sales consisted of
sales of skirts, dresses, jackets and other products.

         While denim  continues to be in strong demand,  our modern spinning and
weaving equipment in Mexico has the flexibility to produce both denim and twill.

         In the  ordinary  course of our  business,  we  regularly  evaluate new
markets  and  potential  acquisitions.   Presently,  we  believe  that  numerous
opportunities exist to move into new markets and make acquisitions due, in part,
to the adverse effect on the earnings of many apparel  companies  resulting from
the recent decline in retail sales, and due to consolidation among retailers.

CUSTOMERS

         We  generally  market our  products to  high-volume  retailers  that we
believe can grow into major accounts.  By limiting our customer base to a select
group of larger accounts, we seek to build stronger long-term  relationships and
leverage our operating costs against large bulk orders.  Although we continue to
diversify our customer  base, the majority of any growth in sales is expected to
come from existing customers.


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<PAGE>


         The  following  table shows the  percentage  of our net sales in fiscal
years 2000, 2001 and 2002  attributable to each customer that accounted for more
than 5% of net sales.

                                                  PERCENTAGE OF NET SALES
                                              ------------------------------
CUSTOMER                                       2000       2001       2002
---------------------                         -------    -------    --------
The Limited (1)..........................       44.2       22.8        22.6
Lane Bryant (2)..........................         --       20.5        17.6
Tommy Hilfiger...........................         --        7.8        17.4
Walmart..................................        9.1       12.2         9.7
Mervyn's.................................         --        7.9         7.3

----------
(1)  Includes  Express,  Lerner New York and Limited  stores,  and includes Lane
     Bryant in 2000.
(2)  Owned by The Limited in 2000, and by Charming Shoppes in 2001 and 2002.

         In the same  periods,  virtually all of our sales were of private label
apparel and several  major  international  brands.  We  currently  serve over 25
customers,  which,  in  addition  to those  identified  above,  include  K-Mart,
Kohl's',  Sears,  Abercrombie & Fitch,  Northern  Reflection,  and J.C.  Penney.
Additionally, we manufacture branded merchandise for several major designers.

         We do not  have  long-term  contracts  with any of our  customers  and,
therefore,  there can be no assurance  that any customer  will continue to place
orders  with us of the  same  magnitude  as it has in the  past,  or at all.  In
addition,  the apparel  industry  historically  has been subject to  substantial
cyclical variation,  with consumer spending for purchases of apparel and related
goods tending to decline during  recessionary  periods. To the extent that these
financial  difficulties  occur,  there can be no  assurance  that our  financial
condition and results of operations would not be adversely  affected.  See "Item
7.  Management's  Discussion and Analysis of Financial  Condition and Results of
Operations--Factors That May Affect Future Results."

DESIGN, MERCHANDISING AND SALES

         While many private label producers only arrange for the bulk production
of styles  specified by their customers,  we not only design garments,  but also
assist some of our customers in market testing new designs.  We believe that our
design,  sample-production  and  test-run  capabilities  give  us a  competitive
advantage in obtaining  bulk orders from our  customers.  We also often  receive
bulk orders for  garments we have not  designed  because  many of our  customers
allocate bulk orders among more than one producer.

         We have developed integrated teams of design, merchandising and support
personnel, some of whom serve on more than one team, that focus on designing and
producing  merchandise  that  reflects  the style and image of their  customers.
Teams generally are divided between import and domestic sourcing operations.

         Each team is  responsible  for all  aspects  of its  customer's  needs,
including  designing  products,  developing  product  samples  and  test  items,
obtaining  orders,  coordinating  fabric  choices  and  procurement,  monitoring
production  and  delivering  finished  products.  The  team  seeks  to  identify
prevailing  fashion trends that meet its customer's retail strategies and design
garments  incorporating those trends. The team also works with the buyers of its
customer to revise  designs as necessary  to better  reflect the style and image
that the  customer  desires  to  project to  consumers.  During  the  production
process,  the team is responsible  for informing the customer about the progress
of the order,  including  any  difficulties  that might affect the timetable for
delivery.  In this way, our customer  and we can make  appropriate  arrangements
regarding  any delay or other  change in the order.  We  believe  that this team


                                       7
<PAGE>


approach  enables our employees to develop an  understanding  of the  customer's
distinctive styles and production  requirements in order to respond  effectively
to the  customer's  needs.  During  2000,  we opened  an office in  Bentonville,
Arkansas to support this approach and better  service the needs of Wal-Mart.  We
also operate a similar office in Columbus, Ohio for The Limited, which opened in
1999.

         As part of our merchandising  strategy, we produce, at our own expense,
four  collections  a year from Hong Kong and Mexico  embodying  new  designs and
fabrics. We produce samples at our facilities in Guangdong Province, China, Hong
Kong and  Mexico.  The  facilities  in China and Mexico  currently  furnish  the
majority of our sample requirements.

         From time to time and at scheduled seasonal meetings,  we present these
samples to the  customer's  buyers who determine  which,  if any, of the samples
will be produced on a test run or a bulk scale.  Samples are often  presented in
coordinated groupings or as part of a product line. Some customers, particularly
specialty  retail  stores such as divisions  of The Limited,  may require that a
product be tested before placing a bulk order.  Testing  involves the production
of as few as several hundred copies of a given sample in different size,  fabric
and color combinations. The customer pays for these test items, which are placed
in selected  stores to gauge  consumer  response.  The  production of test items
enables our customers to identify garments that may appeal to consumers and also
provides us with important information regarding the cost and feasibility of the
bulk  production  of  the  tested  garment.  If the  test  is  determined  to be
successful,  we generally  receive a significant  percentage  of the  customer's
total bulk order of the tested item.  In addition,  as is typical in the private
label  business,  we  receive  bulk  production  orders to  produce  merchandise
designed by our competitors or other  designers,  since most customers  allocate
bulk orders among a number of suppliers.

SOURCING

GENERAL

         When  bidding  for or  filling  an order,  our  international  sourcing
network enables us to choose from among a number of suppliers and  manufacturers
based on the customer's price requirements,  product specifications and delivery
schedules.  Historically,  we  manufactured  our  products  through  independent
cutting,  sewing and finishing  contractors  located  primarily in Hong Kong and
China, and have purchased our fabric from independent fabric  manufacturers with
weaving mills located primarily in Hong Kong and China. In recent years, we have
expanded our network to include suppliers and manufacturers  located in a number
of additional  countries,  including Thailand,  Egypt and Mexico. Most recently,
Mexico,  through our vertical  integration  strategy,  has become the source for
more than 50% of our merchandise.  Key elements of our sourcing strategy include
(i) continuing to maintain our strong sourcing ability in the Far East, and (ii)
continuing to expand our production of basic denim and twill products in Mexico.
The following table sets forth the percentage of our  merchandise,  on the basis
of the free on board cost at the supplier's  plant, or FOB Basis, by country for
the periods indicated:

                                             2000       2001        2002
                                           -------    -------     -------
         INTERNATIONAL SOURCING:
             Hong Kong and China ......     30.1 %     29.3 %     25.3 %
             Other (1) ................     11.7 %      9.5 %     13.3 %
         DOMESTIC SOURCING:
             United States ............      7.5 %      9.3 %      6.1 %
             Mexico and Central America     50.7 %     51.9 %     55.3 %
         ----------
         (1)      In  2002,  such  countries   consisted  of  Thailand,   Egypt,
                  Bangladesh, Macau, Mongolia and Nepal.


                                       8
<PAGE>


DEPENDENCE ON CONTRACT MANUFACTURERS

         The use of  contract  manufacturers  and the  resulting  lack of direct
control  over the  production  of our  products  could  result in our failure to
receive timely delivery of products of acceptable  quality.  Although we believe
that alternative  sources of cutting,  sewing and finishing services are readily
available,  the  loss  of  one  or  more  contract  manufacturers  could  have a
materially  adverse  effect on our results of  operations  until an  alternative
source can be located and commence  producing our products.  Therefore,  we have
reduced our  reliance  on outside  third  party  contractors  through our Mexico
vertical integration strategy. Our principal fabric supply is through facilities
in Puebla and  Tlaxcala,  Mexico,  both of which we own.  Garment  production is
predominantly done in Grupo Famian and Ajalpan,  both owned by us,  supplemented
by Manufactures Cheja and Azteca's cutting,  washing,  and finishing  facilities
through our United Apparel Ventures joint venture. All international sourcing is
still manufactured by independent cutting, sewing and finishing contractors. See
"-- Acquisitions - Vertical Integration."

         Although we monitor the compliance of our independent  contractors with
applicable  labor  laws,  we do not  control  our  contractors  or  their  labor
practices.  The violation of federal,  state or foreign labor laws by one of our
contractors  can result in us being  subject  to fines and our goods,  which are
manufactured in violation of such laws, being seized or their sale in interstate
commerce being prohibited.  From time to time, we have been notified by federal,
state or foreign  authorities that certain of our contractors are the subject of
investigations  or have been found to have  violated  applicable  labor laws. To
date, we have not been subject to any  sanctions  that,  individually  or in the
aggregate,  have had or could have a material adverse effect upon us, and we are
not aware of any facts on which any such sanctions could be based.  There can be
no assurance, however, that in the future we will not be subject to sanctions as
a result of violations of applicable labor laws by our contractors, or that such
sanctions  will not have a  material  adverse  effect  on us. In  addition,  our
customers  require strict compliance by their apparel  manufacturers,  including
us, with applicable labor laws. To that end, we are regularly  inspected by some
of our  major  customers.  There  can be no  assurance  that  the  violation  of
applicable labor laws by one of our contractors will not have a material adverse
effect on our relationship with our customers.

         Except for our production  management agreement for operating the twill
mill  near  Puebla,  Mexico,  we  do  not  have  any  long-term  contracts  with
independent  fabric  suppliers.  The loss of any of our major  fabric  suppliers
could have a material  adverse effect on our financial  condition and results of
operations until alternative arrangements are secured. The impact of such a loss
may be offset in part by the  acquisition  or  development  of fabric  mills and
production facilities in Mexico. See " --Acquisitions--Vertical Integration."

DIVERSIFIED PRODUCTION NETWORK

         We believe that we have the ability, through our production network, to
operate on production schedules with lead times as short as 45 days.  Typically,
our specialty  retail  customers  attempt to respond quickly to changing fashion
trends and are  increasingly  less willing to assume the risk that goods ordered
on long lead times  will be out of  fashion  when  delivered.  These  retailers,
including divisions of The Limited, frequently require production schedules with
lead times  ranging from 30 to 120 days.  Although mass  merchandisers,  such as
Wal-Mart,  are beginning to operate on shorter lead times, they are occasionally
able to estimate their needs as much as six months to nine months in advance for
"program"  business--basic  products  that do not change in style  significantly
from season to season.  Our ability to operate on  production  schedules  with a
wide range of lead times helps us to meet our customers' varying needs.

         By allocating an order among different  manufacturers,  we seek to fill
the  high-volume   orders  of  our  customers,   while  meeting  their  delivery
requirements.  Upon receiving an order,  we determine which


                                       9
<PAGE>


of our suppliers and manufacturers  (both owned and third party contractors) can
best  fill the  order  and meet  the  customer's  price,  quality  and  delivery
requirements.  We  consider,  among  other  things,  the price  charged  by each
manufacturer and the manufacturer's  available  production  capacity to complete
the order,  as well as the  availability  of quota for the product  from various
countries  and the  manufacturer's  ability to produce  goods on a timely  basis
subject to the customer's  quality  specifications.  Our personnel also consider
the  transportation  lead  times  required  to  deliver  an  order  from a given
manufacturer to the customer.  In addition,  some customers  prefer not to carry
excess inventory and therefore  require that we stagger the delivery of products
over several weeks.

INTERNATIONAL SOURCING

         We conduct and monitor our international  sourcing  operations from our
international  offices.  At  December  31,  2002,  we had  offices in Hong Kong,
Thailand and Mexico.  The staffs at these  locations  have  extensive  knowledge
about, and experience with, sourcing and production in their respective regions,
including  purchasing,  manufacturing  and quality  control.  Several times each
year, members of our senior management, including local staff, visit and inspect
the facilities and operations of our international suppliers and manufacturers.

         Foreign   manufacturing  is  subject  to  a  number  of  risk  factors,
including,   among  other  things,   transportation  delays  and  interruptions,
political instability,  expropriation,  currency fluctuations and the imposition
of tariffs,  import and export controls,  other non-tariff  barriers  (including
changes in the allocation of quotas),  natural disasters and cultural issues. In
addition  to these risk  factors,  we face  additional  risks  arising  from the
uncertainty regarding the future status of Hong Kong since resumption of Chinese
sovereignty  on July 1, 1997,  the  continuation  of favorable  trade  relations
between the U.S. and China (in  particular  the  continuation  of China's Normal
Trade Relations  ("NTR") status for tariff  purposes),  and the  continuation of
economic  reform programs in China which encourage  private  economic  activity.
Each of these factors could have a material adverse effect on us.

         While we are in the process of establishing business relationships with
manufacturers  and suppliers located in countries other than Hong Kong or China,
we still primarily  contract with  manufacturers and suppliers located primarily
in Hong Kong and China  for our  international  sourcing  needs  (not  including
Mexico), and currently expect that we will continue to do so for the foreseeable
future.  Any significant  disruption in our operations or our relationships with
our  manufacturers  and  suppliers  located  in Hong Kong or China  could have a
material adverse effect on us.

         We  commenced  manufacturing  basic  denim and twill  products  through
independent  contractors  in  Mexico  in the  second  quarter  of 1997,  and are
continuing to expand our use of  manufacturing  facilities in this region.  From
1999 through 2002, we expanded our Mexico production capabilities,  and acquired
several Mexico  manufacturing  operations.  We believe that after  absorbing the
high startup costs, risks and overhead associated with the process,  the further
diversification  of our international  sourcing network by increasing the use of
manufacturing  facilities in Mexico along with our vertical integration strategy
has (i) reduced our cost of goods,  (ii)  enhanced the proximity of our sourcing
operations  to our  customers  and  our  executive  offices,  thereby  improving
delivery times and increasing  management's  control, and (iii) lessened certain
risks  of  doing  business  in  the  Far  East.  See   "--Acquisitions--Vertical
Integration."

THE IMPORT SOURCING PROCESS

         As is customary in the apparel  industry,  we do not have any long-term
contracts with our manufacturers.  During the manufacturing process, our quality
control personnel visit each factory to inspect garments when the fabric is cut,
as it is being sewn and as the garment is being finished.  Daily  information on
the  status  of  each  order  is  transmitted  from  the  various  manufacturing
facilities


                                       10
<PAGE>


to our  offices in Hong  Kong,  Mexico and Los  Angeles.  We, in turn,  keep our
customers  apprised,  often through daily telephone  calls and frequent  written
reports. These calls and reports include candid assessments of the progress of a
customer's order, including a discussion of the difficulties,  if any, that have
been encountered and our plans to rectify them.

         We often  arrange,  on behalf of  manufacturers,  for the  purchase  of
fabric  from a single  supplier.  We have the  fabric  shipped  directly  to the
cutting factory and invoice the factory for the fabric. Generally, the factories
pay us for the fabric with offsets against the price of the finished goods.  For
our longstanding program business,  we may purchase or produce fabric in advance
of receiving the order, but in accordance with the customer's specifications. By
procuring fabric for an entire order from one source, we believe that production
costs per garment are reduced and customer  specifications  as to fabric quality
and color can be better controlled.

         The  anti-terrorist  measures  adopted  by the U.S.  government  and in
particular,  by the U.S. Customs, have meant more stringent inspection processes
before imported goods are cleared.  In some instances,  these have caused delays
in the pre-planned delivery of products to customers.

THE MANUFACTURING PROCESS

         Through  our  Mexican   subsidiaries,   we  have  become  a  vertically
integrated apparel  manufacturer.  Our vertical  integration will reduce product
costs,  allowing us to better  control  production  variances and making us more
competitive in today's business  environment.  In Mexico, we own two mills along
with  cutting,  sewing,  washing,   finishing  and  warehousing  facilities  and
equipment.

         As in the case of products  sourced from independent  contractors,  the
manufacturing  process  begins  with the  merchandising  department  in the U.S.
working closely with the customers and developing the product. Once the customer
places an order for product,  the manufacturing  process begins.  The Mexico and
U.S. operations share the same computer system and communications. When an order
is entered into the computer  system,  either  electronically  or manually,  the
appropriate  plans for production are made in the Mexican  facilities.  Based on
the  production  schedule,  fabric is acquired  from our denim plant,  our twill
plant or an outside third party.  The fabric is then cut using  computerized  as
well as manual methods.  The cutwork is then  transferred to the sewing facility
where it is sewn into  garments.  Once sewn,  we apply the  appropriate  fashion
washes and finishes as required by our customers. The finishing facility applies
trims, packs, and ships the finished garments to the customers by truck.

DISTRIBUTION

         Based on our world wide  sourcing  capability  and in order to properly
fulfill orders,  we have tailored our  distribution  system to meet the needs of
the customer.  Some  customers,  like Wal-Mart and Kohl's,  use Electronic  Data
Interchange,  or EDI, to send orders and receive  merchandise and invoices.  The
EDI  distribution  function has been  centralized  in our Los Angeles  corporate
headquarters  in order to  expedite  and  control  the flow of  merchandise  and
electronic  information,  and to insure that the special requirements of our EDI
customers are met.

         For  orders  sourced   outside  the  United  States  and  Mexico,   the
merchandise is shipped from the production  facility by truck to a port where it
is consolidated and loaded on  containerized  vessels for ocean transport to the
United States. For customers with West Coast and Mid West distribution  centers,
the  merchandise  is  brought  into  the  port  of Los  Angeles.  After  Customs
clearance,  the  merchandise  is  shipped  by truck to  either  our Los  Angeles
warehouse facility or an independent bonded warehouse in Ohio.  Proximity to the
customer's  distribution  center  is  important  for to  customer  support.  For
merchandise  produced in the Middle East and destined for an East Coast customer
distribution center, the


                                       11
<PAGE>


port of entry is New York. After Customs  clearance,  the merchandise is trucked
to an independent public warehouse in New Jersey. The independent warehouses are
instructed in writing by the Los Angeles office when to ship the  merchandise to
the customer.

BACKLOG

         At February 26, 2003, we had unfilled  customer orders of approximately
$135 million as compared to approximately  $160 million at February 26, 2002. We
believe that all of our backlog of orders as of February 26, 2003 will be filled
within the  second  quarter of fiscal  2003.  Backlog is based on our  estimates
derived from internal  management  reports.  The amount of unfilled  orders at a
particular time is affected by a number of factors,  including the scheduling of
manufacturing and shipping of the product,  which in some instances,  depends on
the customer's requirements.  Accordingly,  a comparison of unfilled orders from
period to period is not  necessarily  meaningful  and may not be  indicative  of
eventual annual bookings or actual  shipments.  Our experience has been that the
cancellations,  rejections or returns of orders have not materially  reduced the
amount of sales realized from our backlog.

SEGMENT INFORMATION

         We operate primarily in one industry segment, the design, manufacturing
and  importation  of private  label,  moderately  priced,  casual  apparel.  For
information  regarding the revenues and assets  associated  with our  geographic
segments,  see Note 14 of the "Notes to our Consolidated  Financial  Statements"
included elsewhere in this filing.

IMPORT RESTRICTIONS

QUOTAS

         We  imported  approximately  94% of our  products  (on an FOB Basis) in
2002,  including  approximately 61% imported from Mexico. In the case of Mexico,
imports are subject to special rules under NAFTA.  While certain apparel imports
may enter free of duty and of quota  restrictions,  other  apparel  from  Mexico
remains subject to import duties and quantitative  restrictions,  but not to the
same extent that  imports are  restricted  from  countries  subject to bilateral
textile  agreements.  Most  of  the  remaining  products  imported  by  us  were
manufactured in foreign jurisdictions (e.g., Hong Kong and China) with which the
U.S.  has  entered  into  bilateral   textile   agreements   that,  among  other
restrictions, impose specific quantitative restraints, or quotas, on the amounts
of various categories of textiles and apparel that can be imported into the U.S.
from that foreign  jurisdiction  during a particular quota year. These bilateral
textile  agreements also include provisions that allow the U.S. to impose quotas
on  categories of textiles and apparel not  previously  under quota or to charge
(i.e.,  impose  deductions  upon)  the  quotas  for  origin-related  violations.
Accordingly,  our  operations are subject to the  restrictions  imposed by these
bilateral agreements.

         Through the early 1990s, the Arrangement Regarding  International Trade
in  Textiles,  known  as  the  Multifiber  Arrangement,  or  MFA,  provided  the
international  framework  for the global  regulation  of the textile and apparel
trade.  Pursuant  to the MFA,  the U.S.  entered  into these  bilateral  textile
agreements  for the  purpose of imposing  quota on the  imports of textiles  and
apparel. However, under The Final Act Embodying the Results of the Uruguay Round
of  Multilateral  Trade  Negotiations  (the Uruguay Round  Agreement)  which was
agreed to on a preliminary  basis in December 1993 by 117 member  nations of the
General  Agreement on Tariffs and Trade, or GATT, and enacted into U.S. domestic
law in December  1994 under the Uruguay Round  Agreements  Act, the MFA has been
replaced by the World Trade Organization  Agreement on Textiles and Clothing, or
ATC.  Under  the ATC,  quota  implemented  under the MFA on the  importation  of
textiles  and  apparel  from  countries  that are  members  of the  World  Trade


                                       12
<PAGE>


Organization  (the WTO,  which is the successor  organization  to GATT under the
Uruguay  Round  Agreement)  will be  phased  out  over a  ten-year  period  that
commenced  on January 1, 1995  (with the U.S.  phasing  out quota on most of the
sensitive categories at the end of this period).  However, a member country may,
under the Uruguay Round  Agreement on Safeguards,  re-impose  quotas on textiles
and apparel under certain specified conditions.

         China is a  signatory  to the MFA,  but was not a member  of GATT  and,
therefore, was not a party to the Uruguay Round Agreement.  China acceded to the
WTO on December 11, 2001 and as of 2005, quota on Chinese origin apparel will be
phased out, along with quota on apparel from other WTO countries.  Because China
is now a member of the WTO, its exports of textiles and apparel to the U.S. will
be covered by the ATC.  See "Item 7.  Management's  Discussion  and  Analysis of
Financial Condition of Results of Operations."

         In  2002,  products  imported  using  Hong  Kong  quota  accounted  for
approximately  24% of our net sales (on an FOB Basis).  Under the U.S.  and Hong
Kong  rules of  origin  currently  in  effect,  we  conduct  certain  non-origin
conferring  manufacturing  operations in China for a significant  portion of the
products we import using Hong Kong quota.

DUTIES AND TARIFFS

         Merchandise  we  import  into  the  U.S.  is  subject  to rates of duty
established by U.S. statute. In general, these rates vary, depending on the type
of  product,  from 2.95% to 47.18% of the  appraised  value of the  product.  In
addition to duties,  in the ordinary  course of our  business,  we, from time to
time,  may become subject to claims by the U.S.  Customs  Service for penalties,
liquidated  damages  claims and other  charges  relating  to import  activities.
Similarly,  from  time to time,  we may be  entitled  to  refunds  from the U.S.
Customs Service due to the overpayment of duties.

         Products   imported   from  China  into  the  U.S.   receive  the  same
preferential  tariff treatment accorded goods from countries granted NTR status.
With China  becoming a member of the WTO in  December  2001,  this status is now
permanent.

         Our continued ability to source products from foreign jurisdictions may
be adversely  affected by  additional  bilateral  and  multilateral  agreements,
unilateral trade restrictions, changes in trade policy, significant decreases in
import quotas,  embargoes, the disruption of trade from exporting countries as a
result of political  instability or the imposition of additional  duties,  taxes
and other charges or restrictions on imports.

COMPETITION

         There is intense  competition in the sectors of the apparel industry in
which we participate.  We compete with many other  manufacturers,  many of which
are larger and have greater  resources than us. We also face  competitions  from
our own customers and potential  customers,  many of which have established,  or
may establish, their own internal product development and sourcing capabilities.
For example,  The Limited's  wholly owned  subsidiary,  Mast  Industries,  Inc.,
competes  with us and other  private  label  apparel  suppliers  for orders from
divisions of The Limited.  We believe that we compete  favorably on the basis of
design and sample  capabilities,  the quality and value of our products,  price,
production  flexibility  that we enjoy as a result of our  sourcing  network and
vertical  integration  initiatives and the long-term  customer  relationships we
have developed.


                                       13
<PAGE>


EMPLOYEES

         At December 31, 2002, we had approximately  150 full-time  employees in
the United States,  6,600 in Mexico (which includes all  manufacturing  labor to
produce fabric,  cut, sew, trim, wash and pack finished  garments),  120 in Hong
Kong,  110 in China and 10 in  Thailand.  We  consider  our  relations  with our
employees to be good.

ITEM 2.  PROPERTIES

         We currently conduct our operations from 22 facilities, 17 of which are
leased. Our executive offices are located at 3151 East Washington Boulevard, Los
Angeles,  California  90023.  We  lease  this  facility  for an  annual  rent of
approximately $650,000 from a California corporation, which is owned by Mr. Guez
and Mr.  Kay.  The base rent is subject to  increase on January 1, 2003 based on
the  Consumer  Price  Index.  The lease for this  facility,  under  which we are
responsible  for the payment of taxes,  utilities and  insurance,  terminates in
December 2003 subject to a renewal  option for five  additional  years.  We also
sublease an office at the penthouse at 9000 Sunset  Boulevard,  Los Angeles at a
base rent of $359,640 per year.  Furthermore,  we also lease 146,000 square feet
of warehouse space in South Gate, California for an annual rent of $399,630 from
an unrelated third party. In Bentonville,  Arkansas, we opened an administrative
office  during 2000 to handle  business  related to Wal-Mart.  This  facility is
leased  until 2004 for  approximately  2,000  square  feet at an annual  rent of
approximately  $32,000.  In Columbus,  Ohio we opened an  administrative  office
during 1999 to handle business  related to The Limited.  This facility is leased
until  2004,  for  approximately  6,000  square  feet  at an  annual  rental  of
approximately  $75,000. We lease  approximately  36,000 square feet of warehouse
and office  space in Hong Kong for an annual rent of  $674,000  from a Hong Kong
corporation  that is owned by Mr. Guez and Mr. Kay.  The base rent is subject to
increase  every two years in accordance  with market  rates.  The lease for this
facility, under which we are responsible for the payment of taxes, utilities and
insurance,  expires in June 2004.  We lease  approximately  50,000  square feet,
which we use to operate our sample-making facility in Guangdong Province, China.
The lease for this  facility  terminates in 2004 and the annual rent is $60,000.
We also lease  office  space in  Bangkok,  Thailand  to house the small staff we
maintain  there.  We also own two facilities in Ruleville,  Mississippi  with an
aggregate of 70,000 square feet. We also lease one location in New York City for
showroom  and  sales  operations.   The  square  footage  of  this  location  is
approximately  9,000 with an annual base rent of  approximately  $350,000.  This
lease expires in 2010.  Through our  subsidiary,  Grupo  Famian,  we lease seven
sewing and washing plants in and around Tehuacan,  Mexico from the former owners
of Grupo  Famian.  These  facilities  are leased  until 2010 and have a combined
annual rent of approximately  $850,000.  See "Commitments and Contingencies" and
"related-party  transactions" in the section of "Notes to Consolidated Financial
Statements" for additional information with respect to these facilities.

         On April 18,  1999,  we  acquired a 250,000  square  foot denim mill in
Puebla,  Mexico with an annual  capacity of  approximately  18 million meters of
denim.  On March 29, 2001, we completed the  acquisition of a sewing facility in
Ajalpan,  Mexico.  This  facility  contains  98,702 square feet. On December 31,
2002, we completed the acquisition of a twill mill facility, which has 1,700,000
square  feet,  and a capacity  of 18 million  meters of denim or twill.  See "--
Acquisitions--Vertical Integration."

         We believe that all of our existing facilities are well maintained,  in
good operating condition and adequate to meet our current and foreseeable needs.


                                       14
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

PATRICK BENSIMON

         Patrick Bensimon caused his company,  Needletex,  Inc., to transfer its
assets  to a newly  formed  limited  liability  company  now  known  as Jane Doe
International,  LLC pursuant to the terms of an Asset Purchase  Agreement  dated
April 12,  2000.  The new  company  is  beneficially  owned 51% by us and 49% by
Bensimon.  At the same time, Bensimon entered into an employment  agreement with
the new  company,  which  provided for the payment of a salary to Bensimon and a
bonus tied to the new  company's  sales  performance.  The  existing  lenders to
Needletex,  Inc. agreed to the asset transfer in return for, among other things,
the confirmation of Bensimon's continuing guaranty of the loan obligations,  the
assumption  of the loan  obligations  by the new company and a guaranty of those
obligations  by us. We received an express  indemnity  by  Needletex,  Inc.  and
Bensimon  to  reimburse  us for all  amounts  we paid to those  lenders  for the
account of Needletex and Bensimon.

         Thereafter  a dispute  arose as to whether  Bensimon  had  performed in
accordance  with his terms of employment set forth in the Employment  Agreement.
When an amicable  resolution  of this dispute  could not be  achieved,  Bensimon
commenced   an   arbitration   proceeding   against  his   employer   (Jane  Doe
International,  LLC),  Fashion Resource (TCL), Inc., the managing member of Jane
Doe  International,  and us. We and other  respondents  contested and vigorously
opposed the matter.

         On January 21, 2003,  after hearing,  the  arbitration  panel issued an
interim award in favor of Bensimon  awarding him $1,425,655 for salary and bonus
plus interest  accrued  thereon and legal fees and costs to be  determined.  All
other claims asserted by Bensimon were denied. The counterclaims asserted by the
respondents  also  were  denied.  The  panel  has yet to make  its  final  award
including costs and attorneys fees.  These latter items could total in excess of
$100,000.  On March 10, 2003, we commenced an action against Bensimon in the Los
Angeles  County  Superior  Court  seeking  damages  arising  out of the  express
indemnity in the amount of  $2,159,387  plus  interest and  attorney's  fees and
costs.  The amount of the damages  sought from  Bensimon  for express  indemnity
arises out of payments  made by us for the  account of  Bensimon,  as  indicated
above. In accordance with the terms of the Asset Purchase  Agreement,  our claim
will be referred to a retired judge appointed by the Los Angeles  Superior Court
to hear and decide the case. Under the terms of this Agreement,  the matter must
be heard by the retired  judge within six months of its having been  referred by
the Court.

         We  also  intend  to seek  court  intervention  either  to  vacate  the
arbitration award made to Bensimon or to stay its enforcement pending resolution
of the litigation we commenced against Bensimon.

         We believe  that we have a  meritorious  case  against  Bensimon on our
claim  of  express  indemnity,  which  we  intend  to  pursue  vigorously.  As a
consequence,  we believe we should be able to offset  these  claims  against the
arbitration award received by Bensimon.

         We  tendered  the claim by  Bensimon to our  insurance  carrier,  which
accepted the tender with a reservation of rights as to whether  coverage existed
for the claim.  After the interim award was made,  the insurance  carrier denied
coverage.  During  2002,  we recorded a charge of $1.3  million to increase  our
litigation reserve for this matter.

         We believe that we have reasonable grounds to assert that the insurance
carrier has liability for all or some of the damages  assessed against it by the
arbitration  panel and for the legal fees and costs we incurred in opposing  the
claim in arbitration. Accordingly, we intend to vigorously press a claim against
the  carrier  arising  out of its  decision  to deny us any  coverage  under the
insurance policy we maintain.


                                       15
<PAGE>


OTHER MATTERS

         From time to time, we are involved in various routine legal proceedings
incidental to the conduct of our business.  Our management does not believe that
any of these  legal  proceedings  will  have a  material  adverse  impact on our
business, financial condition or results of operations, either due to the nature
of the claims,  or because our  management  believes that such claims should not
exceed the limits of the our insurance coverage.

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

None.


                                       16
<PAGE>


                                     PART II

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

NASDAQ NATIONAL MARKET

         Our Common Stock began  trading on The Nasdaq Stock  Market's  National
Market under the symbol "TAGS" on July 24, 1995.

         The following table sets forth, for the periods indicated, the range of
high and low sale prices for our Common Stock as reported by Nasdaq.

                                                            Low          High
                                                         ---------     ---------
2001
First Quarter ..........................                    3.06         6.00
Second Quarter .........................                    4.50         7.12
Third Quarter ..........................                    3.25         6.62
Fourth Quarter .........................                    2.76         5.48

2002
First Quarter ..........................                    4.65         5.49
Second Quarter .........................                    4.95         6.49
Third Quarter ..........................                    4.79         6.45
Fourth Quarter .........................                    3.99         5.00

         On March 25, 2003,  the last reported sale price of our Common Stock as
reported by Nasdaq was $3.68.  As of March 25, 2003, we had 18  shareholders  of
record.

DIVIDEND POLICY

         We have not declared dividends on our common stock during either of the
last two fiscal  years.  We intend to retain any future  earnings for use in our
business  and,  therefore,  do not  anticipate  declaring  or  paying  any  cash
dividends in the  foreseeable  future.  The  declaration and payment of any cash
dividends  in the future  will depend upon our  earnings,  financial  condition,
capital needs and other factors  deemed  relevant by the Board of Directors.  In
addition,  our credit  agreement  prohibits the payment of dividends  during the
term  of  the  agreement.  See  Note  7  to  "Notes  to  Consolidated  Financial
Statements."


                                       17
<PAGE>


EQUITY COMPENSATION PLAN INFORMATION

         The following table sets forth certain information regarding our equity
compensation plans as of December 31, 2002.

<TABLE>
<CAPTION>
                           NUMBER OF SECURITIES      WEIGHTED-AVERAGE     NUMBER OF SECURITIES
                             TO BE ISSUED UPON      EXERCISE PRICE OF    REMAINING AVAILABLE OR
                                EXERCISE OF            OUTSTANDING        FUTURE ISSUANCE UNDER
                           OUTSTANDING OPTIONS,     OPTIONS, WARRANTS      EQUITY COMPENSATION
                            WARRANTS AND RIGHTS         AND RIGHTS                PLANS
                           --------------------     -----------------    ----------------------
<S>                             <C>                       <C>                    <C>
Equity compensation
plans approved by               6,376,487                 $8.89                  1,723,513
security holders

Equity compensation
plans not approved by               --                      --                       --
security holders
                                ---------                 -----                  ---------
Total                           6,376,487                 $8.89                  1,723,513
                                =========                 =====                  =========
</TABLE>

RECENT SALE OF UNREGISTERED SECURITIES

         On December 31, 2002,  we issued  100,000  shares of Series A Preferred
Stock (the "Series A Shares") to Rosa  Lissette  Nacif  Benevides.  The Series A
Shares  were  issued in  connection  with the  acquisition  by our  wholly-owned
subsidiaries,  Tarrant  Mexico,  S. de  R.L.  de C.V.  and  Machrima  Luxembourg
International,  Sarl,  of a denim and  twill  manufacturing  plant in  Tlaxcala,
Mexico,  including all machinery and equipment used in the plant, the buildings,
and the real  estate on which  the plant is  located  (the  "Acquisition").  The
Acquisition  was made  pursuant to an  Agreement  for the Purchase of Assets and
Stock,   dated  as  of  December  31,  2002,  by  and  among  us,  Trans  Textil
International,  S.A. de C.V.,  Inmobiliaria  Cuadros, S.A. de C.V., Rosa Lisette
Nacif Benavides,  Gazi Nacif Borge, Jorge Miguel Echevarria  Vazquez,  and Kamel
Nacif Borge.  Pursuant to the purchase agreement,  Tarrant Mexico purchased from
Trans  Textil all of the  machinery  and  equipment  used in and  located at the
plant, and the Purchasers acquired from Jorge Miguel Echevarria Vazquez and Rosa
Lisette  Nacif  Benavides  all the  issued  and  outstanding  capital  stock  of
Inmobiliaria,  which  owns the  buildings  and real  estate.  A  portion  of the
purchase  price for the  Inmobiliaria  shares  consisted of the issuance to Rosa
Lisette Nacif Benavides of the Series A Shares,  which will become  convertible,
at the option of the  holder,  into  3,000,000  shares of common  stock upon the
approval  by our  shareholders  at the  2003  annual  meeting.  Pursuant  to the
Purchase  Agreement,  we issued the Series A Shares to a subsidiary of ours, and
subsequently  caused the transfer of the Series A Shares to Rosa  Lisette  Nacif
Benavides  as partial  repayment of  indebtedness  owed by  Inmobiliaria  to Ms.
Benavides. Ms. Benevides represented to us that she was an "accredited investor"
within the meaning of Rule 501 of Regulation D under the Securities Act of 1933,
and that she was  purchasing the securities for investment and not in connection
with a  distribution  thereof.  The  issuance and sale of these  securities  was
exempt  from  the  registration  and  prospectus  delivery  requirements  of the
Securities  Act pursuant to Section 4(2) of the  Securities Act as a transaction
not involving any public offering.


                                       18
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

         The following  selected financial data is qualified in its entirety by,
and should be read in  conjunction  with,  the other  information  and financial
statements, including the notes thereto, appearing elsewhere herein.


                                           Year Ended December 31,
                               -----------------------------------------------
                                 1998     1999      2000      2001      2002
                               -------- --------  --------  --------  --------
                                     (In thousands, except per share data)
Income Statement Data:
Net sales...................  $378,155  $395,341  $395,169  $330,253  $347,391
Cost of sales...............   307,077   329,131   332,333   277,525   302,082
                              --------  --------  --------  --------  --------
  Gross profit..............    71,078    66,210    62,836    52,728    45,309
Selling and distribution
 expenses...................    11,274    13,692    17,580    14,345    10,757
General and administrative
 expenses...................    19,896    25,259    40,327    33,136    30,082
Amortization of
 intangibles(1)(3)..........     1,337     2,312     2,840     3,317       --
                              --------  --------  --------  --------  --------
  Income from operations....    38,571    24,947     2,089     1,930     4,470
Interest expense............    (2,423)   (5,771)   (9,850)   (7,808)   (5,444)
Interest income.............       360       396     1,295     3,256     4,748
Minority interest...........        --        --     1,313      (412)   (4,581)
Other income(2).. ..........       590       920     1,350     1,853     2,648
Other expense(2)............       (22)     (172)     (193)     (856)   (2,004)
                              --------  --------  --------  --------  --------
Income before provision for
 income taxes and cumulative
effect of accounting change.    37,076    20,320    (3,996)   (2,037)     (163)
Provision for income taxes..   (12,410)   (7,439)    1,478       852     1,051
                              --------  --------  --------  --------  --------
Income (loss) before
 cumulative effect of
 accounting change.. .......  $ 24,666  $ 12,881  $ (2,518) $ (2,889) $ (1,214)
Cumulative effect of
 accounting change(3).......        --        --        --        --    (4,871)
                              --------  --------  --------  --------  --------
Net income (loss)...........  $ 24,666  $ 12,881  $ (2,518) $ (2,889) $ (6,085)
                              ========  ========  ========  ========  ========

Net income (loss) per share - Basic:
 Before cumulative effect of
 Accounting change..........  $   1.82  $   0.85  $  (0.16) $  (0.18) $  (0.08)
 Cumulative effect of
 Accounting change..........       --        --        --        --      (0.30)
 After cumulative effect of
 Accounting change..........  $   1.82  $   0.85  $  (0.16) $  (0.18) $  (0.38)

Net income (loss) per share - Diluted:
 Before cumulative effect of
 Accounting change..........  $   1.71  $   0.79  $  (0.16) $  (0.18) $  (0.08)
 Cumulative effect of
 Accounting change..........       --        --        --        --      (0.30)
 After cumulative effect of
 Accounting change..........  $   1.71  $   0.79  $  (0.16) $  (0.18) $  (0.38)

Weighted average shares
 Outstanding (000)
 Basic.....................     13,520    15,200    15,815    15,825    15,834
 Diluted...................     14,417    16,314    15,815    15,825    15,834


                                       19
<PAGE>



                                             As of December 31,
                                 --------------------------------------------
                                   1998     1999     2000     2001     2002
                                 -------- -------- -------- -------- --------
                                               (In thousands)
Balance Sheet Data:
Working capital................$ 57,082 $ 25,196  $ 27,957  $ 25,109 $ 11,731
Total assets................... 153,891  295,042   308,092   288,467  318,202
Bank borrowings and long-term
 obligations...................  36,694   99,072   114,439   111,336  106,937
Shareholders' equity..........   79,210  139,403   130,489   125,164  121,161
----------
(1)   See "Item 1. Business--Acquisitions."
(2)   Major  components of Other income  (expense) (as presented  above) include
      fees paid by affiliate entities for management and administrative services
      provided by us, royalty income,  and foreign currency gains or losses. See
      "Item 7. Management's  Discussion and Analysis of Financial  Condition and
      Results of Operations".
(3)   Effective  January 1, 2002, we adopted  Statement of Financial  Accounting
      Standards No. 142,  "Goodwill and Other Intangible  Assets."  According to
      this statement, goodwill and other intangible assets with indefinite lives
      are no longer subject to amortization,  but rather an annual assessment of
      impairment applied on a fair-value-based  test. We adopted SFAS No. 142 in
      fiscal 2002 and performed our first annual assessment of impairment, which
      resulted in an impairment loss of $4.9 million.


                                       20
<PAGE>


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

GENERAL

         We are a leading  provider of private  label  casual  apparel,  serving
specialty  retail,  mass  merchandise  and  department  store  chains  and major
international  brands  located  primarily  in the  United  States by  designing,
merchandising,  contracting for the manufacture of,  manufacturing  directly and
selling casual, moderately-priced apparel for women, men and children. Our major
customers include specialty  retailers,  such as Lerner New York, Limited Stores
and Express,  all of which are divisions of The Limited, as well as Lane Bryant,
Abercrombie & Fitch, J.C. Penney, K-Mart,  Kohl's,  Mervyns, Sears and Wal-Mart.
Our products are  manufactured in a variety of woven and knit  fabrications  and
include jeans wear, casual pants, t-shirts,  shorts,  blouses,  shirts and other
tops, dresses and jackets.

         In 2000, our net sales remained flat,  however,  in 2001, our net sales
decreased by 16.4% to $330 million.  In 2002, our net sales increased by 5.2% to
$347 million.  In 2001 and 2002,  we  experienced a net loss of $2.9 million and
$1.2 million, respectively, before cumulative effect of accounting change due to
our adoption of SFAS No. 142, and $2.9 million and $6.1  million,  respectively,
after the cumulative effect of accounting change.

         From   inception,   we  relied   primarily  on   independent   contract
manufacturers located primarily in the Far East. Commencing in the third quarter
of 1997,  and taking  advantage of the North American Free Trade  Agreement,  or
NAFTA,  we  substantially  expanded our use of independent  cutting,  sewing and
finishing  contractors in Mexico,  primarily for basic  garments.  Commencing in
1999,  and  concluding  in December  2002 with the purchase of a denim and twill
manufacturing plant in Tlaxacala,  Mexico, we engaged in an ambitious program to
develop  a  vertically  integrated   manufacturing  operation  in  Mexico  while
maintaining  our sourcing  operation  in the Far East.  We believe that the dual
strategy of maintaining  independent contract  manufacturers in the Far East and
operating  manufacturing  facilities  in Mexico  controlled  can best  serve the
different  needs of our  customers  and enable us to  capitalize  on  advantages
offered by both  markets.  We believe this  diversified  approach  also helps to
mitigate the risks of doing  business  abroad,  such as  transportation  delays,
economic and political instability,  currency fluctuations,  restrictions on the
transfer of funds and the imposition of tariffs, export duties, quota, and other
trade restrictions.

         On June 28, 2000, we signed a production  agreement  with  Manufactures
Cheja,  the original term of which extended  through  February 2002. We extended
the contract for an additional quantity of 6.4 million units commencing on April
1, 2002,  which was  amended on  November 8, 2002,  for the  manufacture  of 5.7
million units through September 30, 2004.

         On April 12,  2000,  we formed a new company,  Jane Doe  International,
LLC, or JDI. This company was formed for the purpose of purchasing the assets of
Needletex,  Inc.,  owner of the  Jane Doe  brand.  JDI is owned  51% by  Fashion
Resource (TCL), Inc., a subsidiary of ours, and 49% by Needletex,  Inc. In March
2001, we converted  JDI from an operating  company to a licensing  company,  and
entered  into two licenses  with  regards to the use of the Jane Doe  trademark.
Pending the outcome of the litigation with Patrick Bensimon,  owner of Needletex
Inc., this licensing company has been largely dormant in its activities in 2002.
For a  description  of  the  terms  of  this  acquisition  and  details  of  the
litigation, see "Item 3. Legal Proceedings."

         On  December  2, 1998,  we  contracted  to acquire a fully  operational
facility being  constructed near Puebla,  Mexico by an affiliate of Kamel Nacif,
our  principal  shareholder.  On October 16,  2000,  we  extended  our option to
purchase the facility until September 30, 2002. In September, 2002, we exercised


                                       21
<PAGE>


the option to purchase the facility and completed the  transaction at the end of
December, 2002. See "-- Acquisitions - Vertical Integration."

         We  believe  there is a major  competitive  advantage  in being a fully
integrated  supplier with the capability of controlling and managing the process
of manufacturing  from raw materials to finished  garments.  In order to execute
the garment production  operations,  facilities have been acquired and developed
to  support  anticipated  capacity  requirements.  Computer  systems  have  been
developed  and  installed,  which allow us to better  track our  production  and
inventory.  New operational  policies have been implemented to insure operations
function efficiently and effectively.

         We have entered into a program of sharing Mexico production  facilities
with Azteca,  and we believe improved  utilization of our production  facilities
should lower unit costs and  favorably  impact  margins.  In order to manage the
shared  utilization,  new  procedures  have been adopted,  which we believe will
maintain control and appropriately allocate costs between Azteca and us.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Management's  discussion  and analysis of our  financial  condition and
results of  operations  are based upon our  consolidated  financial  statements,
which have been  prepared in accordance  with  accounting  principles  generally
accepted in the United States of America.  The  preparation  of these  financial
statements  requires us to make estimates and judgments that affect the reported
amounts of assets,  liabilities,  revenues and expenses, and related disclosures
of  contingent  assets  and  liabilities.  On  an  ongoing  basis,  we  evaluate
estimates,   including   those  related  to  returns,   discounts,   bad  debts,
inventories,  intangible assets, income taxes, and contingencies and litigation.
We base our estimates on historical  experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for  making  judgments  about the  carrying  values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

         We believe the following critical  accounting  policies affect our more
significant  judgments and estimates used in the preparation of our consolidated
financial  statements.  For a further discussion on the application of these and
other  accounting  policies,  see Note 1 to our audited  consolidated  financial
statements included elsewhere in this report.

ACCOUNTS RECEIVABLE--ALLOWANCE FOR RETURNS, DISCOUNTS AND BAD DEBTS

         We evaluate the  collectibility of accounts  receivable and chargebacks
(disputes  from  the  customer)   based  upon  a  combination  of  factors.   In
circumstances where we are aware of a specific customer's  inability to meet its
financial  obligations (such as in the case of bankruptcy filings or substantial
downgrading  of  credit  sources),  a  specific  reserve  for bad debts is taken
against  amounts  due to reduce  the net  recognized  receivable  to the  amount
reasonably  expected to be  collected.  For all other  customers,  we  recognize
reserves  for bad  debts  and  chargebacks  based on our  historical  collection
experience.  If  collection  experience  deteriorates  (for  example,  due to an
unexpected  material  adverse change in a major  customer's  ability to meet its
financial obligations to us), the estimates of the recoverability of amounts due
us could be reduced by a material amount.

         As of December  31,  2002,  the balance in the  allowance  for returns,
discounts and bad debts  reserves was $4.3 million,  compared to $6.2 million at
December 31, 2001. This reduction can be explained by an additional  reserve for
bad debt related to a particular customer in 2001.


                                       22
<PAGE>


INVENTORY

         Our  inventories  are  valued  at the  lower of cost or  market.  Under
certain market  conditions,  estimates and judgments  regarding the valuation of
inventory are employed by us to properly value inventory.

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL

         We assess the impairment of identifiable intangibles, long-lived assets
and  goodwill  whenever  events or changes in  circumstances  indicate  that the
carrying value may not be recoverable.  Factors considered  important that could
trigger an impairment review include, but are not limited to, the following:

         o        a significant underperformance relative to expected historical
                  or projected future operating results;

         o        a significant  change in the manner of the use of the acquired
                  asset or the strategy for the overall business; or

         o        a significant negative industry or economic trend.

         Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142,  "Goodwill and Other  Intangible  Assets."  According to this
statement,  goodwill and other  intangible  assets with indefinite  lives are no
longer subject to  amortization,  but rather an annual  assessment of impairment
applied on a  fair-value-based  test. We adopted SFAS No. 142 in fiscal 2002 and
performed  our first  annual  assessment  of  impairment,  which  resulted in an
impairment loss of $4.9 million.

INCOME TAXES

         As  part  of  the  process  of  preparing  our  consolidated  financial
statements,  management  is  required to  estimate  income  taxes in each of the
jurisdictions  in which we  operate.  The  process  involves  estimating  actual
current tax expense along with assessing  temporary  differences  resulting from
differing treatment of items for book and tax purposes. These timing differences
result in  deferred  tax  assets  and  liabilities,  which are  included  in our
consolidated  balance sheet.  Management records a valuation allowance to reduce
its  deferred  tax  assets  to the  amount  that is more  likely  than not to be
realized.  Management  has  considered  future  taxable  income and  ongoing tax
planning strategies in assessing the need for the valuation allowance. Increases
in the valuation  allowance result in additional  expense to be reflected within
the tax provision in the consolidated statement of operations. Accruals are also
estimated  for ongoing  audits  regarding  Federal tax issues that are currently
unresolved.  We routinely  monitor the potential  impact of these situations and
believe that amounts are properly accrued for.

DEBT COVENANTS

     Our debt agreements require the maintenance of certain financial ratios and
a  minimum  level  of net  worth  as  discussed  in  Note 7 to our  consolidated
financial statements.  If our results of operations erode and we are not able to
obtain  waivers from the  lenders,  the debt would be in default and callable by
our lenders. In addition,  due to cross-default  provisions in a majority of the
debt  agreements,  approximately  87% of our long-term  debt would become due in
full if any of the debt is in default.  In  anticipation of us not being able to
meet the required  covenants  due to various  reasons,  we either  negotiate for
changes  in the  relative  covenants  or an  advance  waiver or  reclassify  the
relevant debt as current. We believe that results of operations will improve for
the year ending  December  31, 2003 and  thereafter  and the  likelihood  of our
defaulting on debt  covenants is decreasing  absent any material  negative event
affecting  the U.S.  economy as a whole.  We also believe that our lenders would
provide waivers if necessary.  However,  our  expectations  of future  operating
results and continued compliance


                                       23
<PAGE>


with other debt  covenants  cannot be assured and our  lenders'  actions are not
controllable by us. If projections of future operating  results are not achieved
and the debt is placed in default,  we would be required to reduce our expenses,
including by curtailing  operations,  and to raise  capital  through the sale of
assets,  issuance  of equity or  otherwise,  any of which  could have a material
adverse effect on our financial condition and results of operations.

RESULTS OF OPERATIONS

         The  following  table sets forth,  for the periods  indicated,  certain
items in our consolidated statements of income as a percentage of net sales:

                                                           Year Ended
                                                          December 31,
                                                      -------------------
                                                       2000   2001   2002
                                                      -----  -----  -----
Net sales...........................................  100.0% 100.0% 100.0%
Cost of sales.......................................   84.1   84.0   87.0
                                                      -----  -----  -----
Gross profit........................................   15.9   16.0   13.0
Selling and distribution expenses...................    4.5    4.4    3.1
General and administration expenses.................   10.2   10.0    8.6
Amortization expense(1)(2)..........................    0.7    1.0    0.0
                                                      -----  -----  -----
Income from operations..............................    0.5    0.6    1.3
Interest expense....................................   (2.5)  (2.4)  (1.6)
Interest income.....................................    0.3    1.0    1.4
Minority interest...................................    0.3   (0.1)  (1.3)
Other income........................................    0.4    0.6    0.8
Other expense.......................................   (0.0)  (0.3)  (0.6)
                                                      -----  -----  -----
Loss before provision for income taxes
  and cumulative effect of accounting change........   (1.0)  (0.6)   0.0
Income taxes........................................    0.4   (0.3)  (0.3)
                                                      -----  -----  -----
Loss before cumulative effect of accounting
  change............................................   (0.6)  (0.9)  (0.3)
Cumulative effect of accounting change(2)...........     --     --   (1.4)
                                                       -------------------
Net loss............................................   (0.6)% (0.9)% (1.7)%
                                                       =====  =====  =====
----------
(1)  Reflects amortization of the excess of cost over fair value of assets.
(2)  Reflects the adoption of SFAS No. 142

COMPARISON OF 2002 TO 2001

         Net sales  increased by $17.1 million,  or 5.2%, from $330.3 million in
2001 to $347.4  million in 2002,  primarily due to the success of United Apparel
Venture, LLC. The increase in net sales was attributed to $34.6 million increase
in sales to Tommy Hilfiger,  one of the two customers of UAV, and $12 million to
Kohl's.  The increase in sales to these two customers was offset by decreases of
$6.4 million in sales to Charming group, $2.9 million to mass merchandisers, and
$6.5 million to outlets, and the rest among other less significant accounts.


                                       24
<PAGE>


         Gross profit (which  consists of net sales less product  costs,  direct
labor,   manufacturing  overhead,   duty,  quota,  freight  in,  brokerage,  and
warehousing) for 2002 was $45.3 million, or 13% of net sales,  compared to $52.7
million, or 16.0 % of net sales, for 2001, representing a decrease of 14.1%. The
decrease  of $7.4  million in gross  profit  occurred  primarily  because of the
increase  in quota  prices  from Hong Kong  imports  and  insufficient  capacity
utilization in Mexico in the first and fourth quarters.

         Selling and distribution  expenses decreased from $14.3 million in 2001
to $10.8  million in 2002 due to better  control of overhead  and  reduction  in
distribution  costs. As a percentage of sales, these variable expenses decreased
from 4.4% in 2001 to 3.1% in 2002. General and administrative expenses decreased
from $33.1  million in 2001 to $30.1  million in 2002.  As a  percentage  of net
sales these expenses  decreased from 10.0% in 2001 to 8.6% in 2002.  Included in
these  expenses for 2002 was a charge of $1.3 million for a litigation  reserve.
See "Item 3. Legal  Proceeding." The charge for the change in the allowances for
returns and discounts for 2002 was $867,000,  or 0.2% of sales, compared to such
charge of $2.7  million,  or 0.8% of sales,  during 2001.  The higher  allowance
expenses in 2001 were caused by a special  reserve of $2.4  million for bad debt
related to a  particular  customer.  After  adjusting  for the  reduction in the
allowance  expense for discounts and returns and the reserve for the litigation,
general  and  administrative  expenses  decreased  by  $2.6  million  in 2002 as
compared to 2001. This decrease was due to our continuing cost cutting efforts.

         Income from  operations was $4.5 million in 2002, or 1.3% of net sales,
compared  to $1.9  million  in 2001,  or 0.6% of net sales,  due to the  factors
described above.

         Interest expense decreased from $7.8 million in 2001 to $5.4 million in
2002.  This decrease in interest  expense was as a result of reduced  borrowings
due to the pay down of certain debt  facilities  during 2002 and  interest  rate
reductions positively impacting the variable rate debt. Interest income was $4.7
million in 2002  compared to $3.3 million in 2001.  Included in interest  income
were  approximately  $4.5  million  for 2002 and $3.2  million for 2001 from the
related  party  note  receivable  related  to  the  sale  of  certain  equipment
pertaining  to the twill  mill,  which we  re-acquired  in December  2002.  This
interest income was recorded on a cash collected  basis.  Other income increased
from $1.9 million in 2001 to $2.6 million in 2002 while other expenses increased
from $856,000 to $2.0 million in 2002.

         Minority  interest  expense  was $(4.6)  million in 2002 as compared to
($412,000)  in 2001.  The  minority  interest in 2001 and 2002  represented  the
minority holder's share of the UAV subsidiary's income.

         Loss before taxes and cumulative  effect of accounting  change was $2.0
million in 2001 and $163,000 in 2002,  representing  0.6% and 0.0% of net sales,
respectively. The decrease in loss before taxes as a percentage of net sales was
due to the factors discussed above.

         Provision  for income taxes was $852,000 in 2001 versus $1.1 million in
2002.

         Loss after taxes and  cumulative  effect of accounting  change was $2.9
million  in 2001 and $6.1  million  in 2002,  representing  0.9% and 1.7% of net
sales, respectively.

COMPARISON OF 2001 TO 2000

         Net sales decreased by $64.9 million,  or 16.4%, from $395.2 million in
2000 to $330.3 million in 2001. The decrease in net sales included a decrease in
sales of $14.3  million to mass  merchandisers,  a decrease of $32.4  million to
divisions  of The  Limited  (excluding  Lane  Bryant  which was sold to Charming
Shoppes in 2001) and a decrease of $6.4 million as a result of  converting  Jane
Doe from a sales company to a licensing  company.  The decrease in net sales was
primarily  attributable to the overall economic conditions,  which are affecting
the retail industry.  The weakening  economy and announced


                                       25
<PAGE>


layoffs have affected  consumer  spending  habits thus hurting  retail sales and
causing  retailers to reduce their orders from  suppliers,  including us. During
2001,  sales to divisions of The Limited  accounted  for 22.8% of total sales as
compared to 27.3% in 2000.  These  results do not include  sales to Lane Bryant,
which was sold by The Limited in August 2001.

         Gross profit (which  consists of net sales less product  costs,  duties
and direct costs  attributable  to production)  for 2001 was $52.7  million,  or
16.0% of net sales, compared to $62.8 million, or 15.9 % of net sales, for 2000,
a decrease of 16.1%.  The  decrease of $10.1  million in gross  profit  occurred
primarily  because of the decline in sales during 2001 as compared to 2000.  The
gross  profit   percent  was  consistent  in  both  years  although  lower  than
anticipated due to excess manufacturing capacity during the year and lower sales
levels.

         Selling and distribution  expenses decreased from $17.6 million in 2000
to $14.3 million in 2001. As a percentage of sales these expenses decreased from
4.5% in 2000 to 4.4% in 2001. General and administrative expenses decreased from
$40.3  million in 2000 to $33.1  million in 2001. As a percentage of sales these
expenses  decreased  from  10.2% in 2000 to 10.0% in 2001.  The  charge  for the
change in the allowance for returns and discounts for 2000 was $1.3 million,  or
0.3% of sales, compared to such charge of $2.7 million, or 0.8% of sales, during
2001.  After  adjusting  for the net increase in the  allowance  for  discounts,
general  and  administrative  expenses  decreased  by  $8.6  million  in 2001 as
compared to 2000.  This decrease was due to our continuing  cost cutting efforts
focused on  eliminating  redundant  costs and  inefficiencies.  During 2001,  we
transitioned some of our operations to Mexico thereby reducing overall overhead.

         Income from  operations was $2.1 million in 2000, or 0.5% of net sales,
compared  to $1.9  million  in 2001,  or 0.6% of net sales,  due to the  factors
described above.

         Interest expense decreased from $9.8 million in 2000 to $7.8 million in
2001.  This decrease in interest  expense was as a result of reduced  borrowings
due the pay down of  certain  debt  facilities  during  2001 and  interest  rate
reductions positively impacting the variable rate debt. Interest income was $3.3
million in 2001  compared to $1.3 million in 2000.  Included in interest  income
were  approximately  $3.2 million  during 2001 and $1.0 million in 2000 from the
note receivable related to the sale of certain equipment pertaining to the twill
mill. The note  receivable was  outstanding for all of fiscal 2001 and only from
October through  December 2000. Other income increased from $1.4 million in 2000
to $1.9 million in 2001 while other expenses  increased from $193,000 in 2000 to
$856,000 in 2001.

         Minority interest was ($412,000) in 2001 as compared to of $1.3 million
in 2000. In 2000, the minority interest amount represents the minority partner's
share of losses for JDI, in which we acquired a 51%  interest on April 12, 2000.
Such loss was  recorded up to the  original  investment  amount of the  minority
partner.  The minority interest in 2001 represents the minority share of the UAV
joint venture income.

         Loss before  taxes was $4.0  million in 2000 and $2.0  million in 2001,
representing (1.0)% and (0.6)% of net sales, respectively.  The increase in loss
before taxes as a percentage  of net sales was due to the decrease in net sales,
selling and  distribution  expenses and general and  administrative  expense and
interest expense and an increase in interest income.

         Provision  (credit)  for income  taxes was a credit of $1.5  million in
2000 versus an expense of $0.9  million in 2001.  The  difference  is due to the
ability to carry larger amounts of net operating carry backs to prior periods in
2000 combined with greater foreign income and related tax expense in 2001.


                                       26
<PAGE>


QUARTERLY RESULTS OF OPERATIONS

         The  following  table sets forth,  for the periods  indicated,  certain
items in our  consolidated  statements of income in millions of dollars and as a
percentage of net sales:

<TABLE>
<CAPTION>
                                                Quarter Ended
                   -----------------------------------------------------------------------
                   Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
                     2001     2001     2001     2001     2002     2002     2002     2002
                   -------- -------- -------- -------- -------- -------- -------- --------
                                               (In millions)
<S>                 <C>      <C>       <C>     <C>       <C>      <C>      <C>     <C>
Net sales.......    $84.3    $96.1     $78.2   $71.6     $65.2    $95.3    $94.3   $92.6
Gross profit....     14.4     15.8      10.1    12.4       8.4     14.5     14.2     8.2
Operating income
 (loss).........      0.9      3.3      (3.3)    1.1      (0.8)     4.8      3.6    (3.1)
Net income
 (loss).........      0.4      1.7      (4.2)   (0.8)     (6.6)     1.3      1.1    (1.9)
</TABLE>


<TABLE>
<CAPTION>
                                                Quarter Ended
                   -----------------------------------------------------------------------
                   Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
                     2001     2001     2001     2001     2002     2002     2002     2002
                   -------- -------- -------- -------- -------- -------- -------- --------
<S>                 <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Net sales.......    100.0%   100.0%   100.0%   100.0%   100.0%   100.0%   100.0%   100.0%
Gross profit....     17.1     16.5     12.9     17.3     12.9     15.1     15.1      8.9
Operating income
 (loss).........      1.1      3.4     (4.3)     1.5     (1.3)     5.0      3.8     (3.4)
Net income
 (loss).........      0.5      1.8     (5.4)    (1.1)   (10.1)     1.4      1.2     (2.1)
</TABLE>


         As is typical  for us,  quarterly  net sales  fluctuated  significantly
because our customers  typically  place bulk orders with us, and a change in the
number of orders shipped in any one period may have a material effect on the net
sales for that period.

LIQUIDITY AND CAPITAL RESOURCES

         Our  liquidity  requirements  arise  from the  funding  of our  working
capital  needs,  principally  inventory,  finished  goods  shipments-in-transit,
work-in-process and accounts receivable, including receivables from our contract
manufacturers  that  relate  primarily  to fabric we  purchase  for use by those
manufacturers.  Our primary sources for working capital and capital expenditures
are cash  flow from  operations,  borrowings  under  our bank and  other  credit
facilities, borrowings from principal shareholders,  issuance of long-term debt,
borrowing from affiliates and the proceeds from the exercise of stock options.

         Our liquidity is dependent,  in part, on customers  paying on time. Any
abnormal  chargebacks or returns may affect our source of short-term funding. We
are also subject to market price  changes.  Any changes in credit terms given to
major  customers  may have an  impact  on our cash  flow.  Suppliers'  credit is
another  major source of short-term  financing and any adverse  changes in their
terms will have negative impact on our cash flow.


                                       27
<PAGE>


         Following is a summary of our  contractual  obligations  and commercial
commitments available to us as of December 31, 2002 (in millions):

CONTRACTUAL OBLIGATIONS                        PAYMENTS DUE BY PERIOD
--------------------------      ------------------------------------------------
                                             Less     Between   Between    After
                                            than 1      2-3       4-5        5
                                 Total       year      years     years     years
                                -------    -------    ------    ------    ------
Long-term debt ...........      $  77.6    $  21.7    $ 55.9    $  0      $  0
Operating leases .........      $  12.8    $   3.1    $  3.2    $  2.6    $  3.9
Total Contractual
   Cash Obligations ......      $  90.4    $  24.8    $ 59.1    $  2.6    $  3.9

<TABLE>
<CAPTION>
                                               AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
                              TOTAL AMOUNTS    ------------------------------------------
OTHER COMMERCIAL                COMMITTED       Less than   Between    Between    After
COMMITMENTS AVAILABLE TO US       TO US          1 year    2-3 years  4-5 years  5 years
---------------------------   -------------    ------------------------------------------
<S>                               <C>             <C>        <C>          <C>       <C>
Lines of Credit ..........        $129.5          $69.5      $60.0        --        --
Letters of Credit (within
   lines of credit) ......        $ 25.0          $25.0        --         --        --
Total Commercial
   Commitments ...........        $129.5          $69.5      $60.0        --        --
</TABLE>


         Net cash provided by operating activities was $15.5 million in 2002, as
compared to net cash  provided by  operations in 2001 of $30.1 million and $14.9
million in 2000. Net cash provided by operations in 2002 resulted primarily from
a net loss of $6.1 million  adjusted for  depreciation and amortization of $10.1
million. In addition to these items, the components of working capital impacting
cash  from  operations   included  an  increase  of  $7.1  million  in  accounts
receivable, a decrease of $5.8 million in inventory, an increase of $5.5 million
in tax payable,  an increase of $2.7 million in accrued liabilities offset by an
increase of $10.7 million in due from affiliates.  Changes from prior years were
a result of net income provided and changes in working capital.

         During 2002,  cash flow used in investing  activities was $4.8 million,
as  compared  to $9.2  million in 2001 and $28.2  million in 2000.  Cash used in
investing activities in 2002 included approximately $3.0 million for purchase of
fixed assets and equipment primarily in Mexico for production purposes.

         During  2002,  cash used in  financing  activities  was $9.3 million as
compared to cash of $22.1  million used in financing  activities  in 2001 and an
inflow of $14.5  million  in 2000.  Cash used in  financing  activities  in 2002
included  $3.2 million net  repayment to  shareholders  and  officers,  and $6.1
million net repayment to the borrowing facilities.

         On June 13, 2002,  we entered  into a letter of credit  facility of $25
million with UPS Capital  Global Trade Finance  Corporation,  or UPS, to replace
the credit facility of The Hong Kong and Shanghai Banking Corporation Limited in
Hong Kong.  Under this  facility,  we may arrange for the issuance of letters of
credit and acceptances.  The facility is a one-year  facility subject to renewal
on its anniversary and is collateralized by the shares and debentures of all our
subsidiaries in Hong Kong, as well as our permanent quota holdings in Hong Kong.
In addition to the  guarantees  provided  by Tarrant  Apparel  Group and Fashion
Resource  (TCL),  Inc. and Machrima  Luxembourg  SARL, a new holding  company we
formed during 2002, Mr. Gerard Guez, our chairman, also signed a guarantee of $5
million in favor of UPS to secure this  facility.  This facility is also subject
to certain restrictive covenants, including no two consecutive quarterly losses,
aggregate  net worth of $105  million  and $109  million  at the end of 2002 and
2003,  respectively,  interest coverage of 1.5 times, fixed charge ratio of 1.25
to 1 and leverage ratio of 2.1 to 1 in 2002 and 1.6 to 1 in 2003. As of December
31, 2002, $24.2 million, of which $12.9 million was for letters of credits,  was
outstanding under this facility.  We were in violation of our fixed charge ratio
covenant  at  December  31,  2002 for which a waiver was  obtained  for a fee of
$5,000.


                                       28
<PAGE>


         On January 21, 2000, we entered into a new revolving credit,  factoring
and  security  agreement  (the  "Debt  Facility")  with a  syndicate  of lending
institutions.  The Debt  Facility  initially  provided a  revolving  facility of
$105.0  million,  including  a letter of  credit  facility  not to exceed  $20.0
million,  and  matures on January  31,  2005.  The Debt  Facility  provides  for
interest at LIBOR plus the LIBOR rate margin  determined  by the Total  Leverage
Ratio (as defined).  The Debt  Facility is  collateralized  by our  receivables,
intangibles,  inventory and various other  specified  non-equipment  assets.  In
addition,  the facility is subject to various financial covenants with quarterly
targets,  including  provisions  for  tangible  net worth of not less than $98.5
million  subject to  adjustment  for the  fluctuating  of the  exchange  rate of
Mexican peso of December 31 2000 or that of the preceding year-end, fixed charge
ratio of 1.1 to 1, and interest  coverage  ratios of 3.2 to 1, leverage ratio of
not more than 1.6 to 1 at year-end and prohibits  the payment of  dividends.  On
March 2, 2001,  we entered  into an  amendment  of our Debt  Facility  with GMAC
Commercial  Finance,  LLC (GMAC),  who solely assumed the facility in 2000. This
amendment reduced the $105.0 million facility to $90.0 million. Our over-advance
line of $25  million  converted  to a term  facility  to be  repaid  by  monthly
installments of $500,000 before August 2001 and $687,500 thereafter.  A total of
$58 million was outstanding under the Debt Facility at December 31, 2002.

         As of December 31, 2002,  we were in violation of covenants on interest
coverage,  total leverage ratio,  and fixed charges under the Debt Facility.  We
received a waiver from GMAC with respect to our  violation  of these  covenants,
and we received a waiver from GMAC with respect to our  compliance  at March 31,
2003 with all financing covenants under the Debt Facility.  We paid GMAC $45,000
for this waiver.  We have agreed with GMAC to set new financial  convenants  for
fiscal 2003 based on our projections before May 1, 2003.

         The Debt Facility  includes a factoring  arrangement  whereby we factor
with GMAC accounts  receivables  from  customers with debt ratings below BBB. We
did not receive  advances  against  these  receivables,  and were paid only upon
collection of proceeds. For this credit insurance arrangement, we pay the factor
a commission of 60 basis points.

         As of December  31, 2002,  Grupo  Famian had a short-term  advance from
Banco Bilbao Vizcaya  amounting to $298,000.  This  subsidiary also had a credit
facility with Banco Nacional de Comercio Exterior SNC, which we guaranteed. This
facility  provided for a $10 million credit line based on purchase orders and is
restricted by certain covenants. As of December 31, 2002, the outstanding amount
was $4.7 million. After the merger of Grupo Famian into Tarrant Mexico, the bank
agreed that Tarrant Mexico was to repay the  outstanding  amount of $4.7 million
in monthly installments of $523,000 each commencing March 26, 2003.

         We have two equipment  loans with initial  borrowings of $16.25 million
and $5.2 million  from GE Capital  Leasing  ("GE  Capital")  and Bank of America
Leasing ("BOA"),  respectively.  The leases are secured by equipment  located in
Puebla and Tlaxcala,  Mexico.  The amounts  outstanding  as of December 31, 2002
were $7.1  million  due to GE  Capital  and $2.4  million  due to BOA.  Interest
accrues at a rate of 2 1/2% over LIBOR.  The loan from GE Capital will mature in
the year 2005 and the loan from BOA in the year 2004. The GE Capital  facilities
are subject to covenants on Tangible Net Worth ($30 million),  leverage ratio of
not more than two times and no losses for two consecutive  quarters.  We were in


                                       29
<PAGE>


violation of the covenant on consecutive  quarterly losses and obtained a waiver
from the bank on March 28, 2002 for a fee of $10,000 and acceleration by $25,000
of monthly repayment of principal.  We have classified the GE Capital obligation
as a current  liability  because of the potential that we may be in violation of
one or more of the  covenants  under  the GE  Capital  facilities  for the first
quarter  of 2003.  The BOA  facility  is  subject to a  financial  benchmark  on
interest coverage (3 to 1) and a leverage ratio of not more than 2 times.

         The Debt  Facility  with GMAC and the credit  facilities  with UPS,  GE
Capital  and BOA all  carry  cross-default  clauses.  A  breach  of a  financial
covenant  set by GMAC,  UPS or GE  Capital  constitutes  an  event  of  default,
entitling these banks to demand payment in full of all outstanding amounts under
their respective debt and credit facilities. Similarly, if we breach a financial
benchmark  set by BOA,  the bank can  accelerate  repayment  of all  outstanding
principal amount to become six equal monthly installments.

         During 2000, we financed equipment  purchases for the new manufacturing
facility with certain vendors of the related equipment. A total of $16.9 million
was financed with five-year  promissory notes,  which bear interest ranging from
7.0% to 7.5%,  and are payable in  semiannual  payments  commencing  in February
2000. Of this amount,  $7.3 million was  outstanding as of December 31, 2002. Of
the $7.3  million,  $4.6 million is  denominated  in the Euro.  The remainder is
payable in U.S. dollars.

         From time to time, we open letters of credit under an uncommitted  line
of credit from Aurora Capital Associates who issues these letters of credits out
of Israeli  Discount  Bank. As of December 31, 2001,  $2.3 million in letters of
credit were open under this arrangement.

         An  unrealized  gain of $104,000 and an  unrealized  loss of $1 million
were  recorded at December 31, 2001 and 2002,  respectively,  related to foreign
currency  fluctuations  and  is  recorded  in  other  income  (expense)  in  the
accompanying  statement  of  operations.  In  addition,  during  the year  ended
December 31, 2000,  we entered into hedge  contracts  for Euros  related to this
debt and for our peso exposure.

         The weighted  average interest rates on short-term bank borrowing as of
December 31, 2002 and 2001 were 4.1% and 6.7%, respectively.

         We have  financed our  operations  from our cash flow from  operations,
borrowings  under our bank and other  credit  facilities,  issuance of long-term
debt  (including  debt to or arranged by vendors of equipment  purchased for the
Mexican twill and production facility),  the proceeds from the exercise of stock
options  and from time to time  shareholder  advances.  Our  short-term  funding
relies  very  heavily  on our  major  customers,  bankers,  suppliers  and major
shareholders.  From  time to  time,  we have  temporary  over-advances  from our
bankers and short-term  funding from our major  shareholders.  Any withdrawal of
support from these parties will have serious consequences on our liquidity.

         We may seek to  finance  future  capital  investment  programs  through
various methods, including, but not limited to, borrowings under our bank credit
facilities, issuance of long- term debt, leases and long-term financing provided
by the sellers of facilities or the suppliers of certain  equipment used in such
facilities.  To date, there is no plan for any major capital  expenditure.  See-
"Item 1. Acquisitions - Vertical Integration."

         We do not believe that the  moderate  levels of inflation in the United
States in the last  three  years have had a  significant  effect on net sales or
profitability.


                                       30
<PAGE>


RELATED PARTY TRANSACTIONS

         We lease our principal  offices and  warehouse  located in Los Angeles,
California and office space in Hong Kong from corporations owned by Messrs. Guez
and Kay. We  believe,  at the time the leases were  entered  into,  the rents on
these  properties  were  comparable to then  prevailing  market  rents.  We paid
$1,330,000 in 2002 for rent for office and warehouse facilities.

         From time to time, we have borrowed  funds from, and advanced funds to,
certain officers and principal  shareholders,  including  Messrs.  Guez, Kay and
Nacif.  The  maximum  amount  of  such  borrowings  from  Mr.  Kay in  2002  was
$2,317,000. The maximum amount of such advances to Messrs. Guez and Nacif during
2002 was approximately $4,923,000 and $8,896,000,  respectively.  As of December
31, 2002,  we were indebted to Mr. Kay in the amount of $487,000.  Messrs.  Guez
and Nacif had an  outstanding  advance from us in the amount of  $4,879,000  and
$723,000, respectively, as of December 31, 2002. All advances to, and borrowings
from,  Messrs.  Guez  and Kay in  2002  bore  interest  at the  rate  of  7.75%.
Subsequent  to the  enactment  of the  Sarbanes-Oxley  Act of 2002,  no  further
personal  loans (or  amendments to existing  loans) have been or will be made to
officers or directors of Tarrant.

         On December 31, 2002, our wholly owned subsidiaries, Tarrant Mexico and
Machrima Luxembourg, acquired a denim and twill manufacturing plant in Tlaxcala,
Mexico,  including all machinery and equipment used in the plant, the buildings,
and the real estate on which the plant is located.  Pursuant to an Agreement for
the Purchase of Assets and Stock,  dated as of December 31, 2002, Tarrant Mexico
purchased  from Trans  Textil all of the  machinery  and  equipment  used in and
located at the plant, and the Purchasers  acquired from Jorge Miguel  Echevarria
Vazquez and Rosa Lisette Nacif Benavides (the  "Inmobiliaria  Shareholders") all
the  issued  and  outstanding  capital  stock of  Inmobiliaria,  which  owns the
buildings  and real estate.  The purchase  price for the machinery and equipment
was paid by cancellation of $42 million in indebtedness  owed by Trans Textil to
Tarrant Mexico.  The purchase price for the  Inmobiliaria  shares consisted of a
nominal cash payment to the  Inmobiliaria  Shareholders  of $500, and subsequent
repayment  by  us  and  our  affiliates  of   approximately   $34.7  million  in
indebtedness  of  Inmobiliaria  to Kamel Nacif Borge,  his daughter Rosa Lisette
Nacif Benavides, and certain of their affiliates, which payment was made by: (i)
delivery to Rosa Lisette Nacif  Benavides of one hundred  thousand shares of our
newly created,  non-voting  Series A Preferred  Stock,  which shares will become
convertible into three million shares of common stock if our common stockholders
approve the  conversion  at the Annual  Meeting;  (ii)  delivery to Rosa Lisette
Nacif Benavides of an ownership interest representing twenty-five percent of the
voting  power  of  and  profit   participation  in  Tarrant  Mexico;  and  (iii)
cancellation of approximately $14.9 million of indebtedness of Mr. Nacif and his
affiliates.

         Kamel Nacif Borge is an employee of Tarrant  Mexico and the  beneficial
owner of more than 5% of our  outstanding  common stock.  Jamil Textil,  S.A. de
C.V., an entity we believe is controlled by Mr. Nacif,  owns 1,720,000 shares of
our common stock,  representing  approximately  10.9% of our outstanding  common
stock as of December 31, 2002. Trans Textil,  an entity  controlled by Mr. Nacif
and his family  members,  was  initially  commissioned  by us to  construct  and
develop the plant in December  1998.  Subsequent  to  completion,  Trans  Textil
purchased and/or leased the plant's manufacturing  equipment from us and entered
into a  production  agreement  that  gave us the first  right to all  production
capacity of the plant. This production  agreement  included the option for us to
purchase the facility and discontinue the production agreement with Trans Textil
through  September  30, 2002.  We exercised the option and acquired the plant as
described above.

         From  time to  time,  we  have  advanced  funds  to Mr.  Nacif  and his
affiliates,  and Mr.  Nacif  and  such  affiliates  have  advanced  funds to us.
Immediately prior to the mill acquisition,  Mr. Nacif and his affiliates owed us
approximately  $7.5  million,  which  indebtedness  was cancelled as part of the
repayment by Inmobiliaria of indebtedness due Mr. Nacif and his affiliates.


                                       31
<PAGE>


         On July 1, 2001, we formed an entity to jointly  market,  share certain
risks and achieve economies of scale with Azteca Production International, Inc.,
called United Apparel  Ventures,  LLC. This entity was created to coordinate the
production  of apparel for a single  customer of our  branded  business.  UAV is
owned 50.1% by Tag Mex,  Inc., a wholly owned  subsidiary of ours,  and 49.9% by
Azteca.  Results of the operation of UAV have been consolidated into our results
since  July  2001  with the  minority  partner's  share of all  gains  and loses
eliminated through the minority interest line in our financial statements. Since
October 2002, both parties have  contributed  the Express  business into UAV and
the results are  consolidated in the company's  financials.  UAV makes purchases
from two related parties in Mexico, Azteca and Tag-it Pacific, Inc.

         In 1998, a California  limited liability company owned by Messrs.  Guez
and Kay purchased  2,390,000 shares of the Common Stock of Tag-It Pacific,  Inc.
(or  approximately  37% of such  Common  Stock  then  outstanding).  Tag-It is a
provider of brand identity  programs to  manufacturers  and retailers of apparel
and accessories. Tag-It assumed the responsibility for managing and sourcing all
trim and packaging used in connection  with products  manufactured  by or on our
behalf in Mexico.  This  arrangement is terminable by either Tag-It or us at any
time.  We believe  that the terms of this  arrangement,  which is subject to the
acceptance of our customers,  are no less favorable to us than could be obtained
from  unaffiliated  third parties.  We purchased $23.9 million of trim inventory
from Tag-It during the year ended  December 31, 2002.  From time to time we have
guaranteed the indebtedness of Tag-It for the purchase of trim on our behalf.

         We have  adopted a policy that any  transactions  between us and any of
our affiliates or related parties, including our executive officers,  directors,
the family members of those individuals and any of their affiliates, must (i) be
approved  by a  majority  of the  members  of the  Board of  Directors  and by a
majority of the  disinterested  members of the Board of Directors and (ii) be on
terms no less  favorable to us than could be obtained  from  unaffiliated  third
parties.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         This Annual  Report on Form 10-K contains  forward-looking  statements,
which are subject to a variety of risks and  uncertainties.  Our actual  results
could  differ  materially  from  those  anticipated  in  these   forward-looking
statements as a result of various factors, including those set forth below.

RISKS RELATED TO OUR BUSINESS

WE DEPEND ON A GROUP OF KEY CUSTOMERS FOR A SIGNIFICANT  PORTION OF OUR SALES. A
SIGNIFICANT  ADVERSE  CHANGE  IN A  CUSTOMER  RELATIONSHIP  OR  IN A  CUSTOMER'S
FINANCIAL POSITION COULD HARM OUR BUSINESS AND FINANCIAL CONDITION.

         Affiliated  stores  owned by The  Limited  (including  Lerner New York,
Limited Stores and Express)  accounted for approximately  22.6% and 22.8% of our
net sales in fiscal years 2002 and 2001,  respectively.  Lane  Bryant,  owned by
Charming Shoppes, accounted for 17.6% and 20.5% of our net sales in fiscal years
2002 and 2001,  respectively.  Moreover,  we believe that  consolidation  in the
retail industry has centralized purchasing decisions and given customers greater
leverage over suppliers  like us, and we expect this trend to continue.  If this
consolidation  continues,  our  net  sales  and  results  of  operations  may be
increasingly  sensitive to a  deterioration  in the  financial  condition of, or
other adverse developments with, one or more of our customers.

         While  we have  long-standing  customer  relationships,  we do not have
long-term  contracts  with any of them,  including  The  Limited.  As a  result,
purchases generally occur on an order-by-order  basis, and the relationship,  as
well as  particular  orders,  can generally be terminated by either party at any
time.


                                       32
<PAGE>


A decision by a major customer, whether motivated by competitive considerations,
financial  difficulties,  economic  conditions  or  otherwise,  to decrease  its
purchases  from us or to change  its  manner of doing  business  with us,  could
adversely  affect our  business and  financial  condition.  In addition,  during
recent  years,  various  retailers,   including  some  of  our  customers,  have
experienced  significant  changes and difficulties,  including  consolidation of
ownership,  increased  centralization of purchasing  decisions,  restructurings,
bankruptcies and liquidations.

         These and other financial problems of some of our retailers, as well as
general  weakness  in the retail  environment,  increase  the risk of  extending
credit  to  these  retailers.   A  significant  adverse  change  in  a  customer
relationship  or in a customer's  financial  position could cause us to limit or
discontinue  business with that customer,  require us to assume more credit risk
relating to that  customer's  receivables,  limit our ability to collect amounts
related to previous purchases by that customer, or result in required prepayment
of our  receivables  securitization  arrangements,  all of which  could harm our
business and financial condition.

WE HAVE ONLY LIMITED EXPERIENCE OPERATING A VERTICALLY INTEGRATED BUSINESS.

         During 2002,  we completed  the vertical  integration  of our business,
which included: (1) establishing cutting, sewing, washing,  finishing,  packing,
shipping and distribution activities in company-owned  facilities or through the
acquisition of established  contractors and (2) establishing  fabric  production
capability  through  the  acquisition  of  established   textile  mills  or  the
construction  of new  mills.  Prior  to  1999,  we had no  previous  history  of
operating  textile  mills or cutting,  sewing,  washing,  finishing,  packing or
shipping  operations  upon which an  evaluation of the prospects of our vertical
integration  strategy  can  be  based.  Since  the  beginning  of  our  vertical
integration strategy, we have experienced increased  complexities.  In addition,
the implementation of the integration strategy could place significant strain on
our administrative, operational and financial resources and increased demands on
our  financial  systems  and  controls.  Our  ability  to  manage  our  vertical
integration successfully will require us to continue to improve and expand these
resources,  systems  and  controls.  If our  management  is unable to manage our
vertical  integration  effectively,  our  operating  results  could be adversely
affected.

FAILURE TO MANAGE OUR GROWTH AND EXPANSION COULD IMPAIR OUR BUSINESS.

         Since our inception,  we have experienced  periods of rapid growth.  No
assurance can be given that we will be successful in  maintaining  or increasing
our sales in the  future.  Any future  growth in sales will  require  additional
working capital and may place a significant strain on our management, management
information systems, inventory management,  production capability,  distribution
facilities and receivables  management.  Any disruption in our order processing,
sourcing or  distribution  systems  could cause orders to be shipped  late,  and
under  industry  practices,  retailers  generally can cancel orders or refuse to
accept goods due to late shipment.  Such  cancellations and returns would result
in a reduction in revenue,  increased  administrative  and shipping  costs and a
further burden on our distribution facilities.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.

         We have experienced, and expect to continue to experience,  substantial
variations  in our net sales and operating  results from quarter to quarter.  We
believe that the factors which influence this  variability of quarterly  results
include  the  timing of our  introduction  of new  product  lines,  the level of
consumer  acceptance  of each new product  line,  general  economic and industry
conditions  that  affect  consumer   spending  and  retailer   purchasing,   the
availability of manufacturing  capacity, the seasonality of the markets in which
we participate,  the timing of trade shows,  the product mix of customer orders,
the timing of the placement or  cancellation  of customer  orders,  the weather,
transportation  delays,  quotas,  the  occurrence  of  chargebacks  in excess of
reserves and the timing of  expenditures  in anticipation of


                                       33
<PAGE>


increased sales and actions of  competitors.  Due to fluctuations in our revenue
and operating  expenses,  we believe that  period-to-period  comparisons  of our
results of operations are not a good indication of our future performance. It is
possible that in some future quarter or quarters,  our operating results will be
below the  expectations of securities  analysts or investors.  In that case, our
stock price could fluctuate significantly or decline.

INCREASES IN THE PRICE OF RAW  MATERIALS  OR THEIR  REDUCED  AVAILABILITY  COULD
INCREASE OUR COST OF SALES AND DECREASE OUR PROFITABILITY.

         The principal  raw material  used our apparel is cotton.  The price and
availability  of cotton may fluctuate  significantly,  depending on a variety of
factors,   including  crop  yields,  weather,   supply  conditions,   government
regulation,  economic climate and other unpredictable  factors. Any raw material
price increases could increase our cost of sales and decrease our  profitability
unless we are able to pass  higher  prices on to our  customers.  Moreover,  any
decrease  in the  availability  of cotton  could  impair our ability to meet our
production requirements in a timely manner.

THE SUCCESS OF OUR  BUSINESS  DEPENDS UPON OUR ABILITY TO OFFER  INNOVATIVE  AND
UPGRADED PRODUCTS.

         The apparel industry is  characterized  by constant product  innovation
due  to  changing  consumer  preferences  and by the  rapid  replication  of new
products by competitors.  As a result,  our success depends in large part on our
ability to continuously  develop,  market and deliver  innovative  products at a
pace and intensity  competitive  with other  manufacturers  in our segments.  In
addition, we must create products that appeal to multiple consumer segments at a
range of price points.  Any failure on our part to regularly develop  innovative
products and update core products could:

         o        limit our  ability  to  differentiate,  segment  and price our
                  products;

         o        adversely  affect  retail  and  consumer   acceptance  of  our
                  products; and

         o        limit sales growth.

         The increasing  importance of product innovation in apparel requires us
to strengthen our internal research and commercialization  capabilities, to rely
on successful commercial  relationships with third parties such as fiber, fabric
and  finishing  providers  and to  compete  and  negotiate  effectively  for new
technologies and product components.

THE FINANCIAL CONDITION OF OUR CUSTOMERS COULD AFFECT OUR RESULTS OF OPERATIONS.

         Certain retailers, including some of our customers, have experienced in
the past,  and may  experience  in the  future,  financial  difficulties,  which
increase  the risk of  extending  credit  to such  retailers  and the risk  that
financial  failure will  eliminate a customer  entirely.  These  retailers  have
attempted to improve their own operating  efficiencies  by  concentrating  their
purchasing  power among a narrowing group of vendors.  There can be no assurance
that we will remain a preferred vendor for our existing customers. A decrease in
business from or loss of a major customer  could have a material  adverse effect
on our results of  operations.  There can be no  assurance  that our factor will
approve the extension of credit to certain retail customers in the future.  If a
customer's  credit is not approved by the factor, we could assume the collection
risk on sales to the customer itself, require that the customer provide a letter
of credit, or choose not to make sales to the customer.


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<PAGE>


THE  SUCCESS  OF OUR  BUSINESS  DEPENDS ON OUR  ABILITY  TO  ATTRACT  AND RETAIN
QUALIFIED EMPLOYEES.

         We need  talented  and  experienced  personnel  in a  number  of  areas
including  our  core  business   activities.   Our  success  is  dependent  upon
strengthening  our  management  depth  across our  business at a rapid pace.  An
inability  to retain and attract  qualified  personnel or the loss of any of our
current  key  executives  could harm our  business.  Our  ability to attract and
retain qualified  employees is adversely affected by the Los Angeles location of
our  corporate  headquarters  due to the high cost of living in the Los  Angeles
area.

WE DEPEND ON OUR COMPUTER AND COMMUNICATIONS SYSTEMS.

         As  a  multi-national   corporation,   we  rely  on  our  computer  and
communication  network to operate efficiently.  Any interruption of this service
from power loss,  telecommunications  failure, weather, natural disasters or any
similar  event  could  have  a  material  adverse  affect  on our  business  and
operations. Recently, hackers and computer viruses have disrupted the operations
of several  major  companies.  We may be vulnerable to similar acts of sabotage,
which could have a material adverse effect on our business and operations.

WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE.

         We may not be able to fund our  future  growth or react to  competitive
pressures if we lack sufficient funds.  Currently, we believe we have sufficient
cash available through our bank credit  facilities,  issuance of long-term debt,
proceeds  from loans from  affiliates,  and proceeds  from the exercise of stock
options to fund existing operations for the foreseeable future.  However, in the
future we may need to raise  additional  funds through equity or debt financings
or collaborative relationships. This additional funding may not be available or,
if  available,  it may not be available on  economically  reasonable  terms.  In
addition,  any additional funding may result in significant dilution to existing
stockholders. If adequate funds are not available, we may be required to curtail
our operations or obtain funds through  collaborative  partners that may require
us to release material rights to our products.

OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH IMPORTING PRODUCTS.

         We import raw materials and finished garments. Substantially all of our
import operations are subject to tariffs imposed on imported products and quotas
imposed by trade  agreements.  In addition,  the countries in which our products
are manufactured or imported may from time to time impose additional new quotas,
duties,  tariffs  or other  restrictions  on our  imports  or  adversely  modify
existing  restrictions.  Adverse changes in these import costs and restrictions,
or our suppliers' failure to comply with customs or similar laws, could harm our
business.  We cannot  assure that future trade  agreements  will not provide our
competitors  with an advantage  over us, or increase our costs,  either of which
could have an adverse effect on our business and financial condition.

         Our operations are also subject to the effects of  international  trade
agreements and regulations such as the North American Free Trade Agreement,  and
the activities and regulations of the World Trade Organization. Generally, these
trade  agreements  benefit our  business by reducing or  eliminating  the duties
and/or  quotas  assessed  on  products  manufactured  in a  particular  country.
However, trade agreements can also impose requirements that adversely affect our
business,  such as  limiting  the  countries  from  which  we can  purchase  raw
materials  and setting  quotas on products  that may be imported into the United
States from a particular country. In addition,  the World Trade Organization may
commence a new round of trade  negotiations  that  liberalize  textile  trade by
further  eliminating  quotas or reducing  tariffs.  The elimination of quotas on
World Trade  Organization  member  countries by 2005 and other  effects of these
trade  agreements   could  result  in  increased   competition  from  developing
countries,  which  historically  have


                                       35
<PAGE>


lower labor costs,  including  China and Taiwan,  both of which recently  became
members of the World Trade  Organization.  Due to our  vertical  integration  in
Mexico, this increased  competition could have an adverse effect on our business
and financial condition.

         Our ability to import  products in a timely and  cost-effective  manner
may also be  affected  by  problems  at ports or issues  that  otherwise  affect
transportation and warehousing providers, such as labor disputes. These problems
could require us to locate  alternative ports or warehousing  providers to avoid
disruption to our customers.  These  alternatives  may not be available on short
notice or could  result in higher  transit  costs,  which  could have an adverse
impact on our business and financial condition.

OUR  PARTIAL  DEPENDENCE  ON  INDEPENDENT  MANUFACTURERS  REDUCES OUR ABILITY TO
CONTROL THE MANUFACTURING  PROCESS,  WHICH COULD HARM OUR SALES,  REPUTATION AND
OVERALL PROFITABILITY.

         Although  we  have  reduced  our   reliance  on  outside   third  party
contractors through our vertical integration in Mexico, a substantial portion of
our sourcing are  manufactured  by  independent  cutting,  sewing and  finishing
contractors.  As a result,  we depend on independent  contract  manufacturers to
secure  a  sufficient   supply  of  raw   materials   and  maintain   sufficient
manufacturing and shipping capacity in an environment characterized by declining
prices,  continuing cost pressure and increased  demands for product  innovation
and speed-to-market. This dependence could subject us to difficulty in obtaining
timely delivery of products of acceptable quality.  In addition,  a contractor's
failure  to ship  products  to us in a timely  manner  or to meet  the  required
quality  standards could cause us to miss the delivery date  requirements of our
customers.  The failure to make timely  deliveries  may cause our  customers  to
cancel  orders,  refuse  to accept  deliveries,  impose  non-compliance  charges
through  invoice  deductions or other  charge-backs,  demand  reduced  prices or
reduce future orders, any of which could harm our sales,  reputation and overall
profitability.  We do not  have  material  long-term  contracts  with any of our
independent  contractors and any of these contractors may unilaterally terminate
their  relationship with us at any time. To the extent we are not able to secure
or maintain relationships with independent  contractors that are able to fulfill
our requirements, our business would be harmed.

         Although we monitor the compliance of our independent  contractors with
applicable  labor  laws,  we do not  control  our  contractors  or  their  labor
practices.  The violation of federal,  state or foreign labor laws by one of the
our  contractors  could result in our being  subject to fines and our goods that
are  manufactured  in  violation  of such laws  being  seized  or their  sale in
interstate  commerce being prohibited.  From time to time, we have been notified
by federal, state or foreign authorities that certain of our contractors are the
subject of investigations  or have been found to have violated  applicable labor
laws. To date, we have not been subject to any sanctions  that,  individually or
in the aggregate, have had a material adverse effect on our business, and we are
not aware of any facts on which any such sanctions could be based.  There can be
no assurance, however, that in the future we will not be subject to sanctions as
a result of violations of applicable labor laws by our contractors, or that such
sanctions will not have a material adverse effect on our business and results of
operations.  In  addition,  certain of our  customers,  including  The  Limited,
require  strict  compliance by their apparel  manufacturers,  including us, with
applicable labor laws and visit our facilities often.  There can be no assurance
that the violation of applicable  labor laws by one of our contractors  will not
have a material adverse effect on our relationship with our customers.

OUR  BUSINESS IS SUBJECT TO RISKS OF  OPERATING  IN A FOREIGN  COUNTRY AND TRADE
RESTRICTIONS.

         Approximately  94% of our products  were imported from outside the U.S.
in fiscal 2002, and most of our fixed assets are located in Mexico.  The Company
is subject to the risks  associated  with doing business and owning fixed assets
in foreign countries,  including,  but not limited to, transportation delays and
interruptions,  political instability,  expropriation, currency fluctuations and
the imposition of tariffs, import and export controls, other non-tariff barriers
(including changes in the allocation of quotas) and


                                       36
<PAGE>


cultural  issues.  Any  changes in those  countries'  labor laws and  government
regulations may have a negative effect on our profitability.

OUR  OPERATIONS  IN MEXICO ARE SUBJECT TO RISKS  ASSOCIATED  WITH  MANUFACTURING
FACILITIES.  INCREASED  COMPETITION FROM OTHER FOREIGN COUNTRIES COULD ADVERSELY
AFFECT THE RESULTS OF OUR OPERATIONS.

         As a  manufacturer  in Mexico,  we are subject to the risks  associated
with  owning  a  manufacturing  business,  including  but not  limited  to,  the
maintenance and management of manufacturing  facilities,  equipment,  employees,
trade unions and inventories.  The risk of being a fully integrated manufacturer
is  increased  in an  industrial  wide  slowdown  because  of  the  fixed  costs
associated with manufacturing facilities.

         As of 2005,  quota on Chinese  origin  apparel will be phased out. This
may pose  serious  challenges  to Mexican  apparel  products  sold to the United
States  market.  Products  from China now receive the same  preferential  tariff
treatment accorded goods from countries granted NTR status.  With China becoming
a member of the WTO, this status is now permanent.  Our products manufactured in
Mexico may be  adversely  affected by the  increased  competition  from  Chinese
products.

OUR COST REDUCTION MEASURES MAY ADVERSELY AFFECT OUR BUSINESS AND OPERATIONS.

         Since the  beginning  of 2000,  we have been  making  efforts to reduce
overhead costs by the  elimination of functions  duplicated in Los Angeles,  New
York and Mexico. In addition,  in 2002 we continued reducing headcount by 50% in
the U.S.  and  approximately  20% in both Mexico and Hong Kong due to  decreased
sales.  As a result,  some  personnel  may be  required  to  perform  additional
functions or responsibilities,  which may have an adverse effect on our business
and results of operations.

WE CANNOT GUARANTEE THAT OUR FUTURE ACQUISITIONS WILL BE SUCCESSFUL.

         In the future, we may seek to continue our growth through  acquisition.
We compete for acquisition and expansion opportunities with companies which have
significantly  greater financial and management  resources than us. There can be
no assurance  that  suitable  acquisition  or investment  opportunities  will be
identified,  that any of these  transactions  can be  consummated,  or that,  if
acquired,  these new  businesses can be integrated  successfully  and profitably
into our  operations.  These  acquisitions  and  investments  may also require a
significant  allocation of resources,  which will reduce our ability to focus on
the other portions of our business,  including many of the factors listed in the
prior risk factor.

RISK ASSOCIATED WITH OUR INDUSTRY

OUR SALES ARE HEAVILY INFLUENCED BY GENERAL ECONOMIC CYCLES.

         Apparel  is a cyclical  industry  that is  heavily  dependent  upon the
overall level of consumer spending.  Purchases of apparel and related goods tend
to be highly  correlated with cycles in the disposable  income of our consumers.
Our customers  anticipate and respond to adverse changes in economic  conditions
and uncertainty by reducing  inventories and canceling orders. As a result,  any
substantial deterioration in general economic conditions,  increases in interest
rates,  acts of war,  terrorist  or  political  events  that  diminish  consumer
spending and confidence in any of the regions in which we compete,  could reduce
our sales and adversely  affect our business and financial  condition.  This has
been  underscored  by the events of September 11, 2001 and the war in the Middle
East.


                                       37
<PAGE>


OUR BUSINESS IS HIGHLY COMPETITIVE AND DEPENDS ON CONSUMER SPENDING PATTERNS.

         The  apparel  industry  is highly  competitive.  We face a  variety  of
competitive challenges including:

         o        anticipating  and  quickly  responding  to  changing  consumer
                  demands;

         o        developing innovative,  high-quality products in sizes, colors
                  and styles that appeal to  consumers of varying age groups and
                  tastes;

         o        competitively  pricing our  products  and  achieving  customer
                  perception of value; and

         o        providing strong and effective marketing support.

WE MUST SUCCESSFULLY  GAUGE FASHION TRENDS AND CHANGING CONSUMER  PREFERENCES TO
SUCCEED.

         Our success is largely  dependent upon our ability to gauge the fashion
tastes of our customers and to provide  merchandise  that  satisfies  retail and
customer demand in a timely manner. The apparel business fluctuates according to
changes in consumer  preferences  dictated in part by fashion and season. To the
extent we misjudge  the market for our  merchandise,  our sales may be adversely
affected.  Our ability to anticipate and effectively respond to changing fashion
trends depends in part on our ability to attract and retain key personnel in our
design,  merchandising  and marketing staff.  Competition for these personnel is
intense,  and we  cannot be sure that we will be able to  attract  and  retain a
sufficient number of qualified personnel in future periods.

OUR BUSINESS IS SUBJECT TO SEASONAL TRENDS.

         Historically,  our  operating  results  have been  subject to  seasonal
trends when measured on a quarterly  basis.  This trend is dependent on numerous
factors,  including the markets in which we operate,  holiday seasons,  consumer
demand,  climate,  economic  conditions  and numerous  other factors  beyond our
control.  There can be no assurance  that our historic  operating  patterns will
continue in future  periods as we cannot  influence  or  forecast  many of these
factors.

RISKS RELATED TO OUR COMMON STOCK.

OUR  MANAGEMENT  OWNS A  SIGNIFICANT  PERCENTAGE OF OUR COMMON STOCK AND WILL BE
ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR AFFAIRS.

         Our executive  officers and directors will continue to beneficially own
56.9% of our outstanding  common stock,  based upon the beneficial  ownership of
our  common  stock  as  of  March  15,  2003.  Accordingly,  these  stockholders
effectively  have the ability to control  the  outcome on all matters  requiring
stockholder  approval,  including  the election and removal of directors and any
change in control.  This  concentration  of  ownership of our common stock could
have the effect of delaying or preventing a change of control of us or otherwise
discouraging  or  preventing  a potential  acquirer  from  attempting  to obtain
control of us. This, in turn,  could have a negative  effect on the market price
of our common stock.  It could also prevent our  stockholders  from  realizing a
premium over the market prices for their shares of common stock.

OUR STOCK PRICE HAS BEEN VOLATILE.

         Our common stock is quoted on the Nasdaq  National  Market System,  and
there can be substantial volatility in the market price of our common stock. The
market  price of our common  stock has been,  and is likely to  continue  to be,
subject  to  significant  fluctuations  due to a variety of  factors,  including


                                       38
<PAGE>


quarterly variations in operating results, operating results which vary from the
expectations  of  securities  analysts  and  investors,   changes  in  financial
estimates,  changes in market valuations of competitors,  announcements by us or
our competitors of a material nature,  loss of one or more customers,  additions
or  departures of key  personnel,  future sales of common stock and stock market
price and volume  fluctuations.  In  addition,  general  political  and economic
conditions such as a recession,  or interest rate or currency rate  fluctuations
may adversely affect the market price of our common stock.

         In addition,  the stock market in general has experienced extreme price
and volume fluctuations that have affected the market price of our common stock.
Often, price fluctuations are unrelated to operating performance of the specific
companies whose stock is affected.  In the past, following periods of volatility
in the market price of a company's stock, securities class action litigation has
occurred  against  the  issuing  company.  If we were  subject  to this  type of
litigation in the future,  we could incur  substantial  costs and a diversion of
our  management's  attention and resources,  each of which could have a material
adverse effect on our revenue and earnings.  Any adverse  determination  in this
type of litigation could also subject us to significant liabilities.

ABSENCE OF DIVIDENDS COULD REDUCE OUR ATTRACTIVENESS TO YOU.

         Some investors  favor  companies that pay  dividends,  particularly  in
general  downturns  in the stock  market.  We have not declared or paid any cash
dividends on our common stock. We currently intend to retain any future earnings
for funding growth, and we do not currently  anticipate paying cash dividends on
our common stock in the  foreseeable  future.  Because we may not pay dividends,
your return on this  investment  likely  depends on your  selling our stock at a
profit.


                                       39
<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         FOREIGN CURRENCY RISK. Our earnings are affected by fluctuations in the
value of the U.S. dollar as compared to foreign  currencies as a result of doing
business in Mexico as well as certain debt denominated in the Euro. As a result,
we bear the risk of exchange rate gains and losses that may result in the future
as a result of this  financing.  At times we use forward  exchange  contracts to
reduce the  effect of  fluctuations  of  foreign  currencies  on  purchases  and
commitments.  These short-term assets and commitments are principally related to
trade payables positions and fixed asset purchase obligations. We do not utilize
derivative financial  instruments for trading or other speculative  purposes. We
actively evaluate the  creditworthiness  of the financial  institutions that are
counter parties to derivative  financial  instruments,  and we do not expect any
counter parties to fail to meet their obligations.

         INTEREST RATE RISK.  Because our  obligations  under our various credit
agreements  bear interest at floating  rates  (primarily  LIBOR  rates),  we are
sensitive  to  changes in  prevailing  interest  rates.  Any major  increase  or
decrease in market  interest rates that affect our financial  instruments  would
have a material impact on earning or cash flows during the next fiscal year.

         Our interest  expense is  sensitive to changes in the general  level of
U.S.  interest  rates.  In this regard,  changes in U.S.  interest  rates affect
interest paid on our debt. A majority of our credit  facilities  are at variable
rates.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See "Item 15. Exhibits,  Financial  Statement  Schedules and Reports on
Form 8K" for our financial statements,  and the notes thereto, and the financial
statement schedules filed as part of this report.

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

         Not applicable.


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<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

         The  information  concerning  our directors  and executive  officers is
incorporated  herein by reference from in our definitive  Proxy  Statement to be
filed  pursuant  to  Regulation  14A  within  120 days after the end of our last
fiscal year (the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

         The  information  concerning  executive  compensation  is  incorporated
herein by reference from the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information concerning the security ownership of certain beneficial
owners  and  management  is  incorporated  herein  by  reference  from the Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The   information   concerning   certain   relationships   and  related
transactions is incorporated herein by reference from the Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES

         Within the 90 days prior to the filing date of this  report,  our Chief
Executive Officer and our Chief Financial Officer, with the participation of our
management,  carried out an evaluation of the  effectiveness  of our  disclosure
controls and  procedures  pursuant to Exchange Act Rule 13a-14.  Based upon that
evaluation,  the Chief Executive Officer and the Chief Financial Officer believe
that, as of the date of the evaluation,  our disclosure  controls and procedures
are  effective  in making  known to them  material  information  relating  to us
(including  our  consolidated  subsidiaries)  required  to be  included  in this
report.

         Disclosure  controls and  procedures,  no matter how well  designed and
implemented,  can provide  only  reasonable  assurance  of achieving an entity's
disclosure  objectives.  The likelihood of achieving such objectives is affected
by limitations inherent in disclosure controls and procedures. These include the
fact that human judgment in decision-making can be faulty and that breakdowns in
internal  control can occur  because of human  failures such as simple errors or
mistakes or intentional circumvention of the established process.

         There were no significant  changes in our internal controls or in other
factors that could  significantly  affect internal controls,  known to the Chief
Executive Officer or the Chief Financial Officer,  subsequent to the date of the
evaluation.


                                       41
<PAGE>


                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a)      Financial  Statements  and Schedule.  Reference is made to the
Index to Financial  Statements  and Schedule on page F-1 for a list of financial
statements  and the financial  statement  schedule filed as part of this report.
All other  schedules are omitted because they are not applicable or the required
information is shown in the Company's financial  statements or the related notes
thereto.

         (b)      Reports on Form 8-K filed: None.

         (c)      Exhibits.  The  following exhibits  are filed  as part of this
report.


Exhibit
Number                                Description
-------                               -----------
3.1     Restated Articles of Incorporation of the Company(/1/)

3.1.1   Certificate of Amendment of Restated Articles of Incorporation. (/26/)

3.1.2   Certificate of Amendment of Restated Articles of Incorporation. (/26/)

3.1.3   Certificate of Determination of Preferences, Rights and Limitations of
         Series A Preferred Stock of Tarrant Apparel Group. (/27/)

 3.2    Restated Bylaws of the Company(/1/)

 4.1    Specimen of Common Stock Certificate(/2/)

10.1    Note in the principal amount of $2,600,000 dated March 15, 1995 in
         favor of Imperial Bank(/1/)

10.2    General Security Agreement dated March 15, 1995 by and between the
         Company and Imperial Bank(/1/)

10.3    Factoring Agreement effective as of September 28, 1993, as amended, by
         and between the Company and NationsBanc Commercial Corporation(/1/)

10.4    1995 Stock Option Plan dated as of May 1, 1995(/1/)

10.5    Letter Agreement dated February 17, 1995 between Tarrant Company
         Limited and The Hongkong and Shanghai Banking Corporation
         Limited(/1/)

10.6    Letter dated April 18, 1995 from The Hongkong and Shanghai Banking
         Corporation Limited to Tarrant Company Limited regarding the release
         of certain security interest(/1/)

10.7    Commercial Lease dated January 1, 1994 and GET and the Company(/1/)

10.8    Tenancy  Agreement  dated  July 15,  1994  between  Lynx  International
         Limited  and  Tarrant  Company  Limited  as  amended  by  that  certain
         Supplementary  Tenancy  Agreement  dated  December  30,  1994  and that
         certain Second Supplementary Tenancy Agreement dated December 31,
         1994(/1/)


                                       42
<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.9    Lease Agreement dated June 10, 1994, between Yip Sik Kin and Tarrant
         Company Limited (translated from Chinese)(/1/)

10.10   Tenancy Contract effective as of December 24, 1994, between Khalifa
         Muhairi and Tarrant Trading Co. Ltd.(/1/)

10.11   Agreement dated as of June 1, 1995, by and among Pret-A-Porter, the
         Company, French Designers, Inc., Bernard Aidan, Gerard Guez and Todd
         Kay(/5/)

10.12   Services Agreement dated as of April 1, 1995, by and between F.I.S.,
         Inc. and the Company(/2/)

10.13   Services Agreement dated as of October 1, 1994, by and between the
         Company and GET(/1/)

10.14   Services Agreement dated as of October 1, 1994, by and between the
         Company and Lynx International Limited(/1/)

10.15   Indemnification Agreement dated as of March 14, 1995, by and among the
         Company, Gerard Guez and Todd Kay(/2/)

10.16   Promissory  Note in the initial  principal  amount of $2 million  dated
         February 8, 1996, by Gerard Guez in favor of the Company(/2/)

10.17   Promissory  Note in the initial  principal  amount of $1 million  dated
         February 8, 1995, by Todd Kay in favor of the Company(/2/)

10.18   Promissory Note in the principal amount of $1,334,566.71 dated
         December 31, 1994, by P.I.S., Inc. in favor of the Company(/2/)

10.19   Release dated as of June 1, 1995, by and between the Company and
         certain other parties signatory thereto(/2/)

10.20   Option Agreement dated as of July 28, 1995, by and among Limited
         Direct Associates, L.P., Gerard Guez, Todd Kay and the Company(/5/)

10.21   Registration  Rights  Agreement dated as of July 28, 1995, by and among
         the Company and Limited Direct Associates, L.P.(/5/)

10.22   Reorganization and Tax Indemnification Agreement dated as of June 13,
         1995, by and among the Company and its shareholders(/5/)

10.23   Employment Agreement January 1, 1995, by and between the Company and
         Gerard Guez(/2/)

10.23.1 Employment Agreement effective January 1, 1998, by and between the
         Company and Gerard Guez(/13/)


                                       43
<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.23.2 First amendment to Employment  Agreement dated as of January 10, 2000 by
         and between Gerard Guez and the Company ( /21/ )

10.24   Agreement dated as of January 1, 1995, by and between the Company and
         Todd Kay(/1/)

10.24.1 Employment Agreement effective January 1, 1998, by and between the
         Company and Todd Kay(/13/)

10.24.2 First Amendment to Employment Agreement dated as of January 10, 2000
        by and between Todd Kay and the Company

10.25   Employment Agreement dated as of January 1, 1994, by and between the
         Company and Jimmy Esebag, as amended, by that certain Amendment No. 1
         dated as of June 1, 1995(/2/)

10.26   Employment Agreement dated as of November 18, 1994, by and between the
         Company and Mark B. Kristof(/1/)

10.27   Employment Agreement dated as July 5, 1994, by and between the Company
         and Bradley R. Kenson(/1/)

10.28   License Agreement dated January 1, 1994, by and between the Company
         and GET(/1/)

10.29   Assignment dates as of June 1, 1995 with respect to the GET!
         trademark, executed by GET in favor of the Company(/2/)

10.30   Amendment No. 1 to Commercial Lease dated as of April 1, 1995 by and
         between GET and the Company(/2/)

10.31   Lease and Services  Agreement  dated as of June 1, 1995, by and between
         Tarrant Company Limited and French Designers, Inc.(/2/)

10.32   Note in the principal  amount of $2,600,000  dated May 15, 1995, by the
         Company in favor of Imperial Bank(/2/)

10.33   Letter Agreement dated May 17, 1995, by and between Tarrant Company
         Limited and The Hongkong and Shanghai Banking Corporation
         Limited(/2/)

10.34   Buying Agency Agreement executed as of December 19, 1992, between
         P.I.S., Inc. and Tarrant Company Ltd.(/2/)

10.35   Buying Agency Agreement executed as of April 4, 1995, by Azteca
         Production International, Inc. and Tarrant Company Ltd., with the
         Company acknowledging as to certain matters(/2/)

10.36   Tripartite   Agreement  Assignment  of  Factoring  Proceeds  (Advances)
         executed and delivered  June 6, 1995, by the Company,  and accepted and
         agreed to by The Hongkong and Shanghai Banking  Corporation Limited and
         NationsBanc Commercial Corporation(/2/)

10.36.1 Amendment to Three Party Special Deposit Account Agreement(/8/)


                                       44
<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.37   Security Agreement (Guaranty of Tarrant Co. Ltd. Debt) entered into as
         of June 6, 1995, by and between the Hongkong and Shanghai Banking
         Corporation Limited and the Company(/2/)

10.38   Security Agreement (Tarrant Co. Ltd. Draft Acceptance) entered into as
         of June 6, 1995, by and between The Hongkong and Shanghai Banking
         Corporation Limited and the Company(/2/)

10.39   Agreement dated March 14, 1995, by and among Tarrant Company Limited,
         Cheung Shing Hong Holding Ltd., Yip Sik Kin and Lam Kin Fong(/3/)

10.40   Agreement dated March 17, 1995, by and among Tarrant Company Limited,
         Cheung Shing Hong Holding Ltd., Yip Sik Kin and Lam Kin Fong(/3/)

10.41   Underwriting  Agreement  dated as of July 24,  1995,  by and  among the
         Company, Gerard Guez, Todd Kay and Prudential Securities
         Incorporated(/5/)

10.42   Letter agreement dated August 10, 1995, by and among the Company and
         NationsBanc Commercial Corporation(/4/)

10.42.1 Amendment  dated June 9, 1997 to  Factoring  Agreement  effective as of
         September  28,  1993,  as  amended,  by and  between  the  Company  and
         NationsBanc Commercial Corporation(/8/)

10.43   Letter agreement dated January 30, 1996, by and between Tarrant
         Company Limited and The Hongkong Shanghai Banking Corporation
         Limited(/5/)

10.43.1 Letter agreement dated May 28, 1996, by and between Tarrant Company
         Limited and The Hongkong and Shanghai Banking Corporation
         Limited(/8/)

10.43.2 Letter agreement dated April 16, 1998, by and between Tarrant Company
         Limited and The Hongkong and Shanghai Banking Corporation
         Limited(/11/)

10.44   Promissory  Note in the principal  amount of $3 million dated March 25,
         1996, by GET in favor of the Company(/6/)

10.45   Deed of Trust dated March 25, 1996 by and Between GET and the
         Company(/6/)

10.46   Guaranty,  Pledge &  Security  Agreement  entered  into as of March 25,
         1996, by and between Gerard Guez and the Company(/6/)

10.47   Guaranty,  Pledge &  Security  Agreement  entered  into as of March 25,
         1996, by and between Todd Kay and the Company(/6/)

10.48   Letter  agreement  dated  February  22,  1996,  by and between  Tarrant
         Company Limited and Standard Chartered Bank(/7/)


                                       45
<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.49   Letter  agreement  dated March 8, 1996, by and between  Tarrant Company
         Limited and Standard Chartered Bank(/7/)

10.50   Guarantee Agreement entered into as of August 30, 1996, by and between
         Standard Chartered Bank and the Company(/7/)

10.51   Letter of Undertaking entered into as of August 30, 1996, by and between
         Standard Chartered Bank and the Company(/7/)

10.52   Intercreditor Agreement entered into as of November 1, 1996, between
         The Hongkong and Shanghai Banking Corporation Limited, Standard
         Chartered Bank and Tarrant Company Limited(/7/)

10.53   Security Agreement entered into as of November 1, 1996, by and between
         Standard Chartered Bank and the Company(/7/)

10.53.1 Termination  Agreement  dated as of March 29, 2002, by and between
         Standard Chartered Bank and Tarrant Apparel Group.(/25/)

10.54   Amendment to Security Agreement (Guaranty of Tarrant Co. Ltd. Debt)
         entered into as of November 1, 1996, between The Hongkong and
         Shanghai Banking Corporation Limited and the Company(/7/)

10.55   Agreement dated January 29, 1997 by and among Tarrant Company Limited,
         Cheung Shing Hong Holding Ltd., Yip Sik Kin and Lam Kin Fong(/7/)

10.56   Form of Indemnification Agreement with directors and certain executive
         officers(/8/)

10.57   Special Deposit Account Agreement(8)

10.58   Accounts Receivable Financing Agreement dated June 13, 1997, by between
         the Company and The CIT GroupCommercial Services, Inc.(8)

10.58.1 Letter Agreement dated October 1, 1997 regarding Accounts Receivable
         Financing Agreement, by and between the Company and The CIT
         GroupCommercial Service., Inc.(13)

10.59*   Asset Purchase Agreement dated February 18, 1998, by and between Marble
         Limited and MGI International Limited(10)

10.60*  Asset Purchase Agreement dated February 18, 1998, by and between the
         Company and Marshall Gobuty International U.S.A., Inc.(10)

10.61   Employment Agreement dated February 23, 1998, by and between the Company
         and Marshall Gobuty(10)

10.62   Noncompetition Agreement dated February 23, 1998, by and between
         Marshall Gobuty International U.S.A., Inc. and Marshall Gobuty, on the
         one hand, and the Company, on the other hand(10)

10.63   Noncompetition  Agreement  dated  February 23, 1998, by and between MGI
         International  Limited and Marshall  Gobuty,  on the one hand,  and the
         Company, on the other hand(10)

10.64   Loan Agreement dated as of July 1, 1998, between the Company and
         Standard Chartered Bank(12)


                                       46
<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.65   Partnership Interest Purchase Agreement dated as of July 2, 1998, among
         Rocky Acquisition, LLC, the Company, Limited Direct Associates, L.P.,
         Rocky Apparel, Inc., and Gabriel Manufacturing Company(13)

10.66   Escrow  Agreement  made as of July 2, 1998,  by and among the  Company,
         Gabriel Manufacturing Company and Rocky Apparel, Inc.(13)

10.67   Facility Development Agreement dated as of December 2, 1998, by and
         between Tarrant Mexico, S. de R.L. de C.V. and Tex Transas, S.A. de
         C.V.(13)

10.67.1 Letter of Intent to Purchase Twill mill dated August 30, 2002. (/27/)

10.68+  Agreement for Purchase of Assets dated as of February 22, 1999, by and
         among Tarrant Mexico, S. de R.L. de C.V., Jamil Textil, S.A. de C.V.,
         Inmobiliaria Cuadros, S.A. de C.V., Kamel Nacif and Irma Benavides
         Montes De Oca(13)

10.68.1 Final Agreement for Purchase of Assets dated as of April 18, 1999, by
         and among Tarrant Mexico, S. de R.L. de C.V., Jamil Textil, S.A. de
         C.V., Inmobiliaria Cuadros, S.A. de C.V., Kamel Nacif and Irma
         Benavides Montes De Oca (15)

10.69   Agreement for Purchase of Assets effective as of the twenty-third day of
         March, 1999, by and among CMG, Inc., Charles Ghailian, CHAZZZ
         Acquisition, L.L.C. and the Company(14)

10.70   Employment Agreement effective as of the twenty-third day of March,
         1999, by and between Charles Ghailian and the Company to pay CMG Inc.
         (14)

10.71   Non-Negotiable Promissory Note dated March 23, 1999 to pay CMG
         Inc.(/14/)

10.71.1 Non-Negotiable Promissory Note dated February 14, 2000 to pay CMG Inc.
         (20)

10.72   Escrow Agreement, by and among the Company, Tarrant Mexico, S. de R.L.
         de C.V. and Jamil Textil, S.A. de C.V. dated as of April 1,
         1999(/14/)

10.72.1 Final Escrow Agreement dated as of May 24, 1999, by and among Tarrant
         Apparel Group, Tarrant Mexico, S. de R.L. de C.V., Jamil Textil, S.A.
         de C.V., Inmobiliaria Cuadros, S.A. de C.V., Kamel Nacif and Irma
         Benavides Montes De Oca(/15/)

10.73   Employment Agreement dated as of April 1, 1999 by and between Kamel
         Nacif and Tarrant Mexico, S. de R.L. de C.V.(/14/)

10.73.1 Amendment to Employment Agreement entered into August 7, 2000 by and
         between Tarrant Mexico, S. de R.L. de C.V. and Kamel Nacif (20)


                                       47
<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.74   Agreement for Purchase of Stock dated as of August 1, 1999, by and
         among Tag Mex, Inc., NO! Jeans, Inc., Antonio Haddad Haddad, Tarrant
         Apparel Group and the shareholders of Industrial Exportadora Famian,
         S.A. de C.V. and Coordinados Elite, S.A, de C.V.*(/15/)

10.75   Noncompetition Agreement dated as of August 1, 1999, by and among Tag
         Mex, Inc., NO! Jeans, Inc., Antonio Haddad, Tarrant Apparel
         Group and the shareholders of Industrial Exportadora Famian, S.A. de
         C.V. and Coordinados Elite, S.A, de C.V.(/16/)

10.77   Loan Agreement dated September 1, 1999 by and between General Electric
         Capital Corporation and Tarrant Apparel Group(/16/)

10.77.1 Amendment No. 1 to Loan Agreement dated September 12, 1999 by and
         between General Electric Capital Corporation and Tarrant Apparel
         Group(/16/)

10.77.2 Modification Agreement entered into as of June 7, 2002, by and between
         General Electric Capital Corporation and Tarrant Apparel Group. (/26/)

10.78   Promissory  Note dated September 1, 1999 to pay to the order of General
         Electric  Capital  Corporation  the loan amount  referred to in Exhibit
         10.77(/16/)

10.79   Corporate Guaranty dated September 1, 1999 by Tarrant Mexico, S. de
         R.L. de C.V. in connection with loan agreement referred to in Exhibit
         10.77(/16/)

10.79.1 Amendment No. 1 to Corporate Guaranty dated September 12, 1999 by
         Tarrant Mexico, S. de R.L. de C.V. in connection with loan agreement
         referred to in Exhibit 10.77(/16/)

10.80   Master Security Agreement made as of September 1, 1999 by and between
         General Electric Capital Corporation and Tarrant Mexico, S. de R.L.
         de C.V. in connection with loan agreement referred to in Exhibit
         10.77(/16/)

10.80.1 Amendment No. 1 to Master Security Agreement made as of September 12,
         1999 by and between General Electric Capital Corporation and Tarrant
         Mexico, S. de R.L. de C.V. in connection with loan agreement referred
         to in Exhibit 10.77(/16/)

10.81   Loan Agreement dated December 30, 1999 by and between Standard
         Chartered Bank and Tarrant Apparel Group(/17/)

10.82   Factoring Agreement dated November 24, 1999 by and between MTB Bank
         and Rocky Apparel, LLC.(/17/)

10.83   Machinery and Equipment Agreement dated November 17, 1999 by and
         between Tarrant Mexico, S. de R.L. de C.V and Banc of America Leasing
         & Capital, L.L.C.(/17/)


                                       48
<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.84   Employment Agreement dated as of August 1, 1999 by and between
         Industrial Exportadora Famian, S.A. de C.V. and Antonio Haddad
         Haddad(/17/)

10.85   Employment Agreement dated as of August 1, 1999 by and between
         Industrial Exportadora Famian, S.A. de C.V. and Mario Alberto Haddad
         Yunes(/17/)

10.86   Employment Agreement dated as of August 1, 1999 by and between
         Industrial Exportadora Famian, S.A. de C.V. and Marco Antonio Haddad
         Yunes(/17/)

10.87   Employment Agreement dated as of August 1, 1999 by and between
         Industrial Exportadora Famian, S.A. de C.V. and Miguel Angel Haddad
         Yunes(/17/)

10.88   Non-Negotiable Promissory Note dated August 1, 1999 to pay to the order
         of Antonio Haddad Haddad(/17/)

10.89   Stock Pledge Agreement dated August 1, 1999 by and between TAG MEX,
         INC. and those individuals whose names appear on the signature
         page(/17/)

10.90   Revolving Credit, Factoring and Security Agreement dated January 21,
         2000 by and between Tarrant Apparel Group, Tag Mex, Inc., and GMAC
         Commercial Credit LLC(/17/)

10.90.1 First Amendment to Revolving Credit,  factoring and security agreement
         dated January 21, 2000 by and between Tarrant Apparel Group,  Tag Mex,
         Inc. and GMAC Commercial Credit LLC (20)

10.90.2 Second Amendment to Revolving Credit, factoring and security agreement
         dated January 21, 2000 by and between Tarrant Apparel Group,  Tag Mex,
         Inc. and GMAC Commercial Credit LLC (20)

10.90.3 Third Amendment to Revolving Credit,  factoring and security agreement
         dated January 21, 2000 by and between Tarrant Apparel Group,  Tag Mex,
         Inc. and GMA Commercial Credit LLC (20)

10.90.4 Letter agreement dated June 29,2001 by and between the Company and GMAC
         Commercial Credit (/22/)

10.90.5 Waiver agreement dated November 2001 by and between Tarrant Apparel
         Group And GMAC Commercial Credit (/24/)

10.90.6 Letter  Amendment  dated March 2002 by and between  Tarrant Apparel
         Group, Tag Mex, Inc.,  Fashion Resource (TCL), Inc., United Apparel
         Ventures, LLC and GMAC Commercial Credit, LLC. Reference is made to
         Revolving  Credit,  Factoring and Security  Agreement dated January
         21, 2000. (/25)

10.90.7 Letter  Amendment  dated January 24, 2003 between  Tarrant  Apparel
         Group, Tag Mex, Inc.,  Fashion Resource (TCL), Inc., United Apparel
         Ventures, LLC and GMAC Commercial Credit, LLC. Reference is made to
         Revolving  Credit,  Factoring and Security  Agreement dated January
         21, 2000.


                                       49
<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.90.8 Waiver dated November 13, 2002 between Tarrant  Apparel Group,  Tag
         Mex, Inc.,  Fashion Resource (TCL),  Inc., United Apparel Ventures,
         LLC and GMAC Commercial Credit, LLC. Reference is made to Revolving
         Credit, Factoring and Security Agreement dated January 21, 2000.

10.91   Agreement  for Purchase of Assets  dated April 12, 2000,  by and among
         Harvest Wear, Inc., a California  corporation (HW), Mapa Trading, LTD,
         a  Hong  Kong  corporation  (Mapa),  Needletex,   Inc.,  a  California
         corporation (Needletex),  Patrick Bensimon (the Shareholder), Jane Doe
         International  LLC,  (formally  Needletex,  LLC)  a  Delaware  limited
         liability company (the Purchaser)(/19/)

10.92   Amendment No. 1 to Facility Development Agreement dated as of March
         30, 2000, by and between Tarrant Mexico, S. de R.L. de C.V. and Tex
         Transas, S.A. de C.V.(/18/)

10.93   Equipment Purchase Agreement dated as of October 16, 2000, by and
         between Tarrant Mexico, S. de R.L. de C.V. and Tex Transas, S.A. de
         C.V.(/18/)

10.94   Secured Promissory Note dated October 5, 2000 in the principal amount of
         U.S. $47,702,128 of Tex Transas, S.A. de C.V.(/18/)

10.94.1 Amended Secured Promissory Note dated October 5, 2000 in the principal
         amount of U.S. $47,702,128 of Tex Transas, S.A. de C.V (Amended and
         Restated as of December 18, 2001).

10.94.2 Amendment No. 2 to Secured Promissory Note dated January 2, 2002 between
         Trans Textil International, S.A. de. C.V. and Tarrant Company Limited
         and Trade Link Holdings Company.

10.95   Equipment Lease dated as of October 16, 2000, by and between Tarrant
         Mexico, S. de R.L. de C.V. and Tex Transas, S.A. de C.V.(/18/)

10.96   Production Agreement dated as of October 16, 2000, by and between Tag
         Mex, Inc. and Tex Transas, S.A. de C.V.(/18/)

10.97   Pledge Security Agreement dated as of October 16, 2000, by and between
         Tarrant Mexico, S. de R.L. de C.V. and Tex Transas, S.A. de C.V.(/18/)

10.98   Promissory   note  dated  February  28,  2001  in  the  amount  of  US
         $4,119,545.06 to pay to the order of Standard Chartered Bank (20)

10.99   Stock  repurchase  agreement  entered  into July 10, 2000 by and among
         Tarrant Apparel Group and Gabriel Manufacturing Company (20)

10.99.1 Consulting Agreement effective as of October 9, 2001 by and between
         Gabriel Zeitounti and the Company (23)

10.100  Agreement  for Purchase of Assets dated August 1, 2000 by and among
         Tarrant Mexico, S. de R.L. de C.V., Confecciones Jamil, S.A.de R.L.
         de C. and Inmobiliaria Cuadros, S.A. de C.V.(/21/)


                                       50
<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.101   Limited Liability Company Operating Agreement of United Apparel
          Ventures, LLC effective as of July 1,2001 (/23/)

10.101.1 Amendment to Operating Agreement dated as of October 23, 2001 by and
          among Azteca Production International, Inc. ("Azteca") and "TAG MEX".
          (/25/)

10.101.2 Second amendment to Operating Agreement dated as of January 2, 2002 by
          and among Azteca Production International, Inc. ("Azteca") and "TAG
          MEX". (/25/)

10.101.3 Third Amendment to Operating Agreement dated as of July 5, 2002, by and
          between Azteca Production International, Inc, and TAG Mex, Inc. (/26/)

10.102   Employment Agreement effective January 1, 2002 by and between Eddie
          Yuen and the Company (/24/)

10.103   Employment Agreement effective January 7, 2002 by and between Patrick
          Chow and the Company (/24/)

10.103.1 First Amendment to Employment  Agreement dated January 2, 2003, between
          Patrick Chow and the Company.

10.104   Security  Agreement  entered in to as of April 9, 2001,  by and between
          Banco Nacional De Comercio Exterior, Industrial Exportadora Famian
          S.A. and Tarrant Apparel Group (/24/)

10.105   Guaranty Agreement dated as of May 30, 2002 by and between UPS Capital
          Global Trade Finance Corporation and Tarrant Apparel Group and Fashion
          Resource (TCL), Inc. (/26/)

10.105.1 Conditional Consent Agreement dated December 31, 2002, between UPS
          Capital  Global Trade  Finance  Corporation  and Fashion  Resource
          (TCL), Inc.

10.106   Guaranty Agreement dated as of May 30, 2002 by and between UPS Capital
          Global Trade Finance Corporation and Gerard Guez. (/26/)

10.107   Syndicated  Letter of Credit  Facility  dated June 13, 2002 by and
          between  Tarrant  Company  Limited,  Marble Limited and Trade Link
          Holdings Limited as Borrowers and UPS Capital Global Trade Finance
          Corporation  as Agent and Issuer and Certain  Banks and  Financial
          Institutions as Banks. (/26/)

10.107.1 Charge Over Shares dated June 13, 2002 by Fashion Resource (TCL), Inc.
          in favor of UPS Capital Global Trade Finance Corporation. (/26/)

10.107.2 Syndicated Composite Guarantee and Debenture dated June 13, 2002
          between Tarrant Company Limited, Marble Limited and Trade link
          Holdings Limited and UPS Capital Global Trade Finance Corporation.
          (/26/)

10.108   Assignment of Promissory Note by Tarrant Apparel Group to Tarrant
          Company Limited and to Trade Link Holdings Company dated December 26,
          2001. (/26/)


                                       51
<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.110   Assignment of Promissory Note for full settlement of indebtedness
          issued by Tex Transas, S.A. de C.V. due to Tarrant Company Limited,
          Trade Link Holdings Limited dated December 26, 2001. (/26/)

10.111   Promissory Note dated July 1, 2002 by Tarrant Apparel Group in favor of
          Todd Kay. (/26/)

10.111.1 Amendment to Promissory  Note dated January 2, 2003,  between Todd Kay
          and the Company.


10.112   Agreement for Purchase of Assets and Stock dated December 31, 2002, by
          and  among  the  Registrant, Tarrant Mexico, S. de R.L. de C.V.,
          Machrima Luxembourg International, Sarl, Trans Textil International,
          S.A. de C.V., Inmobiliaria Cuadros, S.A. de C.V.,  Rosa Lisette Nacif
          Benavides,  Gazi Nacif Borge, Jorge Miguel Echevarria  Vazquez,  and
          Kamel Nacif Borge.+ (/27/)

23.1     Consent of Ernst & Young LLP.

24       Power of Attorney (included on signature page).

99.1     Certification of Chief Executive Officer and Chief Financial Officer
          pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
          of the Sarbanes-Oxley Act of 2002.
----------
*     Confidential treatment has been requested for portions of this document.

+     All schedules and or exhibits have been omitted.  Any omitted  schedule or
      exhibit will be furnished  supplementally  to the  Securities and Exchange
      Commission upon request.

(1)   Filed as an exhibit to the  Company's  Registration  Statement on Form S-1
      filed with the Securities and Exchange Commission on May 4, 1995 (File No.
      33-91874).

(2)   Filed as an exhibit to Amendment No. 1 to  Registration  Statement on Form
      S-1 filed with the Securities and Exchange Commission on July 15, 1995.

(3)   Filed as an exhibit to Amendment No. 2 to  Registration  Statement on Form
      S-1 filed with the Securities and Exchange Commission on July 11, 1995.

(4)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 1995.

(5)   Filed as an exhibit to the  Company's  Annual  Report on Form 10-K for the
      year ended December 30, 1995.

(6)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended March 31, 1996.

(7)   Filed as an exhibit to the  Company's  Annual  Report on Form 10-K for the
      year ended December 31, 1996.

(8)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 1997.

(9)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended September 30, 1997.

(10)  Filed as exhibit to the Company's  Annual Report on Form 10-K for the year
      ended December 31, 1997.


                                       52
<PAGE>


(11)  Filed as exhibit to the  Company's  Quarterly  Report on Form 10-Q for the
      quarter ended March 31, 1998.

(12)  Filed as exhibit to the  Company's  Quarterly  Report on Form 10-Q for the
      quarter ended June 30, 1998.

(13)  Filed as an exhibit to the  Company's  Annual  Report on Form 10-K for the
      year ended December 31, 1998.

(14)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended March 31, 1999.

(15)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 1999.

(16)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended September 30, 1999.

(17)  Filed as an exhibit to the  Company's  Annual  Report on Form 10-K for the
      year ended December 31, 1999.

(18)  Filed as an exhibit on Form 8K 10/21/2000.

(19)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2000.

(20)  Filed as an exhibit  to the  Company's  Annual  Report on Form 10K for the
      year ending December 31, 2000.

(21)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending March 31, 2001.

(22)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending June 30, 2001.

(23)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending September 30, 2001.

(24)  Filed as an exhibit  to the  Company's  Annual  Report on Form 10K for the
      year ending December 31, 2001.

(25)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending March 31, 2002.

(26)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending June 30, 2002.

(26)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending September 30, 2002.

(27)  Filed as an  exhibit  to the  Company's  Current  Report  on Form 8K dated
      December 31, 2002 and filed on January 15, 2003.


                                       53
<PAGE>


                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE



                                                                            PAGE
                                                                            ----

Financial Statements

     Report of Independent Auditors..........................................F-2

     Consolidated Balance Sheets--December 31, 2001 and 2002.................F-3

     Consolidated Statements of Operations--Three year period
         ended December 31, 2002.............................................F-4

     Consolidated Statements of Shareholders' Equity--Three
         year period ended   December 31, 2002...............................F-5

     Consolidated Statements of Cash Flows--Three year period
         ended December 31, 2002.............................................F-6

     Notes to Consolidated Financial Statements..............................F-7

Financial Statement Schedule

     Schedule II--Valuation and Qualifying Accounts.........................F-29


                                      F-1


<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
Tarrant Apparel Group

We have audited the accompanying  consolidated balance sheets of Tarrant Apparel
Group  and  subsidiaries  as of  December  31,  2001 and 2002,  and the  related
consolidated statements of operations,  shareholders' equity, and cash flows for
each of the three years in the period ended  December 31, 2002.  Our audits also
included the  financial  statement  schedule  listed in the Index at Item 15(a).
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  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 consolidated  financial position of Tarrant Apparel
Group  and  subsidiaries  at  December  31,  2001 and 2002 and the  consolidated
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2002 in  conformity  with  accounting  principles
generally  accepted in the United  States.  Also,  in our  opinion,  the related
financial  statement schedule when considered in relation to the basic financial
statements,  taken as a whole,  presents  fairly in all  material  respects  the
information set forth therein.

As  discussed  in Note 6 to the  consolidated  financial  statements,  effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142.





                                                 /S/ ERNST & YOUNG LLP
                                                 ---------------------

Los Angeles, California
March 14, 2003


                                      F-2


<PAGE>


                              TARRANT APPAREL GROUP

                           CONSOLIDATED BALANCE SHEETS
                                                            December 31,
                                                      -------------------------
                                                         2001          2002
                        ASSETS
                        ------
Current assets:
  Cash and cash equivalents.........................  $  1,524,447 $  1,388,482
  Accounts receivable, net .........................    58,576,654   65,287,902
  Due from affiliates ..............................     2,064,923   10,269,251
  Due from officers ................................        87,456      456,500
  Inventory ........................................    50,600,584   44,782,154
  Temporary quota...................................       369,849        --
  Current portion of note receivable--related party.     3,468,490        --
  Prepaid expenses and other receivables............     6,274,330    5,135,672
  Income taxes receivable...........................       692,868      280,200
                                                      ------------ ------------
    Total current assets............................   123,659,601  127,600,161
  Property and equipment, net ......................    90,173,451  159,998,629
  Permanent quota, net..............................        73,978        --
  Note receivable--related party, less current
   portion..........................................    41,430,564        --
  Other assets......................................     3,932,146    2,539,040
  Excess of cost over fair value of net assets
   acquired, net....................................    29,196,886   28,064,019
                                                      ------------ ------------
    Total assets....................................  $288,466,626 $318,201,849
                                                      ============ ============
        LIABILITIES AND SHAREHOLDERS' EQUITY
        ------------------------------------
Current liabilities:
  Short-term bank borrowings .......................  $ 22,085,349 $ 29,326,924
  Accounts payable..................................    31,560,131   39,142,350
  Accrued expenses..................................     9,648,389   12,566,475
  Income taxes......................................     7,177,324   12,640,388
  Deferred tax liabilities..........................       514,913         --
  Due to shareholders...............................     2,307,687      486,875
  Current portion of long-term obligations..........    25,256,628   21,706,502
                                                      ------------ ------------
    Total current liabilities.......................    98,550,421  115,869,514
Long-term obligations...............................    63,993,808   55,903,976
Deferred tax liabilities ...........................         --         407,751

Minority interest in UAV............................       757,927    3,205,167
Minority interest in Tarrant Mexico.................         --      21,654,538

Commitments and contingencies
Shareholders' equity:
Preferred stock, 2,000,000 shares authorized; none
 (2001) and 100,000 shares (2002) issued and
 outstanding........................................         --       8,820,573
Common stock, no par value, 20,000,000 shares
   authorized; 15,840,815 shares (2001) and
   15,846,315 (2002) issued and outstanding.........    69,341,090   69,368,239
Contributed capital.................................     1,434,259    1,434,259
Retained earnings...................................    62,958,375   56,873,094
Notes receivable from shareholders..................   (12,118,773)  (5,601,804)
Accumulated other comprehensive income (loss).......     3,549,519   (9,733,458)
                                                      ------------ ------------
    Total shareholders' equity......................   125,164,470  121,160,903
                                                      ------------ ------------
    Total liabilities and shareholders' equity......  $288,466,626 $318,201,849
                                                      ============ ============

                             See accompanying notes.


                                      F-3


<PAGE>


                              TARRANT APPAREL GROUP

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                             Year Ended December 31,
                                      -------------------------------------
                                          2000          2001          2002
                                      ------------  ------------  -----------
Net sales...........................  $395,169,020  $330,253,548  $347,390,930
Cost of sales.......................   332,333,227   277,525,010   302,082,144
                                      ------------  ------------  ------------
Gross profit........................    62,835,793    52,728,538    45,308,786
Selling and distribution expenses...    17,580,135    14,345,356    10,757,029
General and administrative
 expenses...........................    40,326,636    33,136,008    30,082,061
Amortization of excess of cost over
 fair value of net assets acquired..     2,840,505     3,317,428         --
                                      ------------  ------------  ------------
Income from operations..............     2,088,517     1,929,746     4,469,696
Interest expense....................    (9,849,502)   (7,807,918)   (5,443,995)
Interest income.....................     1,294,909     3,255,843     4,748,144
Minority interest...................     1,312,651      (412,022)   (4,580,766)
Other income........................     1,350,367     1,853,066     2,647,975
Other expense ......................      (193,359)     (855,994)   (2,004,073)
                                      ------------  ------------  ------------
Loss before provision for income
 taxes and cumulative effect of
 accounting change..................    (3,996,417)   (2,037,279)     (163,019)
Provision (credit) for income taxes     (1,478,675)      851,977     1,051,018
                                      ------------  ------------  ------------
Loss before cumulative effect of
 accounting change..................   $(2,517,742)  $(2,889,256)  $(1,214,037)
Cumulative effect of accounting
 change.............................          --            --      (4,871,244)
                                      ------------  ------------  ------------
Net loss ...........................   $(2,517,742)  $(2,889,256)  $(6,085,281)
                                      ============  ============  ============
Net loss per share - Basic and Diluted:
 Before cumulative effect of
  Accounting change.................  $      (0.16) $      (0.18) $      (0.08)
 Cumulative effect of accounting
  change............................           --            --          (0.30)
 After cumulative effect of
  accounting change.................  $      (0.16) $      (0.18) $      (0.38)

Weighted average shares outstanding:
Basic and Diluted...................    15,814,693    15,824,750    15,834,122


                             See accompanying notes.


                                      F-4


<PAGE>

<TABLE>
                              TARRANT APPAREL GROUP

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<CAPTION>
                                                                             Accumulated
                                                                                Other           Notes        Total
                          Preferred     Common    Contributed    Retained    Comprehensive      from      Shareholders'
                            Stock        Stock      Capital      Earnings    Income (Loss)   Shareholders    Equity
                          ----------  ----------- ----------- -------------- -------------  ------------ ------------
<S>                       <C>         <C>          <C>          <C>          <C>            <C>          <C>
Balance at December 31,
 1999...................   $     --   $69,595,141  $1,434,259   $68,365,373  $     8,698    $     --     $139,403,471
  Net loss..............         --        --           --       (2,517,742)       --             --       (2,517,742)
  Currency translation..         --        --           --           --         (727,702)         --         (727,702)
                                                                                                         ------------
  Comprehensive loss....         --        --           --           --            --             --       (3,245,444)
  Exercise of stock
   options..............         --       198,000       --           --            --             --          198,000
  Repurchase of shares..         --      (518,525)      --           --            --             --         (518,525)
  Income tax benefit
   from exercise of
   stock options........         --        28,067       --           --            --             --           28,067
  Advances to shareholders,
  net...................         --        --           --           --            --        (5,376,486)   (5,376,486)
                          ----------  ----------- -----------  ------------  -----------    -----------  ------------
Balance at December 31,
 2000...................         --    69,302,683   1,434,259    65,847,631     (719,004)    (5,376,486)  130,489,083
  Net loss..............         --        --           --       (2,889,256)       --             --       (2,889,256)
  Currency translation..         --        --           --           --        4,268,523          --        4,268,523
                                                                                                          -----------
  Comprehensive income..         --        --           --           --            --             --        1,379,267
  Exercise of stock
   options..............         --        33,750       --           --            --             --           33,750
  Income tax benefit
   from exercise of
   stock options........         --         4,657       --           --            --             --            4,657
  Advances to shareholders,
   net..................         --        --           --           --            --        (6,742,287)   (6,742,287)
                          ----------  ----------  -----------   -----------  -----------    -----------  ------------
Balance at December 31,
 2001...................         --    69,341,090   1,434,259    62,958,375    3,549,519    (12,118,773)  125,164,470
  Net loss..............         --        --           --       (6,085,281)       --             --       (6,085,281)
  Currency translation..         --        --           --           --      (13,282,977)         --      (13,282,977)
                                                                                                         ------------
  Comprehensive loss....         --        --           --           --            --             --      (19,368,258)
  Exercise of stock
   options..............         --        24,135       --           --            --             --           24,135
  Income tax benefit
   from exercise of
   stock options........         --         3,014       --           --            --             --            3,014
  Issuance of preferred
   stock...............    8,820,573        --          --           --            --             --        8,820,573
  Repayment from share-
   holders, net.........         --         --          --           --            --         6,516,969     6,516,969
                          ----------  -----------  ----------   -----------  ------------   -----------  ------------
Balance at December 31,
 2002...................  $8,820,573  $69,368,239  $1,434,259   $56,873,094  $(9,733,458)   $(5,601,804) $121,160,903
                          ==========  ===========  ==========   ===========  ===========    ===========  ============
</TABLE>


                             See accompanying notes


                                      F-5


<PAGE>


<TABLE>
                              TARRANT APPAREL GROUP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                         Year Ended December 31,
                                                -----------------------------------------
                                                     2000         2001          2002
                                                ------------  ------------   ------------
<S>                                             <C>           <C>            <C>
Operating activities:
Net loss.....................................   $ (2,517,742) $ (2,889,256)  $ (6,085,281)
Adjustments to reconcile net loss to net
cash provided by operating activities:
  Deferred taxes.............................       (553,087)    1,273,305       (107,162)
  Depreciation and amortization..............     12,580,992    14,564,623     10,130,132
  Accrued interest on note receivable........            --            --      (4,452,490)
  Cumulative effect of accounting change.....            --            --       4,871,244
  (Gain) loss on sale of fixed assets........        (10,202)       26,861          5,291
  Unrealized (gain) loss on foreign currency.       (411,811)     (103,705)     1,014,696
  Minority interest..........................     (1,312,650)      757,927      4,426,080
  Gain on legal settlement...................            --            --        (473,041)
  Provision for returns and discounts........      1,127,089     1,830,841        453,167
  Changes in operating assets and
   liabilities:
    Accounts receivable......................      3,485,045     5,902,995     (7,141,536)
    Due from affiliates......................     (6,533,328)   (2,102,811)   (10,746,255)
    Inventory................................        445,238    10,474,030      5,818,431
    Temporary quota..........................      4,293,572      (142,221)       369,849
    Prepaid expenses and other receivables...     (4,837,206)    1,385,875      1,551,324
    Accounts payable.........................      1,301,541     2,343,419      7,646,926
    Accrued expenses and income tax payable..      7,806,018    (3,270,616)     8,211,770
                                                 ------------ ------------   ------------
      Net cash provided by
       operating activities..................     14,863,469    30,051,267     15,493,145

Investing activities:
Purchase of fixed assets.....................    (18,883,236)   (3,918,602)    (2,984,547)
Acquisitions, net of cash....................     (2,734,828)   (6,750,391)    (2,355,954)
Purchase of permanent quota..................       (221,934)          --             --
Collection on note receivable................        766,150     2,036,924            --
(Increase) decrease in other assets..........     (7,173,379)     (594,660)       509,524
                                                 ------------ ------------   ------------
   Net cash used in investing activities.....    (28,247,227)   (9,226,729)    (4,830,977)

Financing activities:
Short-term bank borrowings, net..............    (11,359,688)  (16,927,528)     7,241,576
Proceeds from long-term obligations..........     36,746,378    52,894,023    198,551,201
Payment of long-term obligations and bank
 borrowings..................................     (9,608,034)  (40,376,783)  (211,894,730)
 Advances/repayments to
 shareholders/officers.......................    (40,453,524)  (20,505,451)    (3,988,538)
Borrowings from shareholders/officers........     39,442,067     2,743,353        790,091
Repurchase of shares.........................       (518,525)          --           --
Exercise of stock options including related
 tax benefit.................................        226,067        38,407         27,149
                                                 ------------ ------------   ------------
      Net cash provided by (used in)
       financing activities..................      14,474,741  (22,133,979)    (9,273,251)

Effect of changes in foreign currency........        (681,197)     184,591     (1,524,882)
                                                 ------------  ------------  ------------
Increase(decrease)in cash and cash equivalents.       409,786   (1,124,850)      (135,965)
Cash and cash equivalents at beginning of year      2,239,511    2,649,297      1,524,447
                                                 ------------  ------------  ------------
Cash and cash equivalents at end of year         $  2,649,297  $ 1,524,447   $  1,388,482
                                                 ============  ============  ============
</TABLE>

                             See accompanying notes


                                      F-6


<PAGE>


                              TARRANT APPAREL GROUP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF CONSOLIDATION

The accompanying  financial  statements  consist of the consolidation of Tarrant
Apparel Group, a California corporation (formerly "Fashion Resource, Inc.") (the
"Parent Company" or the "Company"),  and its wholly owned  Subsidiaries  located
primarily  in the U.S.,  Mexico,  and  Asia.  The  Company  owns 51% of Jane Doe
International,  LLC ("JDI"),  and 50.1% of United Apparel Ventures ("UAV").  The
Company  consolidates both of these entities and reflects the minority interests
in earnings (losses) of the ventures in the accompanying  financial  statements.
All inter-company amounts are eliminated in consolidation.

The Company serves both specialty  retail and mass  merchandise  store chains by
designing,  merchandising  and  contracting for the  manufacture,  manufacturing
directly and selling of casual,  moderately  priced apparel,  for women, men and
children under private label.  The Company also sources apparel and operates its
own vertically integrated manufacturing facilities.

REVENUE RECOGNITION

Revenue is recognized at the point of shipment for all merchandise sold based on
FOB shipping  point.  For  merchandise  shipped on landed duty paid (LDP) terms,
revenue  is  recognized  at the  point of  either  leaving  Customs  for  direct
shipments or at the point of leaving our warehouse where title is transferred.

SHIPPING AND HANDLING COSTS

Freight  charges  are  included  in selling  and  distribution  expenses  in the
statement of operations  and amounted to  $3,022,000,  $2,509,000 and $2,136,000
for the years ended December 31, 2000, 2001 and 2002, respectively.

CASH AND CASH EQUIVALENTS

Cash equivalents  consist of highly liquid investments with an original maturity
of three months or less when purchased.

ACCOUNTS RECEIVABLE--ALLOWANCE FOR RETURNS, DISCOUNTS AND BAD DEBTS

The Company evaluates the collectibility of accounts  receivable and chargebacks
(disputes  from  the  customer)   based  upon  a  combination  of  factors.   In
circumstances where the Company is aware of a specific  customer's  inability to
meet its financial  obligations  (such as in the case of  bankruptcy  filings or
substantial  downgrading of credit sources), a specific reserve for bad debts is
taken against amounts due to reduce the net recognized  receivable to the amount
reasonably  expected  to be  collected.  For all other  customers,  the  Company
recognizes  reserves  for bad  debts  and  chargebacks  based on its  historical
collection experience.  If collection experience  deteriorates (for example, due
to an unexpected  material adverse change in a major customer's  ability to meet
its financial obligations to us), the estimates of the recoverability of amounts
due the Company could be reduced by a material amount.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market.

COST OF SALES

Cost  of  sales  includes   costs  related  to  product  costs,   direct  labor,
manufacturing overhead, duty, quota, freight in, brokerage and warehousing.


                                       F-7
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

SELLING AND DISTRIBUTION EXPENSES

Selling and distribution  expenses  include expenses related to samples,  travel
and entertainment,  salaries, rent and other office expenses, professional fees,
freight out and selling commissions incurred in the sales process.

GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  include  expenses related to research and
product development,  travel and entertainment,  salaries, rent and other office
expenses, depreciation, professional fees and bank charges.

PRODUCT DESIGN, ADVERTISING AND SALES PROMOTION COSTS

Product design,  advertising and sales promotion costs are expensed as incurred.
Product  design,  advertising  and sales  promotion  costs included in operating
expenses in the  accompanying  statements of operations  (excluding the costs of
manufacturing  samples)  amounted to  approximately  $1,931,000,  $1,621,000 and
$1,340,000 in 2000, 2001 and 2002, respectively.

QUOTA

The Company purchases quota rights to be used in the importation of its products
from certain foreign  countries.  The effect of quota  transactions is accounted
for as a product cost.

Permanent quota entitlements were principally  obtained through free allocations
by the Hong Kong Government  pursuant to an import  restraint  between Hong Kong
and the United States and are renewable on an annual basis, based upon the prior
year utilization. Permanent quota entitlements acquired from outside parties are
amortized over three years on a straight-line  basis,  and amounted to $418,000,
net of  amortization  of $1.8  million at December  31,  2000,  $74,000,  net of
amortization of $2.1 million at December 31, 2001 and $0, net of amortization of
$2.2 million at December 31, 2002.

Temporary  quota  represents  quota rights  acquired from other  permanent quota
entitlement holders on a temporary basis.  Temporary quota has a maximum life of
twelve months. The cost of temporary quota purchased for use in the current year
has been  assigned to  inventory  purchases  while the cost of  temporary  quota
acquired for usage in the year following the balance sheet date is recorded as a
current asset.

PROPERTY AND EQUIPMENT

Property  and  equipment  is recorded at cost.  Additions  and  betterments  are
capitalized  while repair and  maintenance  costs are charged to  operations  as
incurred.  Depreciation  of  property  and  equipment  is  provided  for  by the
straight-line method over their estimated useful lives.  Leasehold  improvements
are amortized using the straight-line  method over the lesser of their estimated
useful lives or the term of the lease.  Upon  retirement or disposal of property
and equipment, the cost and related accumulated depreciation are eliminated from
the accounts and any gain or loss is reflected in the  statements of operations.
Repair and maintenance  costs are charged to expense as incurred.  The estimated
useful lives of the assets are as follows:

     Buildings ....................................          35 to 40 years
     Equipment ....................................           7 to 15 years
     Furniture and Fixtures .......................            5 to 7 years
     Vehicles .....................................                 5 years
     Leasehold Improvements .......................           Term of lease

INTANGIBLES

The excess of cost over fair value of net assets  acquired  was  amortized  over
five to thirty years through December 31, 2001.  Effective  January 1, 2002, the
Company adopted SFAS No. 142, "Goodwill and Other Intangible  Assets." According
to


                                       F-8
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

this statement,  goodwill and other intangible  assets with indefinite lives are
no longer subject to amortization, but rather an annual assessment of impairment
applied on a  fair-value-based  test. The Company adopted SFAS No. 142 in fiscal
2002 and performed its first annual assessment of impairment,  which resulted in
an impairment loss of $4.9 million.

IMPAIRMENT OF LONG-LIVED ASSETS

The carrying value of long-lived  asserts are reviewed when events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  If it is determined  that an impairment loss has occurred based on
the lowest  level of  identifiable  expected  future  cash flow,  then a loss is
recognized in the statement of operations using a fair value based model.

DEFERRED FINANCING COST

Included  in the other  assets are  deferred  financing  costs of  $949,000  and
$638,000 at December 31, 2001 and 2002,  respectively.  These costs of obtaining
financing are being  amortized as interest  expense over the term of the related
debt.

INCOME TAXES

The  Company  utilizes  SFAS No.  109,  "Accounting  for  Income  Taxes",  which
prescribes the use of the liability  method to compute the  differences  between
the tax basis of assets and  liabilities  and the  related  financial  reporting
amounts using currently enacted tax laws and rates.

The Company's Hong Kong corporate affiliates are taxed at an effective Hong Kong
rate of 16%. No domestic tax  provision  has been  provided for $48.7 million of
un-remitted  retained earnings of these Hong Kong  corporations,  as the Company
intends to maintain  these amounts in Hong Kong on a permanent  basis in support
of its working capital requirements.

NET LOSS PER SHARE

Net loss per share has been computed in accordance with SFAS No. 128,  "Earnings
Per Share".  All options have been excluded from the  computation in 2000,  2001
and 2002 as the impact would be anti-dilutive.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Mexico and Hong Kong  subsidiaries  are translated
at the rate of exchange in effect on the balance sheet date; income and expenses
are translated at the average rates of exchange  prevailing during the year. The
functional  currencies in which the Company transacts business are the Hong Kong
dollar and the peso in Mexico.

Foreign  currency  gains and losses  resulting  from  translation  of assets and
liabilities are included in other comprehensive income (loss). Transaction gains
or losses, other than inter-company debt deemed to be of a long-term nature, are
included in net income (loss) in the period in which they occur. At December 31,
2002, the Hong Kong  subsidiaries have retained earnings of $67.2 million and an
inter-company receivable due from Tarrant Apparel Group of $19.8 million.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial  instruments  is  determined by reference to various
market data and other valuation techniques as appropriate. Considerable judgment
is required in  estimating  fair values.  Accordingly,  the estimates may not be
indicative  of the amounts that the Company  could  realize in a current  market
exchange.  The carrying  amounts of cash and cash  equivalents,  receivables and
accounts payable  approximate fair values. The carrying amounts of the Company's
variable rate borrowings under the various  short-term  borrowings and long-term
debt arrangements approximate fair value.


                                       F-9
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONCENTRATION OF CREDIT RISK

Financial instruments,  which potentially expose the Company to concentration of
credit risk consist primarily of cash equivalents, trade accounts receivable and
amounts due from factor.

The Company's  products are primarily sold to mass  merchandisers  and specialty
retail  stores.  These  customers  can be  significantly  affected by changes in
economic, competitive or other factors. The Company makes substantial sales to a
relatively  few,  large  customers.  In order to minimize the risk of loss,  the
Company assigns certain of its domestic accounts  receivable to a factor without
recourse or requires  letters of credit from its customers prior to the shipment
of  goods.  For  non-factored  receivables,  account-monitoring  procedures  are
utilized to minimize the risk of loss. Collateral is generally not required. The
following table presents the percentage of net sales  concentrated  with certain
customers. Customer A represents a group of customers under common ownership.


                                                            2000  2001  2002
                                                            ----  ----  ----
Customer A................................................. 44.2% 22.8% 22.6%
Customer B (formerly part of A in 2000)....................  --   20.5% 17.6%
Customer C.................................................  9.1  12.2%  9.7%
Customer D.................................................  --    7.8% 17.4%

The Company  maintains demand deposits with several major banks. At times,  cash
balances may be in excess of Federal Deposit Insurance Corporation or equivalent
foreign insurance limits.

USE OF ESTIMATES

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

EMPLOYEE STOCK OPTIONS

The Company accounts for employee stock options using the intrinsic value method
rather  than  the   alternative   fair-value   accounting   method.   Under  the
intrinsic-value  method,  if the exercise price of the employee's  stock options
equals the market  price of the  underlying  stock on the date of the grant,  no
compensation expense is recognized.

Pro forma information regarding net income and earnings per share is required by
Statement  148, and has been  determined as if the Company had accounted for its
employee stock options under the fair value method of that  Statement.  The fair
value for these options was estimated at the date of grant using a Black-Scholes
option   pricing   model  with  the  following   weighted-average   assumptions:
weighted-average  risk-free  interest  rate of 6% for  2000  and 2001 and 4% for
2002; dividend yields of 0% for 2000, 2001 and 2002; weighted-average volatility
factors of the expected  market price of the Company's  Common Stock of 1.28 for
2000, 1.22 for 2001, and 0.65 for 2002; and a weighted-average  expected life of
the option of four years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options,  which have no vesting  restrictions and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input  assumptions  can  materially  affect  the fair  value  estimates,  in the
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma information follows:


                                      F-10
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                                           2000          2001           2002
                                       -----------    ----------    -----------
Pro forma net loss..................   $(7,445,975)  $(7,035,501)   $(9,519,060)
Net loss as reported................   $(2,517,742)  $(2,889,256)   $(6,085,281)
Pro forma loss per share
  Basic.............................   $     (0.47)  $     (0.44)   $     (0.60)
  Diluted...........................   $     (0.47)  $     (0.44)   $     (0.60)
Net loss per share
  Basic.............................   $     (0.16)  $     (0.18)   $     (0.38)
  Diluted...........................   $     (0.16)  $     (0.18)   $     (0.38)

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal  of  Long-Lived   Assets".   This  statement  addresses  the  financial
accounting and reporting for the  impairment and disposal of long-lived  assets.
It supercedes and addresses significant issues relating to the implementation of
SFAS No. 121,  "Accounting  for the Impairment of Disposal of Long-Lived  Assets
and For  Long-Lived  Assets to Be Disposed Of". SFAS No. 144 retains many of the
fundamental  provisions  of SFAS No.  121 and  establishes  a single  accounting
model, based on the framework established in SFAS No. 121, for long-lived assets
to be disposed of by sale,  whether  previously held and used or newly acquired.
The Company  adopted  this  standard as of the  beginning  of fiscal  2002.  The
application  of SFAS No.  144 did not have a  material  impact on the  Company's
results of operations or financial position.

In June 2002, the FASB approved SFAS No. 146,  "Accounting for Costs  Associated
with Exit or Disposal Activities." This statement addresses financial accounting
and  reporting  for  costs  associated  with  exit or  disposal  activities  and
nullifies  EITF Issue No.  94-3,  "Liability  Recognition  for Certain  Employee
Termination  Benefits and Other Costs to Exit an  Activity."  The  provisions of
this statement are effective for exit or disposal  activities that are initiated
after December 31, 2002, with early application encouraged. The impact on future
financial statements will depend on future exit or disposal activities.

In the  current  year,  the  Company  adopted  the  provisions  of SFAS No.  148
"Accounting  for Stock-Based  Compensation--Transition  and  Disclosure",  which
amends SFAS No. 123,  "Accounting for Stock-Based  Compensation"  and Accounting
Principles Board Opinion 28, "Interim Financial Reporting," to require prominent
disclosures in both annual and interim financial  statements about the method of
accounting  for stock  based  compensation  and the effect of the method used on
reported results. The Company has adopted the disclosure  provisions of SFAS No.
148, which require expanded disclosure regarding stock-based compensation in the
accounting  policies  footnote to the  consolidated  financial  statements.  The
expanded  disclosure  will  be  required  in  our  quarterly  financial  reports
beginning in the first quarter of 2003.

CURRENCY RATE HEDGING

The  Company  manufactures  in a  number  of  countries  throughout  the  world,
including  Hong Kong and Mexico,  and, as a result,  is exposed to  movements in
foreign  currency  exchange  rates.  Periodically  the  Company  will enter into
various  currency  rate hedges.  The primary  purpose of the  Company's  foreign
currency hedging activities is to manage the volatility  associated with foreign
currency  purchases of materials and equipment in the normal course of business.
The Company utilizes forward exchange  contracts with maturities of one to three
months. The Company enters into certain foreign currency derivative  instruments
that do not meet hedge  accounting  criteria.  These  primarily  are intended to
protect  against  exposure  related to financing  transactions  (equipment)  and
income from  international  operations.  The net impact of the related gains and
losses was not material.

RECLASSIFICATIONS

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


                                      F-11
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

2. ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:


                                                         December 31,
                                                    ------------------------
                                                       2001         2002
                                                    -----------  -----------
U.S. trade accounts receivable..................... $41,266,134  $42,979,762
Foreign trade accounts receivable..................  17,846,606   16,445,868
Due from factor....................................   1,507,089    4,176,598
Other receivables..................................   4,123,073    6,002,295
Allowance for returns, discounts and bad debts.....  (6,166,248)  (4,316,621)
                                                    -----------  -----------
                                                    $58,576,654  $65,287,902
                                                    ===========  ===========


The Debt Facility includes a factoring  arrangement  whereby the Company factors
with GMAC accounts  receivables  from customers with debt ratings below BBB. The
Company does not receive  advances against these  receivables,  and is paid only
upon collection of proceeds. For this credit insurance arrangement,  the Company
pays the factor a commission of 60 basis points.

3. INVENTORY

Inventory consists of the following:

                                                          December 31,
                                                     -----------------------
                                                        2001        2002
                                                     ----------- -----------
Raw materials, fabric and trim accessories.......... $16,708,651 $12,451,447
Raw cotton..........................................   2,096,792   1,017,963
Work-in-process.....................................   7,735,827   9,948,700
Finished goods shipments-in-transit.................   3,706,735   4,877,002
Finished goods......................................  20,352,579  16,487,042
                                                     ----------- -----------
                                                     $50,600,584 $44,782,154
                                                     =========== ===========


                                      F-12
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:


                                          December 31,
                                  --------------------------
                                      2001          2002
                                  ------------  ------------
Land..........................   $  1,443,744  $  1,285,267
Buildings.....................     14,798,596    61,697,034
Equipment.....................     89,427,176   120,270,968
Furniture and fixtures........      2,442,717     2,428,858
Leasehold improvements........     11,719,752    10,657,364
Vehicles......................      1,246,800     1,099,538
                                 ------------  ------------
                                  121,078,785  $197,439,029
Less accumulated depreciation
 and amortization.............    (30,905,334)  (37,440,400)
                                 ------------  ------------
                                 $ 90,173,451  $159,998,629
                                 ============  ============

Depreciation  expense,  including  amortization of assets recorded under capital
leases,  totaled  $9,352,087,  $10,903,237  and  $10,056,154 for the years ended
December 31, 2000, 2001 and 2002, respectively.

5. ACQUISITIONS

TWILL MILL

On  December  2, 1998,  the Company  contracted  to acquire a fully  operational
facility being constructed in Puebla,  Mexico by Tex Transas, S.A. de C.V. ("Tex
Transas"). Construction of this facility commenced in the third quarter of 1998,
and it was  anticipated  that the Company would take possession of this facility
in fiscal 2000. On October 16, 2000, the Company revised its agreement regarding
the fully operational facility to extend its option to purchase the facility.

On December 31, 2002,  the Company  acquired  certain  assets of this twill mill
located in Puebla,  Mexico from Tex Transas and  Inmobiliaria  Cuadros,  S.A. de
C.V. ("Cuadros"),  both of which are affiliated with Kamel Nacif. The price paid
for the asset  acquisition  consisted of 100,000 shares (the Shares) of Series A
Preferred  Stock of the Company  valued at $8.8  million,  a 25% equity stake in
Tarrant's  wholly-owned  subsidiary,  Tarrant  Mexico  S. de R.L.  de C.V.,  the
cancellation  of  approximately  $56.9  million  of certain  notes and  accounts
receivables  due from the sellers  and their  affiliates  and a cash  payment of
$500.  The  acquisition  of  the  twill  mill  has  been  accounted  for  as the
acquisition of a discrete operating asset. Therefore no amounts were recorded as
goodwill,  but were allocated to either the assets acquired or the consideration
paid based on independent valuations received by the Company.

On December  31, 2002,  the Company  recorded  $4.5 million of interest  income,
which represented accrued interest on one of the canceled notes receivable.  The
interest  was recorded as the cash was  collected.  Pursuant to the terms of the
purchase  agreement,  interest was accrued through  December 31, 2002 as part of
the purchase price.

UNITED APPAREL VENTURES

On July 1, 2001, the Company formed an entity to jointly  market,  share certain
risks and achieve economics of scale with Azteca Production International,  Inc.
("Azteca"),  a corporation  owned by the brother of Gerard Guez, the Chairman of
the Company,  called  United  Apparel  Ventures,  LLC  ("UAV").  This entity was
created to coordinate  the  production  of apparel for a single  customer of the
Company's branded business.  UAV is owned 50.1% by Tag Mex, Inc., a wholly owned


                                      F-13
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

subsidiary  of the  Company,  and 49.9% by Azteca.  The results of UAV have been
consolidated  into  the  Company's  results  commencing  in July  2001  with the
minority  partner's  share of earnings  (losses)  provided for in the  Company's
financial  statements.  Since October 2002,  both parties have  contributed  the
Express relationship and future orders into the entity.

AJALPAN

On March 29, 2001, the Company  completed the  acquisition of a sewing  facility
located in  Ajalpan  Mexico  from  Confecciones  Jamil,  S.A.  de C.V,  which is
majority  owned by Kamel Nacif,  a principal  shareholder  of the Company.  This
facility,  which was newly constructed  during 1999 and commenced  operations in
2000, was used by the Company for  production  during 2000 and 2001. The results
of Ajalpan have been consolidated into the Company's results commencing on March
29, 2001.

The Company paid $11 million for this operating facility. This entire amount had
been paid in cash and the transfer of certain  receivables of the Company to the
seller.  The assets  acquired  include land,  buildings and all equipment.  This
transfer has been  accounted  for as a purchase and the purchase  price has been
allocated  based on the fair market  value of assets  acquired  and  liabilities
assumed.  The  excess of cost over fair value of net  assets  acquired  was $4.7
million.  Included in the SFAS No. 142 charge was a $1.7 million impairment loss
related to Ajalpan.

EXCLUSIVE PRODUCTION AGREEMENT

On June 28, 2000,  the Company  signed an exclusive  production  agreement  with
Manufactures  Cheja ("Cheja") through February 2002. The Company has agreed on a
new contract to extend the agreement  for an additional  quantity of 6.4 million
units  beginning  April 1, 2002,  which was amended on November 8, 2002, for the
manufacturing  of 5.7 million units through  September 30, 2004. The Company has
unrecouped  advances  to Cheja of  approximately  $2.9  million  related  to the
production agreement to be recouped out of future production.

JANE DOE

On April 12, 2000, the Company formed a new company, Jane Doe International, LLC
("JDI").  This  company was formed for the purpose of  purchasing  the assets of
Needletex,  Inc.,  owner of the  Jane Doe  brand.  JDI is owned  51% by  Fashion
Resource (TCL), Inc., a subsidiary of the Company, and 49% by Needletex, Inc. In
March 2001, the Company  converted JDI from an operating  company to a licensing
company  and  entered  into two  licenses  in  regard to the use of the Jane Doe
trademark.  The licensing activities on this trademark have been largely dormant
in 2002 pending the outcome of the litigation with Patrick Bensimon.  See Note 9
for the discussion of this litigation. Included in the SFAS No. 142 charge was a
$3.2 million impairment loss related to JDI.

6.  GOODWILL - ADOPTION OF STATEMENT NO. 142

In July 2001, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
142  "Goodwill  and  Other  Intangible  Assets,"  which  establishes   financial
accounting and reporting for acquired  goodwill and other intangible  assets and
supersedes APB Opinion No. 17, Intangible  Assets.  The Company adopted SFAS No.
142  beginning  with the first  quarter  of 2002.  SFAS No.  142  requires  that
goodwill  and  intangible  assets  that  have  indefinite  useful  lives  not be
amortized but, instead, tested at least annually for impairment while intangible
assets  that have  finite  useful  lives  continue  to be  amortized  over their
respective  useful lives.  Accordingly,  the Company ceased  amortization of all
goodwill.


SFAS No.  142  requires  that  goodwill  and other  intangibles  be  tested  for
impairment  using a two-step  process.  The first step is to determine  the fair
value of the reporting  unit,  which may be calculated  using a discounted  cash
flow  methodology,  and compare  this value to its carrying  value.  If the fair
value exceeds the carrying  value, no further work is required and no impairment
loss would be recognized.  The second step is an allocation of the fair value of
the reporting unit to all of the reporting unit's assets and liabilities under a
hypothetical  purchase price  allocation.  Based on the evaluation  performed to
adopt SFAS No. 142 along with continuing  difficulties  being experienced in the
industry,  the Company  recorded a non-cash charge of $4.9 million to reduce the
carrying  value  of  goodwill  to the  estimated  fair  value.  This  charge  is
non-operational  in  nature  and  is  reported  as a  cumulative  effect  of  an
accounting change in the accompanying consolidated statement of


                                      F-14
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

operations.  The  Company  utilized  the  discounted  cash flow  methodology  to
estimate fair value.  The following table presents the results of the Company on
a comparable basis:

                                             YEAR  ENDED DECEMBER  31,
                                     2000             2001             2002
                                -------------    -------------    -------------

Reported net loss ...........   $  (2,517,742)   $  (2,889,256)   $  (1,214,037)
Goodwill amortization,
   net of tax ...............       1,789,518        2,089,980             --
                                -------------    -------------    -------------
Adjusted net loss before
   cumulative effect of
   accounting change ........        (728,224)        (799,276)      (1,214,037)
Cumulative effect of
   accounting change ........            --               --         (4,871,244)
                                -------------    -------------    -------------
Adjusted net loss ...........   $    (728,224)   $    (799,276)   $  (6,085,281)
                                -------------    -------------    -------------

Basic and diluted earnings
   per common share:
Reported loss before
   cumulative effect of
   accounting change ........   $       (0.16)   $       (0.18)$          (0.08)
Goodwill amortization, net
   of taxes .................            0.11             0.13          --
                                -------------    -------------    -------------

Adjusted loss before
   cumulative effect of
   accounting change ........           (0.05)           (0.05)           (0.08)
Cumulative effect of
   accounting change ........           --               --               (0.30)
                                -------------    -------------    -------------

Adjusted net loss ...........   $       (0.05)   $       (0.05)   $       (0.38)
                                -------------    -------------    -------------


The following table displays the change in the gross carrying amount of goodwill
by business units at the end of December 31, 2002:

<TABLE>
<CAPTION>
                                      TOTAL         JANE DOE        TARRANT        TARRANT      TAG MEX INC.    TAG MEX INC.
                                                                    MEXICO -       MEXICO -        - ROCKY       - CHAZZZ &
                                                                    AJALPAN        FAMIAN         DIVISION      MGI DIVISION
                                -------------- --------------- -------------- --------------- -------------- ---------------
<S>                               <C>              <C>            <C>             <C>            <C>             <C>
Balance as of
  December 31, 2002               $29,196,886      $1,904,529     $4,427,843      $7,260,134     $7,521,536      $8,082,844
Additional purchase price           3,050,000              --             --       2,550,000             --         500,000
Additional liabilities
  assumed                           1,428,588       1,428,588             --              --             --              --
Impairment losses                  (4,871,244)     (3,182,779)    (1,688,465)             --             --              --
Foreign currency translation        (740,211)              --             --       (740,211)             --              --
                                -------------- --------------- -------------- --------------- -------------- ---------------
Balance as of
  December 31, 2002               $28,064,019       $ 150,338     $2,739,378      $9,069,923     $7,521,536      $8,582,844
                                -------------- --------------- -------------- --------------- -------------- ---------------
</TABLE>


                                       F-15
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

7. DEBT

Debt consists of the following:

                                                     2001              2002
                                                 ------------      ------------
Short term bank borrowings:
  Import trade bills payable ...............     $  4,521,675      $  5,686,327
  Bank direct acceptances ..................       13,838,270        11,272,375
  Other Hong Kong credit facilities ........          361,108         6,206,103
  Other Mexican credit facilities ..........        1,282,593         4,968,309
  Uncleared checks .........................        2,081,703         1,193,810
                                                 ------------      ------------
                                                 $ 22,085,349      $ 29,326,924
                                                 ============      ============

Long term debt:
  Vendor financing .........................     $ 11,043,449      $  7,257,683
  Equipment financing ......................       13,931,997         9,682,290
  Debt facility ............................       62,863,990        58,193,505
  Other debt (including capital leases) ....        1,411,000         2,477,000
                                                 ------------      ------------
                                                   89,250,436        77,610,478
  Less current portion .....................      (25,256,628)      (21,706,502)
                                                 ------------      ------------
                                                 $ 63,993,808      $ 55,903,976
                                                 ============      ============

Import Trade Bills Payable

On June 13, 2002,  the Company  entered into a letter of credit  facility of $25
million with UPS Capital Global Trade Finance Corporation ("UPS") to replace the
credit  facility of The Hong Kong and Shanghai  Banking  Corporation  Limited in
Hong Kong.  Under this  facility,  the Company  may arrange for the  issuance of
letters of credit and acceptances.  The facility is a one-year  facility subject
to renewal on its anniversary and is collateralized by the shares and debentures
of all of the  Company's  subsidiaries  in Hong Kong,  as well as the  Company's
permanent quota holdings in Hong Kong. In addition to the guarantees provided by
Tarrant  Apparel Group and Fashion  Resource  (TCL) Inc and Machrima  Luxembourg
SARL, a new holding company the Company set up during 2002. Mr. Gerard Guez, our
chairman,  also signed a guarantee  of $5 million in favor of UPS to secure this
facility.  This  facility  is also  subject  to certain  restrictive  covenants,
including  no two  consecutive  quarterly  losses,  aggregate  net worth of $105
million  and $109  million at the end of 2002 and 2003,  respectively;  interest
cover of 1.5 times,  fixed charge  ratio of 1.25 to 1 and leverage  ratio of 2.1
to1 in 2002 and 1.6 to 1 in 2003.  As of December 31, 2002,  $24.2  million,  of
which  $12.9  million  were  letters  of  credits,  was  outstanding  under this
facility.  The Company was in violation of the fixed charge ratio covenant and a
waiver has been obtained at a fee of $5,000.

OTHER MEXICAN CREDIT FACILITIES

As of December 31, 2002, Grupo Famian had a short-term advance from Banco Bilbao
Vizcaya  amounting to $298,000.  This subsidiary also had a credit facility with
Banco Nacional de Comercio  Exterior SNC the Company  guaranteed.  This facility
provided  for a $10  million  credit  line  based  on  purchase  orders  and  is
restricted by certain covenants. As of December 31, 2002, the outstanding amount
was $4.7 million. After the merger of Grupo Famian into Tarrant Mexico, the bank
has  agreed  that  Tarrant  Mexico was to repay the  outstanding  amount of $4.7
million by $523,000 per month starting March 26, 2003.


                                      F-16
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

VENDOR FINANCING

During 2000, the Company financed equipment  purchases for the new manufacturing
facility with certain vendors of the related equipment. A total of $16.9 million
was financed with five-year  promissory notes,  which bear interest ranging from
7.0% to 7.5%,  and are payable in  semiannual  payments  commencing  in February
2000. Of this amount,  $7.3 million was  outstanding as of December 31, 2002. Of
the $7.3  million,  $4.6 million is  denominated  in the Euro.  The remainder is
payable in U.S.  dollars.  The Company has covered its exchange risks by forward
exchange contracts.

From time to time,  the Company  opens  letters of credit  under an  uncommitted
credit  arrangement  with Aurora  Capital  Associates  who issues these  credits
through Israeli Discount Bank. As of December 31, 2002, $2.3 million are open in
letters of credit under this arrangement.

An  unrealized  gain of $412,000  and $104,000  and an  unrealized  loss of $1.0
million was recorded at December 31, 2000, 2001 and 2002, respectively,  related
to  this  fluctuation  and is  recorded  in  other  income  in the  accompanying
financial statements.  In addition, during the year ended December 31, 2000, the
Company entered into a hedge contract for Euros related to this debt.

Annual  maturities  for the long term debt and  capital  lease  obligations  are
$21,706,502  (2003),  $10,834,036 (2004),  $45,025,284  (2005),  $12,854 (2006),
$13,647 (2007) and $18,155  (thereafter).  The weighted average interest rate on
short-term  bank  borrowing as of December 31, 2002 and 2001 were 4.1% and 6.7%,
respectively.

EQUIPMENT FINANCING

The  Company  has two  equipment  loans with the  initial  borrowings  of $16.25
million and $5.2 million  from GE Capital  Leasing  ("GE  Capital")  and Bank of
America  Leasing  ("BOA"),  respectively.  The leases are  secured by  equipment
located in Puebla and Tlaxcala,  Mexico. The amounts  outstanding as of December
31,  2002 were $7.1  million  due to GE  Capital  and $2.4  million  due to BOA.
Interest  accrues at a rate of 2 1/2% over LIBOR.  The loan from GE Capital will
mature in the year 2005 and the loan from BOA in the year  2004.  The GE Capital
facilities  are  subject to  covenants  on  Tangible  Net Worth  ($30  million),
leverage  ratio of not more than two times  and no  losses  for two  consecutive
quarters.  The Company was in violation of the covenant on consecutive quarterly
losses  and  obtained  a waiver  from the  bank on March  28,  2002 for a fee of
$10,000 and  acceleration  by $25,000 of monthly  repayment  of  principal.  The
Company  has  reclassified  the GE  Capital  obligation  as a current  liability
because of the  potential  that it may violate one of the covenants in the first
quarter  of 2003.  The BOA  facility  is  subject to a  financial  benchmark  on
interest coverage (3 to 1) and a leverage ratio of not more than 2 times.

The Debt Facility with GMAC and the credit  facilities with GE Capital,  UPS and
BOA all carry  cross-default  clauses.  A breach of a financial  covenant set by
GMAC, UPS or GE Capital  constitutes an event of default,  entitling these banks
to demand payment in full of all outstanding amounts under their respective debt
and credit facilities.  Similarly, if the Company breaches a financial benchmark
set by BOA,  the bank can  accelerate  repayment  of all  outstanding  principal
amount to become six equal monthly installments.

DEBT FACILITY

On January 21, 2000, the Company entered into a new revolving credit,  factoring
and  security  agreement  (the  "Debt  Facility")  with a  syndicate  of lending
institutions.  The Debt  Facility  initially  provided a  revolving  facility of
$105.0  million,  including  a letter of  credit  facility  not to exceed  $20.0
million,  and  matures on January  31,  2005.  The Debt  Facility  provides  for
interest at LIBOR plus the LIBOR rate margin  determined  by the Total  Leverage
Ratio  (as  defined).  The  Debt  Facility  is  collateralized  by  receivables,
intangibles,  inventory and various other specified  non-equipment assets of the
Company.  In addition,  the facility is subject to various  financial  covenants
with quarterly targets,  including provisions for tangible net worth of not less
than $98.5 million  subject to adjustment  for the  fluctuating  of the exchange
rate of Mexican  peso of  December  31, 2000 or that of the  preceding  year-end
fixed  charge  ratio  of 1.1 to 1, and  interest  coverage  ratios  of 3.2 to 1,
leverage  ratio of not more than 1.6 to 1 at year-end


                                      F-17
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

and prohibits the payment of dividends.  On March 2, 2001,  the Company  entered
into an  amendment  of our Debt  Facility  with  GMAC,  who solely  assumed  the
facility in 2000.  This amendment  reduced the $105.0 million  facility to $90.0
million.  The over-advance  line of $25 million was converted to a term facility
to be repaid by monthly installments of $500,000 before August 2001 and $687,500
thereafter.  A total of $58 million was  outstanding  under the Debt Facility at
December 31, 2002.

As of December 31,  2002,  the Company was in violation of covenants on interest
coverage,  total leverage  ratio and fixed charge under the Debt  Facility.  The
Company  received  a waiver  from GMAC with  respect to its  violation  of these
covenants,  and also  received a waiver from GMAC with respect to  compliance at
March 31, 2003 with all financial covenants under the Debt Facility. The Company
paid GMAC $45,000 for this  waiver.  The Company and GMAC have agreed to set new
financial  covenants  for the  remainder  of fiscal 2003 based on the  company's
projections before May 1, 2003.

Within  the Debt  Facility,  the  credit  agreement  with  GMAC  provides  for a
factoring  arrangement whereby the Company factor with GMAC accounts receivables
from customers with debt ratings below BBB. The Company did not receive advances
against these  receivables,  and was paid only upon collection of proceeds.  For
this credit insurance  arrangement,  the Company pays the factor a commission of
60 basis points.

8. INCOME TAXES

The provision (credit) for domestic and foreign income taxes is as follows:

                                               Year Ended December 31,
                                        ------------------------------------
                                            2000        2001         2002
                                        -----------  ----------  -----------
Current:
  Federal..............................$(4,661,591) $(1,272,918) $ (307,684)
  State................................      6,503        1,079     293,055
  Foreign..............................  3,729,499      850,511   1,162,798
                                        -----------  ----------  -----------
                                          (925,589)    (421,328)  1,148,169
Deferred:
  Federal..............................   (346,982)     999,201         --
  State................................   (197,513)     232,821         --
  Foreign..............................     (8,591)      41,283     (97,151)
                                        -----------  ----------  -----------
                                          (553,086)   1,273,305     (97,151)
                                        -----------  ----------  -----------
    Total..............................$(1,478,675)   $ 851,977   $1,051,018
                                        ===========  ==========  ===========


                                      F-18
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The source of income (loss) before the provision for taxes and cumulative effect
of accounting change is as follows:

                                                Year Ended December 31,
                                        ---------------------------------------
                                            2000         2001         2002
                                        ------------  -----------  ------------
Federal................................$(18,125,699) $(8,582,448) $(11,061,937)
Foreign................................  14,129,282    6,545,169    10,898,918
                                        ------------  -----------  ------------
    Total..............................$ (3,996,417) $(2,037,279) $   (163,019)
                                        ============  ===========  ============

Foreign deferred income taxes result primarily from temporary differences in the
recognition  of bad  debt  and  depreciation  expenses  for  tax  and  financial
reporting purposes. The resulting foreign deferred income tax liability amounted
to  approximately  $48,000,  $89,000 and $0 at December 31, 2000,  2001 and 2002
respectively.

A reconciliation of the statutory federal income tax provision  (benefit) to the
reported tax provision (benefit) on income is as follows:



                                               Year Ended December 31,
                                        -------------------------------------
                                           2000         2001         2002
                                        -----------  -----------  -----------
Income tax (benefit) based on
 federal statutory rate............     $(1,358,782) $ (713,048)  $(1,761,992)
State income taxes, net of federal
 benefit...........................        (122,246)    152,035       190,486
Effect of foreign income taxes.....        (324,219)  1,494,708     1,162,798
Increase in valuation allowance and
 other.............................         326,572     (81,718)    1,459,726
                                        -----------  -----------  -----------
                                        $(1,478,675) $  851,977   $ 1,051,018
                                        ===========  ===========  ===========


                                       F-19
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Deferred income taxes reflect the net effects of temporary  differences  between
the carrying amounts of assets and liabilities for financial  reporting purposes
and the amounts  used for income tax  purposes.  Significant  components  of the
deferred tax assets (liabilities) are as follows:


                                                        December 31,
                                                  ------------------------
                                                     2001         2002
                                                  -----------  -----------
Deferred tax assets:
  Provision for doubtful accounts and unissued
   credits....................................... $ 1,238,401  $   835,980
  Provision for other reserves...................     976,597    2,608,101
  Net operating loss carry forward...............        --        850,326
  Deferred compensation and benefits.............     231,245      238,232
  State taxes....................................       1,960        --
                                                  -----------  -----------
    Total deferred tax assets....................   2,448,203    4,532,639
Deferred tax liabilities:
  Unrealized gain................................    (583,100)     (80,858)
                                                  -----------  -----------
                                                     (583,100)     (80,858)
Valuation allowance for deferred tax assets......  (2,380,016)  (4,859,532)
                                                  -----------  -----------
Net deferred tax liabilities..................... $  (514,913) $  (407,751)
                                                  ===========  ===========

The Company has ongoing tax audits  related to Federal tax  returns.  Management
believes adequate reserves have been provided for potential claims.

9. COMMITMENTS AND CONTINGENCIES

The Company has entered into various non-cancelable  operating lease agreements,
principally  for  executive  office,   warehousing   facilities  and  production
facilities with unexpired  terms in excess of one year.  Certain of these leases
provided for scheduled  rent  increases.  The Company  records rent expense on a
straight-line  basis  over the  term of the  lease.  The  future  minimum  lease
payments under these non-cancelable operating leases are as follows:

                                                         Related
                                                          Party      Other
                                                       ---------- ----------
2003.................................................. $2,180,217 $  950,949
2004..................................................  1,208,974    601,801
2005..................................................    898,366    428,691
2006..................................................    925,317    356,840
2007..................................................    953,076    356,840
Thereafter............................................  2,938,808    952,573
                                                       ---------- ----------
  Total future minimum lease payments................. $9,104,758 $3,647,694
                                                       ========== ==========

Several of the operating  leases contain  provisions  for additional  rent based
upon increases in the operating costs, as defined, per the agreement. Total rent
expense  under  the  operating  leases  amounted  to  approximately  $2,548,000,
$2,968,000 and $3,166,000 for 2000, 2001 and 2002, respectively.


                                      F-20
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company had open  letters of credit of  $17,778,561  and  $15,458,189  as of
December 31, 2001 and 2002, respectively.

The  Company  has two  employment  contracts  dated  January  1,  1998  with two
executives  providing for base  compensation and other  incentives.  Commitments
under these  agreements for base  compensation  amount to $1,000,000 for each of
the two  executives  annually  through  December 31, 2003.  Each  contract  also
provides for annual  bonuses of up to $2,000,000  for each executive and vesting
of stock options based on attaining specified  performance  criteria.  Effective
January 10,  2000,  these  contracts  were  amended  reducing the base salary to
$500,000 for each of the two executives and extending the term of the agreements
to March 31, 2003.

On April 1, 1999,  the Company  entered into a three-year  employment  agreement
with Mr.  Nacif,  pursuant to which Mr. Nacif  initially was entitled to receive
(i) an annual base salary of $1 million,  (ii)  reimbursement  of all reasonable
and documented business expenses,  (iii) participation in all plans sponsored by
the Company for  employees in general and (iv) the right (the  "Option") for ten
years to  purchase  up to 500,000  shares of the  Company's  Common  Stock at an
exercise price of $25 per share.  The Option vested in three equal  installments
on April 1, 2000, 2001 and 2002. In the event the Company terminates Mr. Nacif's
employment without cause (as defined), the Company shall remain obligated to pay
Mr.  Nacif an amount  equal to his base salary for the  remainder  of the stated
term. In the event Mr.  Nacif's  employment  is terminated  for any other reason
(including death,  disability,  resignation or termination with cause),  neither
party shall have any further  obligation  to the other,  except that the Company
shall pay to Mr.  Nacif,  or his  estate,  all  reimbursable  expenses  and such
compensation as is due prorated  through the date of termination.  As of January
1, 2000, the Company and Mr. Nacif amended Mr. Nacif's  employment  Agreement to
reduce his annual salary from $1 million to $250,000 starting in 2000.

The Company entered into a consulting  agreement with Gabe Zeitouni,  the former
President of the Company's Rocky division,  through December 31, 2002. Under the
terms of this agreement,  Mr. Zeitouni was paid $140,000  through December 2002.
In  conjunction  with this  consulting  agreement,  Mr.  Zeitouni's  Put  Option
Agreement  of July 10, 2000 was amended.  As of December  31, 2002,  the Company
advanced  approximately  $1.1  million to Mr.  Zeitouni.  The  Company  has also
changed  the time  frame of Mr.  Zeitouni's  right to  require  the  Company  to
purchase 80,890 of shares at $18.54 to be the three-month  period  commencing on
January 1, 2003 and ending on March 31, 2003. Mr.  Zeitouni  exercised his right
in February  2003. The cost of the Put Option (excess of $18.54 over the current
market value of the  Company's  stock) is being  amortized  over the  consulting
period.

In connection  with the  establishment  of JDI (see Note 5), JDI entered into an
employment  agreement with Bensimon,  which provided for the payment of a salary
to  Bensimon  and a bonus  tied  to the new  company's  sales  performance.  The
existing lenders to Needletex,  Inc. agreed to the asset transfer in return for,
among other things,  the confirmation of Bensimon's  continuing  guaranty of the
loan  obligations,  the assumption of the loan obligations by JDI and a guaranty
of those  obligations by the Company.  The Company received an express indemnity
by Needletex, Inc. and Bensimon to reimburse us for all amounts we paid to those
lenders for the account of Needletex and Bensimon. Thereafter a dispute arose as
to whether Bensimon had performed in accordance with his terms of employment set
forth in the Employment  Agreement.  When an amicable resolution of this dispute
could not be achieved,  Bensimon commenced an arbitration  preceding against his
employer (JDI),  Fashion  Resource (TCL),  Inc., the managing member of Jane Doe
International and the Company.  The Company and other respondents  contested and
vigorously opposed the matter.

On January 21, 2003,  after  hearing,  the  arbitration  panel issued an interim
award in favor of Bensimon  awarding  him  $1,425,655  for salary and bonus plus
interest accrued thereon and legal fees and costs to be determined.  The Company
has  accrued an  additional  $1.3  million  reserve  for  litigation  in 2002 in
addition to the  previously  recorded  accrual of  $315,000  included in accrued
liabilities.

The Company is involved from time to time in routine legal matters incidental to
its  business.  In the opinion of the Company's  management,  resolution of such
matters will not have a material effect on its financial  position or results of
operations.


                                      F-21
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

10. EQUITY

The Company has elected to follow  Accounting  Principles Board Opinion No. 25,"
Accounting for Stock Issued to Employees"  (APB 25) and related  interpretations
in accounting for its employee stock options  because,  as discussed  below, the
alternative  fair value  accounting  provided for under FASB  Statement No. 123,
"Accounting  for  Stock-Based  Compensation",  requires use of option  valuation
models that were not developed for use in valuing employee stock options.  Under
APB 25, when the exercise  price of the Company's  employee stock options equals
the market price of the underlying  stock on the date of grant,  no compensation
expense is recognized.

The Company's Employee  Incentive Plan,  formerly the 1995 Stock Option Plan, as
amended and restated in May 1999 (the Plan) and amended in 2002,  has authorized
the  grant of both  incentive  and  non-qualified  stock  options  to  officers,
employees,  directors and consultants of the Company for up to 5,100,000  shares
(as  adjusted  for a stock split  effective  May 1998) of the  Company's  Common
Stock.  The exercise  price of  incentive  options must be equal to 100% of fair
market  value of  common  stock on the date of grant and the  exercise  price of
non-qualified  options  must not be less than the par value of a share of Common
Stock on the date of grant.  The Plan was also  amended  to expand  the types of
awards,  which may be granted  pursuant  thereto to include  stock  appreciation
rights, restricted stock and other performance-based benefits.

In October 1998, the Company granted 1,000,000  non-qualified  stock options not
under the Plan.  The options were  granted to the Chairman and  President of the
Company at $13.50 per share,  the closing sales price of the Common Stock on the
day of the grant.  The options expire in 2008 and vest over four years,  subject
to certain  performance  criteria.  In May 2002, the Company  granted  3,000,000
non-qualified  stock options not under the Plan. The options were granted to the
Chairman,  President of the Company and Mr. Kamel Nacif at $5.50 per share,  the
closing  sales  price of the Common  Stock on the day of the grant.  The options
expire  in 2012 and vest  over  three  years,  subject  to  certain  performance
criteria.

A summary of the Company's stock option  activity,  and related  information for
the years ended December 31 follows:

<TABLE>
<CAPTION>
                                 2000                2001                 2002
                          ------------------- ------------------- -------------------
                                     Weighted            Weighted            Weighted
                                     Average             Average             Average
                                     Exercise            Exercise            Exercise
                           Options    Price    Options    Price    Options    Price
                          ---------  -------- ---------  -------- ---------  --------
<S>                       <C>         <C>     <C>         <C>     <C>         <C>
Outstanding at beginning
 of year................  2,876,737   $14.43  2,697,487   $14.29  3,520,737   $11.90
  Granted...............     95,750     9.61    955,000     5.18  3,004,000     5.50
  Exercised.............    (20,000)    4.28     (8,500)    3.97     (5,500)    4.39
  Forfeited.............   (255,000)   13.99   (123,250)   12.65   (142,750)   12.14
                          ---------   ------  ---------   ------  ---------   ------
Outstanding at end of
 year...................  2,697,487   $14.29  3,520,737   $11.90  6,376,487   $ 8.89
                          =========   ======  =========   ======  =========   ======
Exercisable at end of
 year...................  1,631,220           2,173,587           3,535,487
Weighted average per
 option fair value
 of options granted
 during the year........              $ 7.88              $ 3.89              $ 2.89
</TABLE>


                                      F-22
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table summarizes  information  about stock options  outstanding at
December 31, 2002:

                            Options Outstanding            Options Exercisable
                   -----------------------------------    ---------------------
                                 Weighted
                                 Average      Weighted                  Weighted
                                 Remaining     Average                  Average
                      Number    Contractual   Exercise       Number     Exercise
 Exercise Price    Outstanding     Life        Price      Exercisable    Price
------------------------------------------------------    ---------------------
$3.00 -    5.09        968,112      7.4        $ 4.89         576,362    $ 4.82
 5.50                3,004,000      9.4          5.50         750,000      5.50
 5.55 -    9.97        718,000      5.4          7.17         602,000      7.39
13.50 -   15.50      1,026,000      5.7         13.51       1,022,250     13.51
18.44 -   18.54        116,875      5.5         18.53          41,875     18.49
25.00                  500,000      6.3         25.00         500,000     25.00
33.13 -   39.97         41,500      6.2         39.31          41,500     39.31
45.50                    2,000      6.3         45.50           1,500     45.50
------------------------------------------------------    ---------------------
$3.00 -   45.50      6,376,487      7.7        $ 8.89       3,535,487    $11.35
======================================================    =====================

11. PREFERRED STOCK

In connection with the twill mill acquisition, the Company issued 100,000 Series
A Preferred Shares ("Preferred  Shares").  The Preferred Shares accrue dividends
at an annual rate of 7% of the initial stated value of $88.20 per share and have
no voting rights.  The Shares issued will become  convertible into three million
shares  of  common  stock  if the  Company's  common  shareholders  approve  the
conversion  at the 2003 annual  meeting.  If the Company's  shareholders  do not
approve the issuance of the conversion  shares at the next shareholder  meeting,
the  Company  will then have the  right to  redeem  any or all of the  Preferred
Shares  for a price  equal to the  stated  value  plus all  accrued  and  unpaid
dividends.

The  Company  granted  the holder of the shares of common  stock  issuable  upon
conversion  of the  Preferred  Shares  "piggyback"  registration  rights,  which
provide such holder the right, under certain circumstances,  to have such shares
registered  for  resale  under  the  Securities  Act of 1933.  In the event of a
liquidation, dissolution or winding-up of the Company, the Preferred Shares will
be  entitled  to  receive,  prior to any  distribution  on the common  stock,  a
distribution  equal to the initial stated value of the Preferred Shares plus all
accrued and unpaid dividends.

12. SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION


                                               2000       2001        2002
                                            ---------- ----------  ----------
Cash paid for interest..................... $8,685,000 $4,473,000  $2,361,000
                                            ========== ==========  ==========
Cash paid (refunded) for income taxes...... $3,861,000$(2,554,000)$(5,086,000)
                                            ========== ==========  ==========


                                      F-23
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

During 2000, in a non-cash  transaction,  the Company sold certain equipment and
other assets to a related  party at net book value.  The purchase  price of such
assets,  together with $12.5 million  previously  advanced is  represented  by a
$48.0 million note receivable.  In addition, during 2001 the Company transferred
$5.5 million in  receivables  to the seller in  connection  with the purchase of
Ajalpan. In 2002, the Company acquired certain assets of a twill mill located in
Puebla, Mexico. Included in the consideration paid were 100,000 shares of Series
A  Preferred  Stock  valued at $8.8  million,  a 25% equity  stake in  Tarrant's
wholly-owned  subsidiary,  Tarrant Mexico and the  cancellation of approximately
$56.9 million of certain notes and accounts receivables due from the sellers and
their  affiliates.  These  non-cash  transactions  have been  excluded  from the
respective statements of cash flows.

13. RELATED-PARTY TRANSACTIONS

Related-party  transactions,  consisting  primarily  of  purchases  and sales of
finished goods and raw materials, are as follows:

                                              2000        2001       2002
                                            -------- ----------- -----------
Sales to related parties................ $ 4,069,000 $ 8,340,000 $ 4,864,000
Purchases from related parties.........  $20,972,000 $32,095,000 $76,231,000

As of December 31, 2001 and 2002,  related party affiliates were indebted to the
Company in the amounts of $14.2 million and $15.9 million,  respectively.  These
include amounts due from principal  shareholders of the Company of $12.1 million
and $5.6  million at December 31, 2001 and 2002,  respectively,  which have been
shown as  reductions  to  shareholders'  equity  in the  accompanying  financial
statements. Total interest paid by related party affiliates and the Chairman and
President  were $70,000 and  $368,000 for the years ended  December 31, 2001 and
2002,  respectively.  During 2001,  Kamel Nacif  advanced the Company a total of
$18.1 million for working  capital  purposes.  Such advances were short-term and
paid back by the Company  within 30 days of the advance.  No amounts were due to
Mr. Nacif at December 31, 2002.

From time to time,  the Company has borrowed  funds from, and advanced funds to,
certain officers and principal shareholders, including Messrs. Guez and Kay. The
maximum amount of such borrowings  from Mr. Kay during 2002 was $2,317,000.  The
maximum  amount of such  advances  to Mr.  Guez  during  2002 was  approximately
$4,923,000.  As of December 31, 2002, the Company was indebted to Mr. Kay in the
amount of  $487,000.  Mr. Guez had an  outstanding  advance  from the Company of
$4,879,000  as of December  31, 2002.  As of December 31, 2001,  the Company was
indebted to Mr. Kay in the amount of  $2,308,000.  Mr.  Guez had an  outstanding
advance from the Company of  $4,116,000  as of December 31, 2001. As of December
31, 2001 and 2002,  Mr. Kamel Nacif was indebted to the Company for $8.0 million
and $723,000,  respectively.  All advances to, and borrowings from, Mr. Guez and
Mr.  Kay in 2002 bore  interest  at the rate of  7.75%.  All  existing  loans to
officers  and  directors  before  July 30,  2002  are  grandfathered  under  the
Sarbanes-Oxley  Act of 2002. No further  personal loans will be made to officers
and directors in compliance with the Sarbanes-Oxley Act.

Under lease  agreements  entered into between the Company and two entities owned
by the Chairman and President,  the Company paid $1,299,000 in 2000,  $1,299,000
in 2001 and $1,330,000 in 2002 for rent for office and warehouse facilities.  In
addition  during 2000 and 2001, the Company leased an airplane from 477 Aviation
LLC for the purpose of transporting  employees of the Company.  477 Aviation LLC
is wholly owned by the Company's principal shareholder.  Lease payments amounted
to $705,000 for the year ended  December 31, 2000. The Company did not lease the
plane in 2001 and 2002. The Company  reimbursed the principal  shareholder  fuel
and related  expenses  whenever the Company's  executives  used the aircraft for
business purposes.

Under lease agreements entered into between the Company and the former owners of
Grupo Famian, the Company paid $136 ,000 in 2000,  $832,000 in 2001 and $843,000
in 2002 for rent for sewing and washing facilities in Tehuacan, Mexico.

In 1998,  a  California  limited  liability  company  owned by the  Chairman and
President of the Company purchased  2,300,000 shares of the Common Stock of Tag-
It Pacific,  Inc.  ("Tag-It")  (or  approximately  37% of such Common Stock then
outstanding).  Tag-It is a provider of brand identity  programs to manufacturers
and retailers of apparel and accessories.  Tag-It assumed the responsibility for
managing and sourcing all trim and packaging  used in  connection  with products
manufactured  by or on behalf of the  Company in  Mexico.  This  arrangement  is
terminable  by either the Company or Tag-It at any time.  The  Company  believes
that the terms of this  arrangement,  which is subject to the  acceptance of the
Company's


                                      F-24
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

customers,  are no less  favorable  to the Company  than could be obtained  from
unaffiliated third parties.  The Company purchased $20.9 million,  $17.9 million
and $23.9 million of trim inventory from Tag-it for the years ended December 31,
2000, 2001 and 2002, respectively.  As of December 31, 2001 and 2002, there were
$556,000  million and $4.4  million  outstanding  invoices in Accounts  Payable,
respectively.

The Company  purchased  $5.8  million and $37.0  million of finished  goods from
Azteca for the years ended December 31, 2001 and 2002, respectively. Total sales
of fabric from the Company to Azteca in 2002 were $2.9 million. Two and one half
percent  of gross  sales as  management  fees  were  paid in 2002 to each of the
members of UAV, per the operating agreement.

The Company purchased $8.5 million and $12.3 million of fabric from Trans Textil
in 2001 and 2002.

As of  December  31,  2001 and 2002,  there was $2.5  million  and $7.0  million
outstanding invoices in Accounts Payable, respectively.

As of  December  31,  2000,  Aris  Industries,  Inc.  ("Aris")  owed the Company
approximately $5.8 million for goods manufactured and shipped by the Company. On
February 12, 2001,  Aris and the Company  entered into an agreement  under which
Aris issued to the Company 1.5 million  shares of its common stock and undertook
to repay  either $2.5 million in cash or its  equivalent  in common stock to the
Company on December 31, 2001 in full  satisfaction  of the debt.  As of February
20, 2002,  Aris had issued the Company an  aggregate of 8,117,647  shares of its
common  stock  including  the  1.5  million  shares  previously  issued  in full
satisfaction  of this debt. On March 27, 2002, the Company sold this stock to an
unrelated  third party for an aggregate of $1,785,882.  As of December 31, 2002,
Messrs. Guez and Kay jointly owned approximately 7% of the outstanding shares of
Aris.


                                       F-25
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

14. OPERATIONS BY GEOGRAPHIC AREAS

The  Company   operates   primarily  in  one  industry   segment,   the  design,
manufacturing  and  importation  of private  label,  moderately  priced,  casual
apparel.  Information  about the  Company's  operations in the United States and
Asia is presented below.  Inter-company revenues and assets have been eliminated
to arrive at the consolidated amounts.

<TABLE>
<CAPTION>
                                                                   Adjustments
                             United                                    and
                             States         Asia        Mexico    Eliminations      Total
                          ------------  ------------ ------------ -------------  ------------
2000
<S>                       <C>           <C>          <C>          <C>            <C>
Sales...................  $368,308,000  $ 16,874,000 $  9,987,000 $         --   $395,169,000
Inter-company sales.....    47,632,000   107,860,000   84,664,000  (240,156,000)          --
                          ------------  ------------ ------------ -------------  ------------
Total revenue...........  $415,940,000  $124,734,000 $ 94,651,000 $(240,156,000) $395,169,000
                          ============  ============ ============ =============  ============
Income (loss) from
 operations.............  $ (8,131,000) $  8,217,000 $  2,003,000 $         --   $  2,089,000
                          ============  ============ ============ =============  ============
Total assets............  $245,165,000  $ 97,246,000 $159,971,000 $(194,290,000) $308,092,000
                          ============  ============ ============ =============  ============

2001
Sales...................  $312,587,000  $  5,952,000 $ 11,714,000 $         --   $330,253,000
Inter-company sales.....    12,341,000    86,291,000   77,062,000  (175,694,000)          --
                          ------------  ------------ ------------ -------------  ------------
Total revenue...........  $324,928,000  $ 92,243,000 $ 88,776,000 $(175,694,000) $330,253,000
                          ============  ============ ============ =============  ============
Income (loss) from
 operations.............  $  5,364,000 $   5,369,000 $ (8,803,000)$         --   $  1,930,000
                          ============  ============ ============ =============  ============
Total assets............  $176,178,000  $ 97,175,000 $121,188,000 $(106,074,000) $288,467,000
                          ============  ============ ============ =============  ============
2002
Sales...................  $332,877,000  $  3,943,000 $ 10,571,000 $         --   $347,391,000
Inter-company sales.....    14,474,000    90,830,000   82,531,000  (187,835,000)          --
                          ------------  ------------ ------------ -------------  ------------
Total revenue...........  $347,351,000  $ 94,773,000 $ 93,102,000 $(187,835,000) $347,391,000
                          ============  ============ ============ =============  ============
Income (loss) from
 operations.............  $  6,916,000  $  4,950,000 $ (7,396,000)$         --   $  4,470,000
                          ============  ============ ============ =============  ============
Total assets............  $185,086,000  $107,266,000 $202,741,000 $(176,891,000) $318,202,000
                          ============  ============ ============ =============  ============
</TABLE>

15. EMPLOYEE BENEFIT PLANS

On August 1, 1992, Tarrant HK established a defined contribution retirement plan
covering  all of its Hong Kong  employees  whose  period of  service  exceeds 12
months.  Plan assets are monitored by a third-party  investment  manager and are
segregated  from those of Tarrant HK.  Participants  may  contribute up to 5% of
their salary to the plan. The Company makes annual matching contributions. Costs
of the  plan  charged  to  operations  for  2000,  2001  and  2002  amounted  to
approximately $119,000, $155,000 and $149,000 respectively.

On July 1, 1994, the Company established a defined contribution  retirement plan
covering all of its U.S.  employees  whose period of service  exceeds 12 months.
Plan assets are monitored by a third-party investment manager and are segregated


                                      F-26
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

from those of the Company.  Participants  may contribute from 1% to 15% of their
pre-tax  compensation  up to  effective  limitations  specified  by the Internal
Revenue  Service.  The  Company's  contributions  to the plan are based on a 50%
(100% effective July 1, 1995) matching of  participants'  contributions,  not to
exceed 6% (5% effective July 1, 1995) of the participants'  annual compensation.
In addition,  the Company may also make a discretionary  annual  contribution to
the plan.  Costs of the plan  charged  to  operations  for  2000,  2001 and 2002
amounted to approximately $257,000, $289,000 and $249,000 respectively.

On December 27, 1995, the Company  established a deferred  compensation plan for
executive  officers.  Participants  may  contribute a specific  portion of their
salary to such plan. The Company does not contribute to the Plan.

On December 20, 1996,  the  Compensation  Committee  of the  Company's  Board of
Directors  established the Incentive  Compensation Plan, which provides for both
discretionary   bonuses  and  bonus  amounts  upon  achieving  certain  earnings
thresholds for certain members of management. The adoption of this plan received
shareholder approval at the 1997 annual meeting.

16. OTHER INCOME AND EXPENSE

Other income and expense consists of the following:

                                               2000         2001         2002
                                            ----------   ----------   ----------
Rental income ...........................   $   71,576   $  586,305   $  495,754
Unrealized gain on foreign currency .....      441,811      103,705         --
Realized gain on foreign currency .......         --           --      1,123,076
Royalty income ..........................         --        180,833       62,166
Sales of damaged goods and samples ......         --        192,680         --
Gain on legal settlement ................         --           --        473,041
Other items .............................      836,980      789,543      493,938
                                            ----------   ----------   ----------
Total other income ......................   $1,350,367   $1,853,066   $2,647,975
                                            ==========   ==========   ==========

Royalty expense .........................   $     --     $  500,000   $  655,691
Unrealized loss on foreign currency .....         --           --      1,014,696
Other items .............................      193,359      355,994      333,686
                                            ----------   ----------   ----------
Total other expense .....................   $  193,359   $  855,994   $2,004,073
                                            ==========   ==========   ==========


                                      F-27
<PAGE>


                              TARRANT APPAREL GROUP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly  results of operations for the years
ended December 31, 2001 and 2002:

<TABLE>
<CAPTION>
                                            Quarter Ended                      Year
                          -----------------------------------------------      Ended
                          Mar. 31(2)    Jun. 30     Sep.30      Dec. 31(1)    Dec. 31
                          ---------    ---------   ---------    ---------    ---------
                                   (In thousands, except per share data)
<S>                       <C>          <C>         <C>          <C>          <C>
2001
Net sales .............   $  84,330    $  96,126   $  78,175    $  71,622    $ 330,253
Gross profit ..........      14,419       15,814      10,071       12,424       52,728
Operating income
 (loss) ...............         891        3,300      (3,349)       1,088        1,930
Net income (loss) .....   $     446    $   1,706   $  (4,229)   $    (812)   $  (2,889)
Net income (loss) per
 common share:
  Basic ...............   $     .03    $     .11   $    (.27)   $   (0.05)   $   (0.18)
  Diluted .............   $     .03    $     .11   $    (.27)   $   (0.05)   $   (0.18)
Weighted average shares
 outstanding:
  Basic ...............      15,822       15,832      15,824       15,831       15,825
  Diluted .............      15,825       15,905      15,824       15,831       15,825

2002
Net sales .............   $  65,164    $  95,307   $  94,328    $  92,592    $ 347,391
Gross profit ..........       8,419       14,424      14,230        8,236       45,309
Operating income
 (loss) ...............        (831)       4,780       3,626       (3,105)       4,470
Income (loss) before
 cumulative effect of
 accounting change ....   $  (1,726)   $   1,302   $   1,127    $  (1,917)   $  (1,214)
Net income (loss) .....   $  (6,597)   $   1,302   $   1,127    $  (1,917)   $  (6,085)
Income (loss) per share
 before cumulative
 effect
 of accounting change:
  Basic ...............   $    (.11)   $     .08   $     .07    $   (0.12)   $   (0.08)
  Diluted .............   $    (.11)   $     .08   $     .07    $   (0.12)   $   (0.08)
Net income (loss) per
 common share:
  Basic ...............   $    (.41)   $     .08   $     .07    $   (0.12)   $   (0.38)
  Diluted .............   $    (.41)   $     .08   $     .07    $   (0.12)   $   (0.38)
Weighted average shares
 outstanding:
  Basic ...............      15,832       15,832      15,836       15,836       15,834
  Diluted .............      15,832       16,099      15,931       15,836       15,834

----------
<FN>
(1)   In the fourth  quarter of 2000,  the  Company  recorded a book to physical
      adjustment of $3.2 million,  a $965,000 loss on a foreign  currency  hedge
      and the write-off of certain assets of $350,000  related to abandonment of
      leasehold improvements in Mississippi and Mexico.
(2)   Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
      Other Intangible Assets." According to this statement,  goodwill and other
      intangible   assets  with  indefinite  lives  are  no  longer  subject  to
      amortization,  but rather an annual assessment of impairment  applied on a
      fair-value-based test. The Company adopted SFAS No. 142 in fiscal 2002 and
      performed its first annual assessment of impairment,  which resulted in an
      impairment loss of $4.9 million recorded in the first quarter of 2002.
</FN>
</TABLE>


                                      F-28


<PAGE>


                                    SCHEDULE II

                              TARRANT APPAREL GROUP
<TABLE>

                        VALUATION AND QUALIFYING ACCOUNTS


<CAPTION>
                                      Additions   Additions
                          Balance at  Charged to  Charged                  Balance
                          Beginning   Costs and   to Other                 at End
                           of Year    Expenses    Accounts   Deductions    of Year
                          ----------  ----------  ---------  ----------   ----------
<S>                       <C>         <C>         <C>        <C>          <C>
For the year ended
 December 31, 2000
  Allowance for returns
   and discounts......... $2,868,658  $1,024,082  $   --     $    --      $3,892,740
  Allowance for bad debt. $  339,660  $  103,007  $   --     $    --      $  442,667
                          ==========  ==========  =========  ===========  ==========
For the year ended
 December 31, 2001
  Allowance for returns
   and discounts......... $3,892,740  $    --     $(758,754) $  (452,385) $2,681,601
  Allowance for bad debt. $  442,667  $2,283,226  $ 758,754  $    --      $3,484,647
                           ========== ==========  =========  ===========  ==========
For the year ended
 December 31, 2002
  Allowance for returns
   and discounts......... $2,681,601  $  453,167  $   --     $    --      $3,134,768
  Allowance for bad debt. $3,484,647  $    --     $   --     $(2,302,794) $1,181,853
                           ========== ==========  =========  ===========  ==========
</TABLE>


                                      F-29


<PAGE>


                                   SIGNATURES

         In  accordance  with  Section  13 or  15(d)  of the  Exchange  Act  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                        TARRANT APPAREL GROUP

                                  By:             /S/ GERARD GUEZ
                                        ---------------------------------------
                                                    Gerard Guez
                                               Chairman of the Board

                                POWER OF ATTORNEY

         The  undersigned  directors  and officers of Tarrant  Apparel  Group do
hereby  constitute  and appoint  Patrick Chow and Gerard Guez with full power of
substitution and resubstitution,  as their true and lawful attorneys and agents,
to do any and all acts and  things in our name and behalf in our  capacities  as
directors and officers and to execute any and all  instruments for us and in our
names in the capacities indicated below, which said attorney and agent, may deem
necessary or advisable to enable said  corporation to comply with the Securities
Exchange Act of 1934, as amended and any rules,  regulations and requirements of
the Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K, including specifically but without limitation, power and authority to
sign for us or any of us in our names in the capacities indicated below, any and
all amendments  (including  post-effective  amendments) hereto, and we do hereby
ratify and confirm all that said attorneys and agents,  or either of them, shall
do or cause to be done by virtue hereof.

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.

      SIGNATURE                          TITLE                         DATE
      ---------                          -----                         ----

   /S/ GERARD GUEZ          Chief Executive Officer and           March 31, 2003
-----------------------     Chairman of the Board of Directors
     Gerard Guez

    /S/ TODD KAY            President and Vice Chairman of the    March 31, 2003
-----------------------     Board of Directors
       Todd Kay

/S/ PATRICK CHOW            Chief Financial Officer, Treasurer    March 31, 2003
-----------------------     and Director (Principal Financial
     Patrick Chow           and Accounting Officer)


    /S/ EDDY YUEN           Director                              March 31, 2003
-----------------------
      Eddy Yuen

 /S/ KAREN WASSERMAN        Executive Vice President,             March 31, 2003
-----------------------     General Merchandising Manager,
   Karen Wasserman          and Director

 /S/ MITCHELL SIMBAL        Director                              March 31, 2003
-----------------------
   Mitchell Simbal

   /S/ BARRY AVED           Director                              March 31, 2003
-----------------------
      Barry Aved

/S/ JOSEPH MIZRACHI         Director                              March 31, 2003
-----------------------
   Joseph Mizrachi

 /S/ MILTON KOFFMAN         Director                              March 31, 2003
-----------------------
    Milton Koffman


<PAGE>



                        Certification of CEO Pursuant to
                 Securities Exchange Act Rules 13a-14 and 15d-14
                             as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

I, Gerard Guez, certify that:

         1. I have reviewed  this annual report on Form 10-K of Tarrant  Apparel
Group;

         2. Based on my  knowledge,  this  annual  report  does not  contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                  a) designed such disclosure  controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

                  b) evaluated the effectiveness of the registrant's  disclosure
controls and  procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

                  c) presented in this annual report our  conclusions  about the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

                  a) all significant  deficiencies in the design or operation of
internal  controls  which could  adversely  affect the  registrant's  ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

                  b)  any  fraud,   whether  or  not  material,   that  involves
management or other  employees who have a significant  role in the  registrant's
internal controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this annual  report  whether or not there were  significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    March 31, 2003
                                                /S/ GERARD GUEZ
                                             -----------------------
                                             Gerard Guez
                                             Chief Executive Officer


<PAGE>


                        Certification of CFO Pursuant to
                 Securities Exchange Act Rules 13a-14 and 15d-14
                             as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

I, Patrick Chow, certify that:

         1. I have reviewed  this annual report on Form 10-K of Tarrant  Apparel
Group;

         2. Based on my  knowledge,  this  annual  report  does not  contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                  a) designed such disclosure  controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

                  b) evaluated the effectiveness of the registrant's  disclosure
controls and  procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

                  c) presented in this annual report our  conclusions  about the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

                  a) all significant  deficiencies in the design or operation of
internal  controls  which could  adversely  affect the  registrant's  ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

                  b)  any  fraud,   whether  or  not  material,   that  involves
management or other  employees who have a significant  role in the  registrant's
internal controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this annual  report  whether or not there were  significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    March 31, 2003
                                                /S/ PATRICK CHOW
                                             -----------------------
                                             Patrick Chow
                                             Chief Financial Officer


<PAGE>


                                  EXHIBIT INDEX

Exhibit
Number                                Description
-------                               -----------
3.1     Restated Articles of Incorporation of the Company(/1/)

3.1.1   Certificate of Amendment of Restated Articles of Incorporation. (/26/)

3.1.2   Certificate of Amendment of Restated Articles of Incorporation. (/26/)

3.1.3   Certificate of Determination of Preferences, Rights and Limitations of
         Series A Preferred Stock of Tarrant Apparel Group. (/27/)

 3.2    Restated Bylaws of the Company(/1/)

 4.1    Specimen of Common Stock Certificate(/2/)

10.1    Note in the principal amount of $2,600,000 dated March 15, 1995 in
         favor of Imperial Bank(/1/)

10.2    General Security Agreement dated March 15, 1995 by and between the
         Company and Imperial Bank(/1/)

10.3    Factoring Agreement effective as of September 28, 1993, as amended, by
         and between the Company and NationsBanc Commercial Corporation(/1/)

10.4    1995 Stock Option Plan dated as of May 1, 1995(/1/)

10.5    Letter Agreement dated February 17, 1995 between Tarrant Company
         Limited and The Hongkong and Shanghai Banking Corporation
         Limited(/1/)

10.6    Letter dated April 18, 1995 from The Hongkong and Shanghai Banking
         Corporation Limited to Tarrant Company Limited regarding the release
         of certain security interest(/1/)

10.7    Commercial Lease dated January 1, 1994 and GET and the Company(/1/)

10.8    Tenancy  Agreement  dated  July 15,  1994  between  Lynx  International
         Limited  and  Tarrant  Company  Limited  as  amended  by  that  certain
         Supplementary  Tenancy  Agreement  dated  December  30,  1994  and that
         certain Second Supplementary Tenancy Agreement dated December 31,
         1994(/1/)

10.9    Lease Agreement dated June 10, 1994, between Yip Sik Kin and Tarrant
         Company Limited (translated from Chinese)(/1/)

10.10   Tenancy Contract effective as of December 24, 1994, between Khalifa
         Muhairi and Tarrant Trading Co. Ltd.(/1/)

10.11   Agreement dated as of June 1, 1995, by and among Pret-A-Porter, the
         Company, French Designers, Inc., Bernard Aidan, Gerard Guez and Todd
         Kay(/5/)


<PAGE>


Exhibit
Number                                Description
-------                               -----------

10.12   Services Agreement dated as of April 1, 1995, by and between F.I.S.,
         Inc. and the Company(/2/)

10.13   Services Agreement dated as of October 1, 1994, by and between the
         Company and GET(/1/)

10.14   Services Agreement dated as of October 1, 1994, by and between the
         Company and Lynx International Limited(/1/)

10.15   Indemnification Agreement dated as of March 14, 1995, by and among the
         Company, Gerard Guez and Todd Kay(/2/)

10.16   Promissory  Note in the initial  principal  amount of $2 million  dated
         February 8, 1996, by Gerard Guez in favor of the Company(/2/)

10.17   Promissory  Note in the initial  principal  amount of $1 million  dated
         February 8, 1995, by Todd Kay in favor of the Company(/2/)

10.18   Promissory Note in the principal amount of $1,334,566.71 dated
         December 31, 1994, by P.I.S., Inc. in favor of the Company(/2/)

10.19   Release dated as of June 1, 1995, by and between the Company and
         certain other parties signatory thereto(/2/)

10.20   Option Agreement dated as of July 28, 1995, by and among Limited
         Direct Associates, L.P., Gerard Guez, Todd Kay and the Company(/5/)

10.21   Registration  Rights  Agreement dated as of July 28, 1995, by and among
         the Company and Limited Direct Associates, L.P.(/5/)

10.22   Reorganization and Tax Indemnification Agreement dated as of June 13,
         1995, by and among the Company and its shareholders(/5/)

10.23   Employment Agreement January 1, 1995, by and between the Company and
         Gerard Guez(/2/)

10.23.1 Employment Agreement effective January 1, 1998, by and between the
         Company and Gerard Guez(/13/)

10.23.2 First amendment to Employment  Agreement dated as of January 10, 2000 by
         and between Gerard Guez and the Company ( /21/ )

10.24   Agreement dated as of January 1, 1995, by and between the Company and
         Todd Kay(/1/)

10.24.1 Employment Agreement effective January 1, 1998, by and between the
         Company and Todd Kay(/13/)

10.24.2 First Amendment to Employment Agreement dated as of January 10, 2000
        by and between Todd Kay and the Company

10.25   Employment Agreement dated as of January 1, 1994, by and between the
         Company and Jimmy Esebag, as amended, by that certain Amendment No. 1
         dated as of June 1, 1995(/2/)


<PAGE>


Exhibit
Number                                Description
-------                               -----------

10.26   Employment Agreement dated as of November 18, 1994, by and between the
         Company and Mark B. Kristof(/1/)

10.27   Employment Agreement dated as July 5, 1994, by and between the Company
         and Bradley R. Kenson(/1/)

10.28   License Agreement dated January 1, 1994, by and between the Company
         and GET(/1/)

10.29   Assignment dates as of June 1, 1995 with respect to the GET!
         trademark, executed by GET in favor of the Company(/2/)

10.30   Amendment No. 1 to Commercial Lease dated as of April 1, 1995 by and
         between GET and the Company(/2/)

10.31   Lease and Services  Agreement  dated as of June 1, 1995, by and between
         Tarrant Company Limited and French Designers, Inc.(/2/)

10.32   Note in the principal  amount of $2,600,000  dated May 15, 1995, by the
         Company in favor of Imperial Bank(/2/)

10.33   Letter Agreement dated May 17, 1995, by and between Tarrant Company
         Limited and The Hongkong and Shanghai Banking Corporation
         Limited(/2/)

10.34   Buying Agency Agreement executed as of December 19, 1992, between
         P.I.S., Inc. and Tarrant Company Ltd.(/2/)

10.35   Buying Agency Agreement executed as of April 4, 1995, by Azteca
         Production International, Inc. and Tarrant Company Ltd., with the
         Company acknowledging as to certain matters(/2/)

10.36   Tripartite   Agreement  Assignment  of  Factoring  Proceeds  (Advances)
         executed and delivered  June 6, 1995, by the Company,  and accepted and
         agreed to by The Hongkong and Shanghai Banking  Corporation Limited and
         NationsBanc Commercial Corporation(/2/)

10.36.1 Amendment to Three Party Special Deposit Account Agreement(/8/)


10.37   Security Agreement (Guaranty of Tarrant Co. Ltd. Debt) entered into as
         of June 6, 1995, by and between the Hongkong and Shanghai Banking
         Corporation Limited and the Company(/2/)

10.38   Security Agreement (Tarrant Co. Ltd. Draft Acceptance) entered into as
         of June 6, 1995, by and between The Hongkong and Shanghai Banking
         Corporation Limited and the Company(/2/)

10.39   Agreement dated March 14, 1995, by and among Tarrant Company Limited,
         Cheung Shing Hong Holding Ltd., Yip Sik Kin and Lam Kin Fong(/3/)

10.40   Agreement dated March 17, 1995, by and among Tarrant Company Limited,
         Cheung Shing Hong Holding Ltd., Yip Sik Kin and Lam Kin Fong(/3/)


<PAGE>


Exhibit
Number                                Description
-------                               -----------

10.41   Underwriting  Agreement  dated as of July 24,  1995,  by and  among the
         Company, Gerard Guez, Todd Kay and Prudential Securities
         Incorporated(/5/)

10.42   Letter agreement dated August 10, 1995, by and among the Company and
         NationsBanc Commercial Corporation(/4/)

10.42.1 Amendment  dated June 9, 1997 to  Factoring  Agreement  effective as of
         September  28,  1993,  as  amended,  by and  between  the  Company  and
         NationsBanc Commercial Corporation(/8/)

10.43   Letter agreement dated January 30, 1996, by and between Tarrant
         Company Limited and The Hongkong Shanghai Banking Corporation
         Limited(/5/)

10.43.1 Letter agreement dated May 28, 1996, by and between Tarrant Company
         Limited and The Hongkong and Shanghai Banking Corporation
         Limited(/8/)

10.43.2 Letter agreement dated April 16, 1998, by and between Tarrant Company
         Limited and The Hongkong and Shanghai Banking Corporation
         Limited(/11/)

10.44   Promissory  Note in the principal  amount of $3 million dated March 25,
         1996, by GET in favor of the Company(/6/)

10.45   Deed of Trust dated March 25, 1996 by and Between GET and the
         Company(/6/)

10.46   Guaranty,  Pledge &  Security  Agreement  entered  into as of March 25,
         1996, by and between Gerard Guez and the Company(/6/)

10.47   Guaranty,  Pledge &  Security  Agreement  entered  into as of March 25,
         1996, by and between Todd Kay and the Company(/6/)

10.48   Letter  agreement  dated  February  22,  1996,  by and between  Tarrant
         Company Limited and Standard Chartered Bank(/7/)

10.49   Letter  agreement  dated March 8, 1996, by and between  Tarrant Company
         Limited and Standard Chartered Bank(/7/)

10.50   Guarantee Agreement entered into as of August 30, 1996, by and between
         Standard Chartered Bank and the Company(/7/)

10.51   Letter of Undertaking entered into as of August 30, 1996, by and between
         Standard Chartered Bank and the Company(/7/)

10.52   Intercreditor Agreement entered into as of November 1, 1996, between
         The Hongkong and Shanghai Banking Corporation Limited, Standard
         Chartered Bank and Tarrant Company Limited(/7/)

10.53   Security Agreement entered into as of November 1, 1996, by and between
         Standard Chartered Bank and the Company(/7/)


<PAGE>


Exhibit
Number                                Description
-------                               -----------

10.53.1 Termination  Agreement  dated as of March 29, 2002, by and between
         Standard Chartered Bank and Tarrant Apparel Group.(/25/)

10.54   Amendment to Security Agreement (Guaranty of Tarrant Co. Ltd. Debt)
         entered into as of November 1, 1996, between The Hongkong and
         Shanghai Banking Corporation Limited and the Company(/7/)

10.55   Agreement dated January 29, 1997 by and among Tarrant Company Limited,
         Cheung Shing Hong Holding Ltd., Yip Sik Kin and Lam Kin Fong(/7/)

10.56   Form of Indemnification Agreement with directors and certain executive
         officers(/8/)

10.57   Special Deposit Account Agreement(8)

10.58   Accounts Receivable Financing Agreement dated June 13, 1997, by between
         the Company and The CIT GroupCommercial Services, Inc.(8)

10.58.1 Letter Agreement dated October 1, 1997 regarding Accounts Receivable
         Financing Agreement, by and between the Company and The CIT
         GroupCommercial Service., Inc.(13)

10.59*   Asset Purchase Agreement dated February 18, 1998, by and between Marble
         Limited and MGI International Limited(10)

10.60*  Asset Purchase Agreement dated February 18, 1998, by and between the
         Company and Marshall Gobuty International U.S.A., Inc.(10)

10.61   Employment Agreement dated February 23, 1998, by and between the Company
         and Marshall Gobuty(10)

10.62   Noncompetition Agreement dated February 23, 1998, by and between
         Marshall Gobuty International U.S.A., Inc. and Marshall Gobuty, on the
         one hand, and the Company, on the other hand(10)

10.63   Noncompetition  Agreement  dated  February 23, 1998, by and between MGI
         International  Limited and Marshall  Gobuty,  on the one hand,  and the
         Company, on the other hand(10)

10.64   Loan Agreement dated as of July 1, 1998, between the Company and
         Standard Chartered Bank(12)

10.65   Partnership Interest Purchase Agreement dated as of July 2, 1998, among
         Rocky Acquisition, LLC, the Company, Limited Direct Associates, L.P.,
         Rocky Apparel, Inc., and Gabriel Manufacturing Company(13)

10.66   Escrow  Agreement  made as of July 2, 1998,  by and among the  Company,
         Gabriel Manufacturing Company and Rocky Apparel, Inc.(13)

10.67   Facility Development Agreement dated as of December 2, 1998, by and
         between Tarrant Mexico, S. de R.L. de C.V. and Tex Transas, S.A. de
         C.V.(13)

10.67.1 Letter of Intent to Purchase Twill mill dated August 30, 2002. (/27/)


<PAGE>


Exhibit
Number                                Description
-------                               -----------

10.68+  Agreement for Purchase of Assets dated as of February 22, 1999, by and
         among Tarrant Mexico, S. de R.L. de C.V., Jamil Textil, S.A. de C.V.,
         Inmobiliaria Cuadros, S.A. de C.V., Kamel Nacif and Irma Benavides
         Montes De Oca(13)

10.68.1 Final Agreement for Purchase of Assets dated as of April 18, 1999, by
         and among Tarrant Mexico, S. de R.L. de C.V., Jamil Textil, S.A. de
         C.V., Inmobiliaria Cuadros, S.A. de C.V., Kamel Nacif and Irma
         Benavides Montes De Oca (15)

10.69   Agreement for Purchase of Assets effective as of the twenty-third day of
         March, 1999, by and among CMG, Inc., Charles Ghailian, CHAZZZ
         Acquisition, L.L.C. and the Company(14)

10.70   Employment Agreement effective as of the twenty-third day of March,
         1999, by and between Charles Ghailian and the Company to pay CMG Inc.
         (14)

10.71   Non-Negotiable Promissory Note dated March 23, 1999 to pay CMG
         Inc.(/14/)

10.71.1 Non-Negotiable Promissory Note dated February 14, 2000 to pay CMG Inc.
         (20)

10.72   Escrow Agreement, by and among the Company, Tarrant Mexico, S. de R.L.
         de C.V. and Jamil Textil, S.A. de C.V. dated as of April 1,
         1999(/14/)

10.72.1 Final Escrow Agreement dated as of May 24, 1999, by and among Tarrant
         Apparel Group, Tarrant Mexico, S. de R.L. de C.V., Jamil Textil, S.A.
         de C.V., Inmobiliaria Cuadros, S.A. de C.V., Kamel Nacif and Irma
         Benavides Montes De Oca(/15/)

10.73   Employment Agreement dated as of April 1, 1999 by and between Kamel
         Nacif and Tarrant Mexico, S. de R.L. de C.V.(/14/)

10.73.1 Amendment to Employment Agreement entered into August 7, 2000 by and
         between Tarrant Mexico, S. de R.L. de C.V. and Kamel Nacif (20)

10.74   Agreement for Purchase of Stock dated as of August 1, 1999, by and
         among Tag Mex, Inc., NO! Jeans, Inc., Antonio Haddad Haddad, Tarrant
         Apparel Group and the shareholders of Industrial Exportadora Famian,
         S.A. de C.V. and Coordinados Elite, S.A, de C.V.*(/15/)

10.75   Noncompetition Agreement dated as of August 1, 1999, by and among Tag
         Mex, Inc., NO! Jeans, Inc., Antonio Haddad, Tarrant Apparel
         Group and the shareholders of Industrial Exportadora Famian, S.A. de
         C.V. and Coordinados Elite, S.A, de C.V.(/16/)

10.77   Loan Agreement dated September 1, 1999 by and between General Electric
         Capital Corporation and Tarrant Apparel Group(/16/)

10.77.1 Amendment No. 1 to Loan Agreement dated September 12, 1999 by and
         between General Electric Capital Corporation and Tarrant Apparel
         Group(/16/)


<PAGE>


Exhibit
Number                                Description
-------                               -----------

10.77.2 Modification Agreement entered into as of June 7, 2002, by and between
         General Electric Capital Corporation and Tarrant Apparel Group. (/26/)

10.78   Promissory  Note dated September 1, 1999 to pay to the order of General
         Electric  Capital  Corporation  the loan amount  referred to in Exhibit
         10.77(/16/)

10.79   Corporate Guaranty dated September 1, 1999 by Tarrant Mexico, S. de
         R.L. de C.V. in connection with loan agreement referred to in Exhibit
         10.77(/16/)

10.79.1 Amendment No. 1 to Corporate Guaranty dated September 12, 1999 by
         Tarrant Mexico, S. de R.L. de C.V. in connection with loan agreement
         referred to in Exhibit 10.77(/16/)

10.80   Master Security Agreement made as of September 1, 1999 by and between
         General Electric Capital Corporation and Tarrant Mexico, S. de R.L.
         de C.V. in connection with loan agreement referred to in Exhibit
         10.77(/16/)

10.80.1 Amendment No. 1 to Master Security Agreement made as of September 12,
         1999 by and between General Electric Capital Corporation and Tarrant
         Mexico, S. de R.L. de C.V. in connection with loan agreement referred
         to in Exhibit 10.77(/16/)

10.81   Loan Agreement dated December 30, 1999 by and between Standard
         Chartered Bank and Tarrant Apparel Group(/17/)

10.82   Factoring Agreement dated November 24, 1999 by and between MTB Bank
         and Rocky Apparel, LLC.(/17/)

10.83   Machinery and Equipment Agreement dated November 17, 1999 by and
         between Tarrant Mexico, S. de R.L. de C.V and Banc of America Leasing
         & Capital, L.L.C.(/17/)

10.84   Employment Agreement dated as of August 1, 1999 by and between
         Industrial Exportadora Famian, S.A. de C.V. and Antonio Haddad
         Haddad(/17/)

10.85   Employment Agreement dated as of August 1, 1999 by and between
         Industrial Exportadora Famian, S.A. de C.V. and Mario Alberto Haddad
         Yunes(/17/)

10.86   Employment Agreement dated as of August 1, 1999 by and between
         Industrial Exportadora Famian, S.A. de C.V. and Marco Antonio Haddad
         Yunes(/17/)

10.87   Employment Agreement dated as of August 1, 1999 by and between
         Industrial Exportadora Famian, S.A. de C.V. and Miguel Angel Haddad
         Yunes(/17/)


<PAGE>


Exhibit
Number                                Description
-------                               -----------

10.88   Non-Negotiable Promissory Note dated August 1, 1999 to pay to the order
         of Antonio Haddad Haddad(/17/)

10.89   Stock Pledge Agreement dated August 1, 1999 by and between TAG MEX,
         INC. and those individuals whose names appear on the signature
         page(/17/)

10.90   Revolving Credit, Factoring and Security Agreement dated January 21,
         2000 by and between Tarrant Apparel Group, Tag Mex, Inc., and GMAC
         Commercial Credit LLC(/17/)

10.90.1 First Amendment to Revolving Credit,  factoring and security agreement
         dated January 21, 2000 by and between Tarrant Apparel Group,  Tag Mex,
         Inc. and GMAC Commercial Credit LLC (20)

10.90.2 Second Amendment to Revolving Credit, factoring and security agreement
         dated January 21, 2000 by and between Tarrant Apparel Group,  Tag Mex,
         Inc. and GMAC Commercial Credit LLC (20)

10.90.3 Third Amendment to Revolving Credit,  factoring and security agreement
         dated January 21, 2000 by and between Tarrant Apparel Group,  Tag Mex,
         Inc. and GMA Commercial Credit LLC (20)

10.90.4 Letter agreement dated June 29,2001 by and between the Company and GMAC
         Commercial Credit (/22/)

10.90.5 Waiver agreement dated November 2001 by and between Tarrant Apparel
         Group And GMAC Commercial Credit (/24/)

10.90.6 Letter  Amendment  dated March 2002 by and between  Tarrant Apparel
         Group, Tag Mex, Inc.,  Fashion Resource (TCL), Inc., United Apparel
         Ventures, LLC and GMAC Commercial Credit, LLC. Reference is made to
         Revolving  Credit,  Factoring and Security  Agreement dated January
         21, 2000. (/25)

10.90.7 Letter  Amendment  dated January 24, 2003 between  Tarrant  Apparel
         Group, Tag Mex, Inc.,  Fashion Resource (TCL), Inc., United Apparel
         Ventures, LLC and GMAC Commercial Credit, LLC. Reference is made to
         Revolving  Credit,  Factoring and Security  Agreement dated January
         21, 2000.

10.90.8 Waiver dated November 13, 2002 between Tarrant  Apparel Group,  Tag
         Mex, Inc.,  Fashion Resource (TCL),  Inc., United Apparel Ventures,
         LLC and GMAC Commercial Credit, LLC. Reference is made to Revolving
         Credit, Factoring and Security Agreement dated January 21, 2000.

10.91   Agreement  for Purchase of Assets  dated April 12, 2000,  by and among
         Harvest Wear, Inc., a California  corporation (HW), Mapa Trading, LTD,
         a  Hong  Kong  corporation  (Mapa),  Needletex,   Inc.,  a  California
         corporation (Needletex),  Patrick Bensimon (the Shareholder), Jane Doe
         International  LLC,  (formally  Needletex,  LLC)  a  Delaware  limited
         liability company (the Purchaser)(/19/)


<PAGE>


Exhibit
Number                                Description
-------                               -----------

10.92   Amendment No. 1 to Facility Development Agreement dated as of March
         30, 2000, by and between Tarrant Mexico, S. de R.L. de C.V. and Tex
         Transas, S.A. de C.V.(/18/)

10.93   Equipment Purchase Agreement dated as of October 16, 2000, by and
         between Tarrant Mexico, S. de R.L. de C.V. and Tex Transas, S.A. de
         C.V.(/18/)

10.94   Secured Promissory Note dated October 5, 2000 in the principal amount of
         U.S. $47,702,128 of Tex Transas, S.A. de C.V.(/18/)

10.94.1 Amended Secured Promissory Note dated October 5, 2000 in the principal
         amount of U.S. $47,702,128 of Tex Transas, S.A. de C.V (Amended and
         Restated as of December 18, 2001).

10.94.2 Amendment No. 2 to Secured Promissory Note dated January 2, 2002 between
         Trans Textil International, S.A. de. C.V. and Tarrant Company Limited
         and Trade Link Holdings Company.

10.95   Equipment Lease dated as of October 16, 2000, by and between Tarrant
         Mexico, S. de R.L. de C.V. and Tex Transas, S.A. de C.V.(/18/)

10.96   Production Agreement dated as of October 16, 2000, by and between Tag
         Mex, Inc. and Tex Transas, S.A. de C.V.(/18/)

10.97   Pledge Security Agreement dated as of October 16, 2000, by and between
         Tarrant Mexico, S. de R.L. de C.V. and Tex Transas, S.A. de C.V.(/18/)

10.98   Promissory   note  dated  February  28,  2001  in  the  amount  of  US
         $4,119,545.06 to pay to the order of Standard Chartered Bank (20)

10.99   Stock  repurchase  agreement  entered  into July 10, 2000 by and among
         Tarrant Apparel Group and Gabriel Manufacturing Company (20)

10.99.1 Consulting Agreement effective as of October 9, 2001 by and between
         Gabriel Zeitounti and the Company (23)

10.100  Agreement  for Purchase of Assets dated August 1, 2000 by and among
         Tarrant Mexico, S. de R.L. de C.V., Confecciones Jamil, S.A.de R.L.
         de C. and Inmobiliaria Cuadros, S.A. de C.V.(/21/)

10.101   Limited Liability Company Operating Agreement of United Apparel
          Ventures, LLC effective as of July 1,2001 (/23/)

10.101.1 Amendment to Operating Agreement dated as of October 23, 2001 by and
          among Azteca Production International, Inc. ("Azteca") and "TAG MEX".
          (/25/)

10.101.2 Second amendment to Operating Agreement dated as of January 2, 2002 by
          and among Azteca Production International, Inc. ("Azteca") and "TAG
          MEX". (/25/)


<PAGE>


Exhibit
Number                                Description
-------                               -----------

10.101.3 Third Amendment to Operating Agreement dated as of July 5, 2002, by and
          between Azteca Production International, Inc, and TAG Mex, Inc. (/26/)

10.102   Employment Agreement effective January 1, 2002 by and between Eddie
          Yuen and the Company (/24/)

10.103   Employment Agreement effective January 7, 2002 by and between Patrick
          Chow and the Company (/24/)

10.103.1 First Amendment to Employment  Agreement dated January 2, 2003, between
          Patrick Chow and the Company.

10.104   Security  Agreement  entered in to as of April 9, 2001,  by and between
          Banco Nacional De Comercio Exterior, Industrial Exportadora Famian
          S.A. and Tarrant Apparel Group (/24/)

10.105   Guaranty Agreement dated as of May 30, 2002 by and between UPS Capital
          Global Trade Finance Corporation and Tarrant Apparel Group and Fashion
          Resource (TCL), Inc. (/26/)

10.105.1 Conditional Consent Agreement dated December 31, 2002, between UPS
          Capital  Global Trade  Finance  Corporation  and Fashion  Resource
          (TCL), Inc.

10.106   Guaranty Agreement dated as of May 30, 2002 by and between UPS Capital
          Global Trade Finance Corporation and Gerard Guez. (/26/)

10.107   Syndicated  Letter of Credit  Facility  dated June 13, 2002 by and
          between  Tarrant  Company  Limited,  Marble Limited and Trade Link
          Holdings Limited as Borrowers and UPS Capital Global Trade Finance
          Corporation  as Agent and Issuer and Certain  Banks and  Financial
          Institutions as Banks. (/26/)

10.107.1 Charge Over Shares dated June 13, 2002 by Fashion Resource (TCL), Inc.
          in favor of UPS Capital Global Trade Finance Corporation. (/26/)

10.107.2 Syndicated Composite Guarantee and Debenture dated June 13, 2002
          between Tarrant Company Limited, Marble Limited and Trade link
          Holdings Limited and UPS Capital Global Trade Finance Corporation.
          (/26/)

10.108   Assignment of Promissory Note by Tarrant Apparel Group to Tarrant
          Company Limited and to Trade Link Holdings Company dated December 26,
          2001. (/26/)

10.110   Assignment of Promissory Note for full settlement of indebtedness
          issued by Tex Transas, S.A. de C.V. due to Tarrant Company Limited,
          Trade Link Holdings Limited dated December 26, 2001. (/26/)

10.111   Promissory Note dated July 1, 2002 by Tarrant Apparel Group in favor of
          Todd Kay. (/26/)

10.111.1 Amendment to Promissory  Note dated January 2, 2003,  between Todd Kay
          and the Company.


<PAGE>


Exhibit
Number                                Description
-------                               -----------
10.112   Agreement for Purchase of Assets and Stock dated December 31, 2002, by
          and  among  the  Registrant, Tarrant Mexico, S. de R.L. de C.V.,
          Machrima Luxembourg International, Sarl, Trans Textil International,
          S.A. de C.V., Inmobiliaria Cuadros, S.A. de C.V.,  Rosa Lisette Nacif
          Benavides,  Gazi Nacif Borge, Jorge Miguel Echevarria  Vazquez,  and
          Kamel Nacif Borge.+ (/27/)

23.1     Consent of Ernst & Young LLP.

24       Power of Attorney (included on signature page).

99.1     Certification of Chief Executive Officer and Chief Financial Officer
          pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
          of the Sarbanes-Oxley Act of 2002.
----------
*     Confidential treatment has been requested for portions of this document.

+     All schedules and or exhibits have been omitted.  Any omitted  schedule or
      exhibit will be furnished  supplementally  to the  Securities and Exchange
      Commission upon request.

(1)   Filed as an exhibit to the  Company's  Registration  Statement on Form S-1
      filed with the Securities and Exchange Commission on May 4, 1995 (File No.
      33-91874).

(2)   Filed as an exhibit to Amendment No. 1 to  Registration  Statement on Form
      S-1 filed with the Securities and Exchange Commission on July 15, 1995.

(3)   Filed as an exhibit to Amendment No. 2 to  Registration  Statement on Form
      S-1 filed with the Securities and Exchange Commission on July 11, 1995.

(4)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 1995.

(5)   Filed as an exhibit to the  Company's  Annual  Report on Form 10-K for the
      year ended December 30, 1995.

(6)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended March 31, 1996.

(7)   Filed as an exhibit to the  Company's  Annual  Report on Form 10-K for the
      year ended December 31, 1996.

(8)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 1997.

(9)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended September 30, 1997.

(10)  Filed as exhibit to the Company's  Annual Report on Form 10-K for the year
      ended December 31, 1997.

(11)  Filed as exhibit to the  Company's  Quarterly  Report on Form 10-Q for the
      quarter ended March 31, 1998.


<PAGE>


(12)  Filed as exhibit to the  Company's  Quarterly  Report on Form 10-Q for the
      quarter ended June 30, 1998.

(13)  Filed as an exhibit to the  Company's  Annual  Report on Form 10-K for the
      year ended December 31, 1998.

(14)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended March 31, 1999.

(15)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 1999.

(16)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended September 30, 1999.

(17)  Filed as an exhibit to the  Company's  Annual  Report on Form 10-K for the
      year ended December 31, 1999.

(18)  Filed as an exhibit on Form 8K 10/21/2000.

(19)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2000.

(20)  Filed as an exhibit  to the  Company's  Annual  Report on Form 10K for the
      year ending December 31, 2000.

(21)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending March 31, 2001.

(22)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending June 30, 2001.

(23)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending September 30, 2001.

(24)  Filed as an exhibit  to the  Company's  Annual  Report on Form 10K for the
      year ending December 31, 2001.

(25)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending March 31, 2002.

(26)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending June 30, 2002.

(26)  Filed as an exhibit to the Company's  Quarterly Report on Form 10Q for the
      quarter ending September 30, 2002.

(27)  Filed as an  exhibit  to the  Company's  Current  Report  on Form 8K dated
      December 31, 2002 and filed on January 15, 2003.