---

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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Form 10-Q

|ý                                                            | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------
|For the quarterly period ended January 31, 2003             
|Or                                                          
|o                                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                            to

Commission File No. 0-26608

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CUTTER & BUCK INC.(Exact Name of Registrant as Specified in Its Charter)

|Washington(State or Other Jurisdiction of
Incorporation or Organization) |  | 91-1474587(I.R.S. Employer
Identification No.)
|------------------------------------------------------------------------ |  | ----------------------------------------------

701 N. 34th Street, Suite 400
Seattle, WA 98103(Address of Principal Executive Offices, Including Zip Code)

(206) 622-4191(Registrant's Telephone Number, Including Area Code)

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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 ý    No o

The
number of shares of Common Stock of the registrant outstanding as of March 14, 2003 was 10,634,132.

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CUTTER & BUCK INC.

Quarterly Report on Form 10-Q

For the Quarter Ended January 31, 2003

Index

|                             |         |    |                                                                                       |  | Page
|---------------------------- | ------- | -- | ------------------------------------------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION |         |   
|                             | Item 1. |    | Financial Statements (unaudited):                                                     |  |     
|                             |         |    | Condensed Consolidated Balance Sheets                                                 |  | 3   
|                             |         |    | Condensed Consolidated Statements of Operations                                       |  | 4   
|                             |         |    | Condensed Consolidated Statements of Cash Flows                                       |  | 5   
|                             |         |    | Notes to Condensed Consolidated Financial Statements                                  |  | 6   
|                             | Item 2. |    | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 15  
|                             | Item 3. |    | Quantitative and Qualitative Disclosures about Market Risk                            |  | 26  
|                             | Item 4. |    | Controls and Procedures                                                               |  | 27  
|PART IIOTHER INFORMATION    |         |   
|                             | Item 1. |    | Legal Proceedings                                                                     |  | 29  
|                             | Item 2. |    | Changes in Securities and Use of Proceeds                                             |  | 30  
|                             | Item 3. |    | Defaults Upon Senior Securities                                                       |  | 30  
|                             | Item 4. |    | Submission of Matters to a Vote of Security Holders                                   |  | 30  
|                             | Item 5. |    | Other Information                                                                     |  | 30  
|                             | Item 6. |    | Exhibits and Reports on Form 8-K                                                      |  | 30  
|SIGNATURES                   |         | 31
|CERTIFICATIONS               |         | 32

2

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PART IFINANCIAL INFORMATION

Item 1. Financial Statements

CUTTER & BUCK INC.

Condensed Consolidated Balance Sheets

|                                                |                                                                                                                                                  | January 31,
2003                           |           | April 30,
2002 |           
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | --------- | -------------- | ----------
|
|Assets                                          |                                                                                                                                                  |                                            |           |                |           
|Current assets:                                 |                                                                                                                                                  |                                            |           |                |           
|                                                | Cash and cash equivalents                                                                                                                        |                                            | $         | 8,846,776      |           
|                                                | Restricted cash                                                                                                                                  |                                            |           | 7,000,000      |           
|                                                | Accounts receivable, net of allowances for doubtful accounts and returns of $3,594,871 at January 31, 2003 and $4,239,645 at April 30, 2002      |                                            |           | 15,904,889     |           
|                                                | Inventories, net                                                                                                                                 |                                            |           | 37,810,858     |           
|                                                | Deferred income taxes                                                                                                                            |                                            |           | 3,915,399      |           
|                                                | Other assets                                                                                                                                     |                                            |           | 13,184,594     |           
|                                                |                                                                                                                                                  |                                            |           |                |           
|                                                |                                                                                                                                                  | Total current assets                       |           |                | 86,662,516
|                                                | Furniture and equipment, net                                                                                                                     |                                            |           | 9,528,879      |           
|                                                | Other assets                                                                                                                                     |                                            |           | 852,808        |           
|                                                |                                                                                                                                                  |                                            |           |                |           
|                                                |                                                                                                                                                  | Total assets                               |           | $              | 97,044,203
|                                                |                                                                                                                                                  |                                            |           |                |           
|Liabilities and Shareholders' Equity            |                                                                                                                                                  |                                            |           |                |           
|Current Liabilities:                            |                                                                                                                                                  |                                            |           |                |           
|                                                | Accounts payable                                                                                                                                 |                                            | $         | 8,994,128      |           
|                                                | Accrued liabilities                                                                                                                              |                                            |           | 7,359,120      |           
|                                                | Current portion of capital lease obligations                                                                                                     |                                            |           | 2,400,464      |           
|                                                | Other current liabilities                                                                                                                        |                                            |           | 446,290        |           
|                                                |                                                                                                                                                  |                                            |           |                |           
|                                                |                                                                                                                                                  | Total current liabilities                  |           |                | 19,200,002
|Capital lease obligations, less current portion |                                                                                                                                                  |                                            | 848,764   |                |           
|Deferred income taxes                           |                                                                                                                                                  |                                            | 803,819   |                |           
|Other liabilities                               |                                                                                                                                                  |                                            | 3,226,438 |                |           
|Commitments and contingencies                   |                                                                                                                                                  |                                            |          |                |           
|Shareholders' equity:                           |                                                                                                                                                  |                                            |           |                |           
|                                                | Preferred stock, no par value, 6,000,000 shares authorized: none issued and outstanding                                                          |                                            |           |                |           
|                                                | Common stock, no par value: 25,000,000 shares authorized; 10,634,132 issued and outstanding at January 31, 2003 and 10,589,810 at April 30, 2002 |                                            |           | 64,806,054     |           
|                                                | Deferred compensation                                                                                                                            |                                            |           | (52,500        | )         
|                                                | Retained earnings                                                                                                                                |                                            |           | 8,211,626      |           
|                                                |                                                                                                                                                  |                                            |           |                |           
|                                                |                                                                                                                                                  | Total shareholders' equity                 |           |                | 72,965,180
|                                                |                                                                                                                                                  |                                            |           |                |           
|                                                |                                                                                                                                                  | Total liabilities and shareholders' equity |           | $              | 97,044,203
|                                                |                                                                                                                                                  |                                            |           |                |           

See
accompanying notes

3

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CUTTER & BUCK INC.

Condensed Consolidated Statements of Operations (Unaudited)

|                                                               |                                     | Three Months Ended |             | Nine Months Ended |  
|-------------------------------------------------------------- | ----------------------------------- | ------------------ | ----------- | ----------------- | -
|
|
|Net sales                                                      |                                     | $                  | 34,582,707  |                   | $
|Cost of sales                                                  |                                     |                    | 19,720,002  |                   |  
|                                                               |                                     |                    |             |                   |  
|Gross profit                                                   |                                     |                    | 14,862,705  |                   |  
|Operating expenses:                                            |                                     |                    |             |                   |  
|                                                               | Selling, general and administrative |                    |             | 15,761,417        |  
|                                                               | Restrucuring and asset impairment   |                    |             | (45,245           | )
|                                                               | Retail store closure expenses       |                    |             | 9,556,071         |  
|                                                               | Restatement expenses                |                    |             | 1,275,408         |  
|                                                               |                                     |                    |             |                   |  
|                                                               | Total operating expenses            |                    |             | 26,547,651        |  
|                                                               |                                     |                    |             |                   |  
|Operating loss                                                 |                                     |                    | (11,684,946 | )                 |  
|Interest expense, net of interest income                       |                                     |                    | (94,782     | )                 |  
|                                                               |                                     |                    |             |                   |  
|Loss before income taxes                                       |                                     |                    | (11,779,728 | )                 |  
|Income tax benefits                                            |                                     |                    | (2,079,309  | )                 |  
|                                                               |                                     |                    |             |                   |  
|Net loss                                                       |                                     | $                  | (9,700,419  | )                 | $
|                                                               |                                     |                    |             |                   |  
|Basic and diluted loss per share                               |                                     | $                  | (0.91       | )                 | $
|                                                               |                                     |                    |             |                   |  
|Shares used in computation of basic and diluted loss per share |                                     |                    | 10,625,667  |                   |  

See
accompanying notes

4

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CUTTER & BUCK INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

|                                                                                |                                                                       | Nine Months Ended                                                   |            
|------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------- | -----------
|
|
|Operating activities:                                                           |                                                                       |                                                                     |            
|Net loss                                                                        |                                                                       | $                                                                   | (11,006,314
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                                                       |                                                                     |            
|                                                                                | Depreciation and amortization                                         |                                                                     |            
|                                                                                | Amortization of deferred gain on sale and leaseback of capital assets |                                                                     |            
|                                                                                | Amortization of deferred compensation                                 |                                                                     |            
|                                                                                | Gain on sale of fixed assets                                          |                                                                     |            
|                                                                                | Noncash compensation expense                                          |                                                                     |            
|                                                                                | Noncash restructuring and asset impairment charges                    |                                                                     |            
|                                                                                | Inventory write-downs related to restructuring                        |                                                                     |            
|                                                                                | Changes in assets and liabilities:                                    |                                                                     |            
|                                                                                |                                                                       | Receivables, net                                                    |            
|                                                                                |                                                                       | Inventories                                                         |            
|                                                                                |                                                                       | Other current assets                                                |            
|                                                                                |                                                                       | Accounts payable, accrued liabilities and other current liabilities |            
|                                                                                |                                                                       |                                                                     |            
|Net cash provided by operating activities                                       |                                                                       |                                                                     | 14,313,649 
|Investing activities:                                                           |                                                                       |                                                                     |            
|Purchases of furniture and equipment                                            |                                                                       |                                                                     | (1,945,751 
|(Increase) decrease in trademarks, patents and marketing rights                 |                                                                       |                                                                     | 81,959     
|                                                                                |                                                                       |                                                                     |            
|Net cash used in investing activities                                           |                                                                       |                                                                     | (1,863,792 
|Financing activities:                                                           |                                                                       |                                                                     |            
|Net repayments of short term borrowings                                         |                                                                       |                                                                     |           
|Principal payments under capital lease obligations                              |                                                                       |                                                                     | (3,679,759 
|Transfer to restricted cash                                                     |                                                                       |                                                                     | (7,000,000 
|Issuance of common stock                                                        |                                                                       |                                                                     | 87,855     
|                                                                                |                                                                       |                                                                     |            
|Net cash used in financing activities                                           |                                                                       |                                                                     | (10,591,904
|Effects of foreign exchange rate on changes in cash                             |                                                                       |                                                                     |           
|                                                                                |                                                                       |                                                                     |            
|Net increase in cash and cash equivalents                                       |                                                                       |                                                                     | 1,857,953  
|Cash and cash equivalents, beginning of period                                  |                                                                       |                                                                     | 6,988,823  
|                                                                                |                                                                       |                                                                     |            
|Cash and cash equivalents, end of period                                        |                                                                       | $                                                                   | 8,846,776  
|                                                                                |                                                                       |                                                                     |            

See
accompanying notes

5

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Cutter & Buck Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation and Restatement of Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared by Cutter & Buck Inc. (the Company) in accordance with
accounting principles generally accepted in the United States for interim financial statements and in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In
our opinion all adjustments (consisting of normal recurring accruals, restructuring and asset impairment charges, retail store closure expenses and restatement expenses) necessary for a fair
presentation have been included. Our revenues are seasonal, and therefore the results of operations for the three months and nine months ended January 31, 2003 may not be indicative of the
results for the full fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2002, included in our filing on
Form 10-K.

In
consultation with our independent auditors, we restated our audited financial statements for the years ended April 30, 2000 and 2001, and our unaudited financial statements for
each of the quarters in those years and for the quarters ended July 31, 2001, October 31, 2001 and January 31, 2002. We initially announced our intention to restate certain
financial statements on August 12, 2002. That announcement was made after our new Chairman and Chief Executive Officer, appointed April 2002, discovered certain accounting
irregularities. In early August, shortly after her discovery, the Board of Directors appointed a Special Committee to investigate these irregularities. The preliminary conclusion of the Special
Committee was that approximately $5.8 million of shipments to three distributors made on a consignment basis during fiscal year 2000 had been recorded as sales of inventory for that year.
Subsequent to that announcement, the Special Committee continued its investigation in order to confirm whether any additional accounting irregularities had occurred. The Special Committee was assisted
in its investigation by our regular outside legal counsel, special independent legal counsel, a forensic accounting firm and our independent auditors.

Upon
completion of the Special Committee's restatement investigation, our restatement was expanded to include adjustment of certain other transactions related to the timing of revenue
recognition and accounting errors discovered at our European subsidiary within the fiscal years 2000 and 2001 and each of the periods noted above. We also recorded a cumulative-effect adjustment to
retained earnings for amounts related to fiscal 1998 and 1999 of $250,541. Since the restatement adjustments related primarily to the timing of the recognition of revenue, the restatement had an
insignificant impact on our shareholders' equity as of April 30, 2002. Refer to the Form 10-K for the year ended April 30, 2002 for details of the restatement impact
on the years and quarters previously reported. All adjustments fell into the following categories:

Restatement of distributor transactions:In the fourth quarter of fiscal 2000 we made shipments of product to three
distributors on a consignment basis and improperly recorded these shipments as sales. Some of this product was sold by the distributors during fiscal 2001 and cash was remitted to us. At the end of
fiscal 2001 the unsold product was returned to us and recorded as sales returns. The fiscal 2000 financial statements were restated to reverse these sales and the fiscal 2001 financial statements were
restated to record sales by the distributors on a cash basis and to reverse the sales returns.

Restatement of premature shipments:We generally ship our product to arrive on customer-specified delivery dates. In certain
instances, we shipped product to customers well in advance of the date originally specified by the customer. We restated our financial statements for fiscal years 2000 and 2001 and the first three
quarters of fiscal 2002 to record sales in the period that the customer requested the

6

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goods be received, taking into account a normal time to assure receipt in accordance with customer specified terms.

In
addition, on certain occasions we shipped product to third parties, who held the product until the customer specified dates, or shipped product in ways that assured slow delivery. We
have restated for all such sales to record the sales upon substantive transfer of the products to the customer.

Restatement of European operations:Certain accounting errors were discovered during the process of closing our European
operations. We restated our financial statements for fiscal years 2000 and 2001 and the first three quarters of fiscal 2002 related to an understatement of accrued expatriate compensation and
overstatement of recoverable value added taxes.

Income Taxes:We recorded the income tax effects of the restatements in each period using the marginal federal and state
income tax rates.

The
effect of the restatement on the consolidated financial statements for the quarter and nine months ended January 31, 2002 is summarized as follows (in thousands, except per
share data):

For the Quarter Ended January 31, 2002

For the Nine Months Ended January 31, 2002As previously
Reported

As Restated

As previously
Reported

As RestatedNet sales

$
33,694

$
33,283

$
117,331

$
118,312Cost of sales


22,477


22,217


72,487


73,009Gross profit


11,217


11,066


44,844


45,303Total operating expenses


23,085


23,166


57,647


57,890Operating loss


(11,868
)

(12,100
)

(12,803
)

(12,587
)Net loss

$
(8,350
)
$
(8,502
)
$
(9,477
)
$
(9,335
)Basic and diluted loss per share

$
(0.79
)
$
(0.80
)
$
(0.90
)
$
(0.88
)


Results
identified in the above table as previously reported include reclassifications to conform to EITF 00-10 "Accounting for Shipping and Handling Fees and Costs" and SAB 101 "Revenue
Recognition in Financial Statements" that increased net sales and cost of sales for the quarter ended January 31, 2002 by $965,000 ($3,795,000 for the nine months then ended) and to reclassify
licensing and royalty income of $93,000 to net sales ($269,000 for the nine months then ended).

Note 2. Recently Issued Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We
adopted SFAS No. 146 prospectively on January 1, 2003 and it did not have a material impact on our consolidated results of operations or financial position.

7

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In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-based CompensationTransition and Disclosure". The standard provides alternative methods
of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements for SFAS
No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. SFAS No. 148 is effective for fiscal years ending
after December 31, 2002. We do not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position.

Note 3. Reclassifications

Certain prior year balances have been reclassified to conform to current year presentation.

Note 4. Earnings (Loss) Per Share

Basic earnings (loss) per share is based on the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based on the weighted
average number of common
shares and equivalents outstanding. Common share equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options except when the effect of their
inclusion would be antidilutive.

Note 5. Comprehensive Income (Loss)

The components of our total comprehensive loss were:

For the Quarter Ended January 31,

For the Nine Months Ended January 31,2003

2002

2003

2002Net loss

$
(9,700,419
)
$
(8,502,080
)
$
(11,006,314
)
$
(9,334,708
)Foreign currency translation adjustments





69,255





23,878Comprehensive loss

$
(9,700,419
)
$
(8,432,825
)
$
(11,006,314
)
$
(9,310,830
)


Note 6. Debt

In March 2002, we entered into a loan agreement with Washington Mutual Bank (Washington Mutual) to replace our $55 million line of credit with a
$35 million line of credit which expires on August 1, 2003. Washington Mutual included Bank of America, N.A. (Bank of America) in the arrangement as co-lender. Effective
January 23, 2003, we renewed and modified our loan agreement to reduce the line of credit to $20 million and allow our co-lender, Bank of America to exit the agreement. The
new agreement expires on March 31, 2003 and is collateralized by cash collateral and a security interest in our accounts receivable, inventory, furniture and equipment, contract rights and
general intangibles. Availability of funds under the line is determined by a borrowing formula and those funds are to be
used for general corporate purposes. Interest on borrowings is charged and payable monthly at either the Prime rate or the LIBOR rate plus 2.75%, each as defined in the loan agreement, at the
borrower's election. At January 31, 2003, letters of credit outstanding against this line

8

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of credit totaled approximately $13.1 million and there were no working capital advances outstanding. The loan agreement contains certain restrictive covenants covering minimum working capital
and tangible net worth. At January 31, 2003, we were in compliance with these covenants. Under the terms of our renewed and modified loan agreement with Washington Mutual we established a money
market account for cash collateral to be used as additional security. The $7.0 million balance of restricted cash is pledged through March 31, 2003, the termination date of the renewed
and modified loan agreement with Washington Mutual. Our loan agreement with Wells Fargo (described below) contains no requirement for a cash collateral account.

On
March 13, 2003, we entered into a loan agreement with Wells Fargo Bank, N.A (Wells Fargo) as agent and Century Business Credit Corp, an affiliate of Wells Fargo, as collateral
agent and lender for a $35 million line of credit, replacing our previous line of credit with Washington Mutual. The availability of funds under the revolving line of credit is determined by a
borrowing formula, and advances on the line are to be used for general corporate purposes. Interest on advances is charged at either the LIBOR rate plus 2.75% or the Wells Fargo Bank reference rate,
each as defined in the loan agreement, at the borrower's election. The line of credit expires on March 12, 2005, and may be renewed annually thereafter or terminated under the terms of the
agreement. The line is collateralized by a security interest in our accounts receivable, inventory, furniture and equipment, contract rights and general intangibles. The loan agreement contains
certain restrictive covenants covering minimum net worth, minimum working capital and maximum capital expenditures. We are currently in compliance with these covenants.

Note 7. Shareholders' Equity

During the nine months ended January 31, 2003, we sold 29,057 shares of common stock under our employee stock purchase plan and pursuant to the exercise of
stock options.

On
November 14, 2002, we issued 17,500 shares of restricted stock and recorded deferred compensation relating to this grant of $63,000. The deferred compensation is being
amortized over 12 months, the vesting period of the restricted stock.

Note 8. Commitments

We lease our office facilities, retail stores, a distribution center and certain office equipment under operating leases. On December 3, 2002 our board of
directors decided to close our fourteen retail
stores. We expect to be out of all of these stores and to settle all future rent obligations relating to these stores by April 30, 2003.

On
January 24, 2001, we entered into a sale and leaseback agreement for approximately $6.7 million of capital assets. The resulting commitment is accounted for as a capital
lease, with terms between three and five years. We deferred a gain of approximately $0.4 million, which is being amortized in proportion to the amortization of the leased assets. In conjunction
with closing our retail stores, we executed an early buyout agreement on December 27, 2002 for those assets located at our retail stores. These assets will be liquidated as our stores are
closed.

Partially
as a result of our restructuring (described in Note 9), we have excess warehouse capacity at our distribution center. We have subleased this unused capacity to third
parties, with lease terms between four and eight years.

9

---

Future
minimum payments, by year and in the aggregate, under capital leases and noncancelable operating leases consisted of the following at January 31, 2003:

As of January 31,

Capital
Leases

Operating
Leases2003

$
593,330

$
769,7702004


2,108,185


3,053,4682005


634,442


3,079,1942006


114,433


3,023,4732007





2,123,097Thereafter





4,247,108Minimum lease payments


3,450,390


16,296,110Less sublease payments





(8,484,465
)Total minimum lease payments


3,450,390

$
7,811,645Less amount representing interest


(201,162
)Present value of minimum lease payments


3,249,228Less: current portion


(2,400,464
)$
848,764


As
of March 31, 2003, six retail store leases were still being negotiated. The future remaining payments under these leases not included above total approximately $4.2 million. We expect
to negotiate terminating these leases for substantially less than this amount.

Note 9. Restructuring, Asset Impairment and Retail Store Closure Expenses

Restructuring and Asset Impairment

For the three months ended January 31, 2003 we recorded a reversal of $45 thousand relating to the overaccrual of restructuring expenses arising
under our fiscal 2002 restructuring plan. For the nine months ended January 31, 2003 restructuring and asset impairment charges were $3.8 million. Of the $3.8 million,
$3.3 million related to losses on subleases of our excess warehouse capacity at our distribution center, $0.3 million related to additional reserves against receivable balances with both
our former Chief Executive Officer and our former President and $0.2 million related to additional expenses arising under our fiscal 2002 restructuring. The liability resulting from recognizing
the losses on subleases has been recorded in other current liabilities and other long-term liabilities on our Condensed Consolidated Balance Sheets.

In
the third quarter of fiscal 2002, we implemented a restructuring plan to reduce our operating costs, streamline our organizational structure and focus on those areas of our business
that we believe provide the greatest growth and profit opportunities. For the three and nine month periods ended January 31, 2002 restructuring and asset impairment charges relating to this
plan were $4.9 million. Of the $4.9 million, $3.3 million related to the closure of our European operations and $1.6 million related
to the consolidation and restructuring of our women's line sales force. The charge related to our European operations included termination and severance benefits, reserves necessary to
write-down the operations' receivables due to lower than anticipated recoveries, the write-down of other current assets,

10

---

furniture and equipment and leasehold improvements to net realizable value and other costs resulting from closure of the operations. The consolidation and restructuring of our women's line sales
force resulted in the write-off of commission draws and sample receivable balances.

Effective
May 1, 2002, we entered into a license agreement with Eurostyle Ltd. (Eurostyle) to distribute our men's and women's Golf and Classic apparel collections and golf
accessories throughout Europe. The license agreement requires Eurostyle to make certain minimum royalty payments and expires on June 30, 2005. Effective May 1, 2002 we also entered into
an asset purchase agreement with Eurostyle to sell inventory, certain accounts receivable balances and fixtures.

Retail Store Closure Expenses

Retail store closure expenses were $9.6 million for the three and nine months ended January 31, 2003 and $2.5 million for the three and nine
months ended January 31, 2002. The fiscal 2002 restructuring plan mentioned above included refining our retail strategy and evaluating the recoverability of the assets relating to our retail
stores. We concluded from the results of the evaluation that a significant impairment of long-lived assets had occurred and decided to close three under-performing full-price
stores and adjusted the net book value of another two full-price stores to their estimated fair value. The three under-performing full-price stores were to be closed during
fiscal 2003. As a result, in fiscal 2002 we recorded a charge of $2.5 million related to store fixed asset write-downs (primarily leasehold improvements) and lease termination costs.

In
the third quarter of fiscal 2003 we announced plans to close all of our retail stores by April 30, 2003 and recorded another charge of $9.6 million relating to store
closure expenses. This charge included lease termination costs, termination and severance benefits to be paid as a result of the involuntary termination of approximately 127 employees located at our
retail stores, the write-down of other current assets, furniture and equipment and deferred rent to net realizable value and other costs resulting from the closure of our retail stores. We
expect to substantially complete the closure of our retail stores and to settle the related liabilities by April 30, 2003.

In
connection with the decision to close the retail stores we entered into an agreement with Hilco Merchant Resources, LLC (Hilco) to act as our agent for conducting the liquidation of
store inventories and to assist with negotiations for termination of the store leases. As a guaranty of Hilco's performance we receive a guaranteed payment of 31.2% of the aggregate retail price of
the inventory being liquidated. As compensation for its services, Hilco receives a base fee up to 2.5% of the retail price of the liquidation inventory plus all expenses incurred in connection with
the liquidation event (this includes store level operating expenses). To the extent the proceeds from the liquidation sales exceed the sum of the guaranteed payment plus all expenses (store operating
and Hilco's internal
expenses) plus Hilco's base fee such excess proceeds are to be split 80% to us and 20% to Hilco. As of January 31, 2003, the guaranteed payment totaled approximately $4.7 million and
Hilco's fees totaled approximately $3.1 million. The $3.1 million has been recorded in selling, general and administrative expenses and includes Hilco's base fees, reimbursable expenses
incurred by Hilco and certain store level operating expenses paid for by Hilco under the terms of the agreement.

11

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For
the nine months ended January 31, 2003 and 2002 the total restructuring, asset impairment and store closure charges were as follows:

|                                  |  | Nine Months Ended January 31, 2003 |           | Nine Months Ended January 31, 2002
|--------------------------------- |  | ---------------------------------- | --------- | ----------------------------------
|
|Lease Obligations                 |  | $                                  | 3,281,118 |                                   
|Asset Impairment                  |  |                                    | 322,979   |                                   
|Termination Benefits              |  |                                    | 0         |                                   
|Other Restructuring Costs         |  |                                    | 197,399   |                                   
|Foreign Currency Translation Loss |  |                                    | 43,181    |                                   
|                                  |  |                                    |           |                                   
|                                  |  | $                                  | 3,844,677 |                                   
|                                  |  |                                    |           |                                   

The
amounts recorded represent management's best estimate of the costs to be incurred. The actual amounts incurred will vary from these estimates to the extent future developments differ
from the underlying assumptions used in development of the accrual. We currently expect the store closure charges to be at the low end of our previous estimates, which were $12 to $15 million
pre-tax. The full tax effect of the charge has not yet been determined and to the extent losses cannot be carried back they will be available to offset future profits. We estimate the
after-tax charge to be in the range of $10 to $13 million and the after-tax cash impact of the charge is expected to be $5 to $7 million.

Activity
in the accrued liability for restructuring and retail store closure expenses consisted of the following for the first nine months of fiscal 2003:

|                          |  | Balance at April 30, 2002 |           | Subsequent Accruals, Net |   | Subsequent Payments |  | Balance at January 31, 2003 |            | Due within 1 year |   | Due After 1 Year
|------------------------- |  | ------------------------- | --------- | ------------------------ | - | ------------------- |  | --------------------------- | ---------- | ----------------- | - | ----------------
|Lease Obligations         |  | $                         | 1,177,153 |                          | $ | 8,147,865           |  | $                           | (2,890,766 | )                 | $ | 6,434,252       
|Termination Benefits      |  |                           | 771,800   |                          |   | 106,144             |  |                             | (654,961   | )                 |   | 222,983         
|Other Restructuring Costs |  |                           | 783,020   |                          |   | 1,109,881           |  |                             | (1,087,063 | )                 |   | 805,838         
|                          |  |                           |           |                          |   |                     |  |                             |            |                   |   |                 
|                          |  | $                         | 2,731,973 |                          | $ | 9,363,890           |  | $                           | (4,632,790 | )                 | $ | 7,463,073       
|                          |  |                           |           |                          |   |                     |  |                             |            |                   |   |                 

Total
severance and termination benefits as a result of the fiscal 2002 restructuring plan related to approximately 35 employees, all of whom have been terminated. Total cash paid for
severance and termination benefits was approximately $0.7 million. As of January 31, 2003 none of the retail store employees had been terminated and no severance and termination benefits
relating to the retail store closure had been paid out.

Note 10. Restatement Expenses

As described in Note 1, we restated certain of our financial statements for irregularities and errors. The restatements required a thorough investigation
of what occurred and how it should be corrected. In addition to the extensive efforts of our employees in this investigation, we utilized our regular outside legal counsel, special independent legal
counsel, a forensic accounting firm, our independent auditors and other specialists for additional procedures. The resulting professional fees plus accrued retention bonuses to certain key employees
and amortization of the premium for the replacement

12

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Directors' and Officers' liability insurance amounted to approximately $1.3 million and $2.5 million respectively for the three and nine months ended January 31, 2003. Although
the restatement has been completed, we will continue to incur substantial legal and other professional service costs in connection with the shareholder lawsuits and responding to the inquiries of the
SEC. These amounts cannot be estimated at this time. In addition, there will be an ongoing charge each quarter until April 2004 for the retention bonus, which will aggregate to as much as
$2.4 million payable in March 2004.

Note 11. Litigation

We are party to various legal proceedings, including the shareholder lawsuits that arose from the restatement of our financial statements.

These
proceedings, are described in Part II, Item 1Legal Proceedings. We are not in a position at this time to quantify the amount or range of any possible losses
related to those claims.

On
December 6, 2002, Genesis Insurance Company notified us that it intends to rescind our Directors' and Officers' liability insurance coverage as a result of alleged
misrepresentations made in connection with the policy application. We do not believe the insurer is entitled to rescind the policy. We intend to dispute this action and, therefore, on
December 26, 2002, we filed suit against Genesis in the United States District Court for the Western District of Washington. We have subsequently obtained replacement Directors' and Officers'
liability insurance coverage from another carrier. This coverage will not, however, protect us against liabilities arising from the existing lawsuits described in Part II, Item
1Legal Proceedings.

On
November 4, 2002, the Securities and Exchange Commission issued a Formal Order of Investigation with respect to the circumstances underlying our decision in August 2002
to restate our historical financial results. We are cooperating in the investigation by the SEC and are not in a position at this time to quantify the amount or range of any possible losses related to
the SEC investigation.

We
are also party to other routine litigation incidental to our business. Management believes the ultimate resolution of these other routine matters will not have a material adverse
effect on our financial position and results of operations.

Note 12. Segment Reporting

We have two operating segments: wholesale and retail. The wholesale segment consists of designing, sourcing, and selling high quality sportswear to golf and
specialty retailers, to corporations, and to our international distributors and licensees. The retail segment reflects the operations of our retail stores. Previously ecommerce operations were
included with our retail segment. However, with the closure of our retail stores we have changed the way we look at our business and ecommerce is now included in our wholesale segment. The accounting
policies of the segments are the same as those described in the summary of significant accounting policies. These segments reflect the reporting basis used internally by senior management to evaluate
performance and allocate resources. The retail

13

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segment includes direct operating expenses but does not include any overhead allocations. Financial information for our segments is as follows:

|                              |                                         | Three Months Ended
January 31, 2003 |        | Three Months Ended
January 31, 2002 |  
|----------------------------- | --------------------------------------- | ----------------------------------- | ------ | ----------------------------------- | -
|
|Net sales                     |                                         | $                                   | 25,583 |                                     | $
|Gross profit                  |                                         |                                     | 9,975  |                                     |  
|Operating expenses:           |                                         |                                     |        |                                     |  
|                              | Depreciation & amortization             |                                     |        | 1,383                               |  
|                              | Other selling, general & administrative |                                     |        | 10,153                              |  
|                              | Restructuring and asset impairment      |                                     |        | (45                                 | )
|                              | Retail store closure expenses           |                                     |        |                                    |  
|                              | Restatement expenses                    |                                     |        | 1,275                               |  
|                              |                                         |                                     |        |                                     |  
|                              | Total operating expenses                |                                     |        | 12,766                              |  
|Interest expense              |                                         |                                     | 157    |                                     |  
|Other income                  |                                         |                                     | (62    | )                                   |  
|                              |                                         |                                     |        |                                     |  
|Loss before income taxes      |                                         | $                                   | (2,886 | )                                   | $
|                              |                                         |                                     |        |                                     |  
|Total assets at end of period |                                         | $                                   | 93,910 |                                     | $
|                              |                                         |                                     |        |                                     |  

|                              |                                         | Nine Months Ended
January 31, 2003 |        | Nine Months Ended
January 31, 2002 |  
|----------------------------- | --------------------------------------- | ---------------------------------- | ------ | ---------------------------------- | -
|
|Net sales                     |                                         | $                                  | 95,395 |                                    | $
|Gross profit                  |                                         |                                    | 38,688 |                                    |  
|Operating expenses:           |                                         |                                    |        |                                    |  
|                              | Depreciation & amortization             |                                    |        | 3,935                              |  
|                              | Other selling, general & administrative |                                    |        | 31,822                             |  
|                              | Restructuring and asset impairment      |                                    |        | 3,845                              |  
|                              | Retail store closure expenses           |                                    |        |                                   |  
|                              | Restatement expenses                    |                                    |        | 2,529                              |  
|                              |                                         |                                    |        |                                    |  
|                              | Total operating expenses                |                                    |        | 42,131                             |  
|Interest expense              |                                         |                                    | 528    |                                    |  
|Other income                  |                                         |                                    | (207   | )                                  |  
|                              |                                         |                                    |        |                                    |  
|Loss before income taxes      |                                         | $                                  | (3,764 | )                                  | $
|                              |                                         |                                    |        |                                    |  
|Total assets at end of period |                                         | $                                  | 93,910 |                                    | $
|                              |                                         |                                    |        |                                    |  

Note 13. Income Taxes

We recorded approximately $2.7 million of income tax benefit in the first nine months of fiscal 2003 compared to $4.5 million for the same period of
fiscal 2002. We have provided a valuation allowance against our deferred tax assets which include net operating loss carryforwards. As a result, the effective rates for income taxes were 20% and 33%,
respectively.

14

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

Statements made in this filing that are not historical facts are forward-looking statements that involve risks and uncertainties.
Forward-looking statements typically are identified by the use of such terms as "may," "will," "expect," "believe," "anticipate," "estimate," "plan" and similar words, although some forward-looking
statements are expressed differently. You should be aware that our actual results could differ materially from those contained in any forward-looking statement due to a number of factors, which
include, but are not limited to the following: the special risk factors and uncertainties set forth below; our ability to negotiate lease termination agreements on favorable terms; our exposure to
additional costs resulting from the termination of retail operations, including costs associated with any related litigation; risks related to our ongoing shareholder lawsuits and SEC investigation
and our suit against Genesis Insurance Company; risks related to a potential failure to realize anticipated benefits in connection with the liquidation of our products; our ability to control costs
and expenses; our ability to utilize tax losses; relations with and performance of suppliers; our ability to carry out successful designs and effectively advertise and communicate with the marketplace
and to penetrate chosen distribution channels; competition; our ability to retain key employees and to maintain the integrity of our technology and information systems; access to capital; risks
related to the timely performance of third parties, such as shipping companies, including risks of strikes or labor disputes involving these third parties; maintaining satisfactory relationships with
our banks; political and trade relations; the overall level of consumer spending on apparel; global economic conditions and additional threatened terrorist attacks and responses thereto, including
war. Additional information on these and other factors that could affect our financial results is set forth below and in our Form 10-K for the year ended April 30, 2002.
Finally, there may be other factors not mentioned above or included in our SEC filings that may cause our actual results to differ materially from those in any forward-looking statement. You should
not place undue reliance on these forward-looking statements. We assume no obligation to update any forward-looking statements as a result of new information, future events or developments, except as
required by federal securities laws.

All references to fiscal years are to our fiscal years ended April 30.

Overview

Cutter & Buck designs, sources and markets men's and women's sportswear, fashion and outerwear apparel. Our net sales are generated from our two operating
segments: wholesale and retail. The wholesale segment consists of designing, sourcing, and selling high quality sportswear to golf and specialty retailers, to corporations, and to our international
distributors and licensees. The retail segment reflects the operations of our retail stores. In December 2002, our Board of Directors decided
we should focus on our wholesale segment and close our fourteen retail stores. Closure of the retail stores is more fully described below. Previously, ecommerce operations were included in our retail
segment. However, with the closure of our retail stores we have changed the way we look at our business and ecommerce is now included in our wholesale segment.

Restatement

In consultation with our independent auditors, we restated our audited financial statements for the years ended April 30, 2000 and 2001, and our unaudited
financial statements for each of the quarters in those years and the quarters ended July 31, 2001, October 31, 2001 and January 31, 2002. We initially announced our intention to
restate certain financial statements on August 12, 2002. That announcement was made after our new Chief Executive Officer, appointed April 2002, discovered certain accounting
irregularities. In early August, shortly after her discovery, the Board of Directors appointed a Special Committee to investigate these irregularities. The preliminary conclusion of the Special
Committee was that approximately $5.8 million of shipments to three distributors made on a consignment basis during fiscal 2000 had been recorded as sales of inventory for that year. Subsequent
to that announcement, the Special Committee continued its investigation in order to confirm whether

15

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any additional accounting irregularities occurred. The Special Committee was assisted in its investigation by our regular outside legal counsel, special independent legal counsel, a forensic
accounting firm and our independent auditors. Accordingly, the results of operations for the quarter and nine months ended January 31, 2003 included herein and referred to below are after
restatement, which is more fully discussed in Note 1 to the financial statements.

Special Risk Factors and Uncertainties

We are currently defending several shareholder lawsuits.Following the restatement of our financial
results, we have received notice of three class action lawsuits filed against us and certain of our former directors and officers purportedly brought on behalf of certain of our current and former
shareholders. These suits generally allege that we issued false and misleading statements during fiscal years 2000 to 2002, in violation of federal securities laws. If we choose to settle these suits
without going to trial, we may be required to pay the plaintiffs a substantial sum in the form of damages. Alternatively, if these cases go to trial and we are ultimately adjudged to have violated
federal securities laws, we may incur substantial losses as a result of an award of damages to the plaintiffs. In addition, we are party to a shareholder derivative suit purportedly brought on our own
behalf against our current and former directors and officers, alleging among other things, breaches of fiduciary duty. The indemnification provisions contained in our Articles of Incorporation may
require us to indemnify our current and former directors and officers who are named as defendants against the allegations contained in these suits. Regardless of the ultimate outcome of these suits,
however, litigation of this type is expensive and will require that we devote substantial resources and management attention to defend these
proceedings. Moreover, the mere presence of these lawsuits may materially harm our business for the same reasons set forth in the following risks.

We may not have adequate Directors' and Officers' liability insurance.On December 6, 2002,
Genesis Insurance Company notified us that it intends to rescind our Directors' and Officers' liability insurance coverage as a result of alleged misrepresentations made in connection with the policy
application. We do not believe the insurer is entitled to rescind the policy and filed suit against Genesis to dispute this action. We have subsequently obtained replacement Director's and Officer's
liability insurance coverage from another carrier, but this replacement coverage will not protect us against liabilities resulting from the existing shareholder lawsuits. If we are unable to reinstate
liability insurance with respect to the existing shareholder suits, our business and financial condition could be adversely affected.

Our business has been adversely affected by our decision to restate our financial results.Following
the announcement of our decision to restate our financial statements, we experienced a decrease in bookings. Our management believes that some of this decrease may represent fears by customers that we
will become unreliable in supplying our products or that our brand image will be harmed. If our customers lose confidence in our ability to supply quality products reliably, our business may be
materially harmed. In addition, the willingness of suppliers to do business with us and changes in trade terms could negatively impact future margins and costs.

We had a substantial loss in fiscal year 2002 and the first nine months of fiscal 2003 and may continue to incur losses in future
periods.We incurred a net loss of approximately $10.4 million during the fiscal year ended April 30, 2002, including a restructuring and asset
impairment charge of approximately $8.5 million before income tax effects. Our net loss for the nine months ended January 31, 2003 was approximately $11.0 million including
restructuring and retail store closure charges of approximately $13.4 million and restatement expenses of approximately $2.5 million before income tax effects. As described in the notes
to the financial statements, as part of our restructuring we have substantially streamlined our sales infrastructure and eliminated certain product lines and our retail stores. We believe these
restructuring and cost-cutting initiatives will reduce overall spending. If our restructuring efforts fail to adequately reduce costs, or if our sales are less than we project, we may
continue to incur losses in future periods.

16

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We may have difficulty recruiting and retaining employees.Management believes that employee morale
has been impaired as a result of our recent management transition, shareholder lawsuits, earnings restatement as well as the attempted rescission of coverage by Genesis Insurance Company. As a result,
we have provided financial incentives designed to retain certain key employees. For the nine months ended January 31, 2003, restatement expenses include approximately $0.6 million of
expenses relating to the retention bonus. There will be an ongoing charge each quarter until April 2004 for the retention bonus, which will aggregate to as much as $2.4 million payable
in March 2004.In addition, there will be recruitment costs to the extent departed officers are replaced and, under present circumstances, that
recruitment could be difficult and costly.

Our auditors have indicated that they believe there was a material weakness in our internal controls and
procedures.Following our decision to restate our financial results, our independent auditors issued a letter to us indicating that they believed there was a
material weakness, as defined in authoritative auditing literature, in our internal accounting controls. The material weakness related to lack of compliance with or circumvention of our procedures and
controls by employees and management at various levels. In an effort to address these concerns, we brought in new managers, including a new Chief Financial Officer and have begun educating both
employees and management about complying with procedures and controls and setting the "tone at the top" to mitigate the risk that the events underlying the financial restatement will recur. There can
be no assurance, however, that these efforts will be adequate to prevent future occurrences of the type giving rise to the restatement. If we fail to adequately address concerns regarding our internal
controls and procedures, our business may be materially harmed.

We have lost several key executives who had important relationships with our suppliers, customers and
employees.Within the last year we accepted the resignations of several of our key executives, including our former Chairman and Chief Executive Officer. These
executives had important relationships with our key suppliers, customers and employees. For us to execute our business plan, we must preserve and build upon our relationships with these suppliers,
customers and employees in the absence of these executives. While the terms of a Transition and Release Agreement prevent our former Chairman and Chief Executive Officer from competing with or
soliciting business or employees away from us, a court may refuse to enforce the provisions of this agreement. In addition, we do not have similar agreements with other former executives. If we are
unable to preserve the relationships with our customers, suppliers and employees, or if any of our former executives choose to influence these individuals to our detriment, our business may be
materially harmed.

We expect to incur substantial legal and other professional service costs.We have and will continue
to incur substantial legal and other professional service costs in connection with the shareholder lawsuits, responding to the inquiries of the SEC and as a result of our suit against Genesis. These
costs cannot be determined at this time.

We may be required to indemnify our current and former officers.Former officers have made
indemnification claims against us related to the SEC and NASDAQ investigations and the recent shareholder lawsuits. The ultimate cost of such indemnification cannot currently be estimated nor can the
extent to which any costs will be covered by insurance.

We liquidated our European subsidiaries and now rely exclusively on relationships with a single distributor for our European
sales.As part of our restructuring, we completed the sale of substantially all of our European assets to Eurostyle Ltd., a corporation formed under the
laws of Ireland, and entered into a license agreement with Eurostyle. Following these transactions, we eliminated substantially all of our European sales force and liquidated our European
subsidiaries, Cutter & Buck (Europe) B.V. and Cutter & Buck GmbH. For the forseeable future, we intend to rely exclusively on our relationship with Eurostyle for the distribution and
sale of our products in Europe. We have less control over the marketing of our products by Eurostyle and there can be no assurance that we will continue to achieve

17

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historical levels of revenues in Europe pursuant to this new arrangement. If we are unable to effectively sell our products through this distributorship, our business may be materially harmed.

We decided to close our retail stores.Our board of directors has decided to close all of our retail
stores. We initiated special sales events at our stores and expect to be out of these stores by April 30, 2003. The closures involve special sales to liquidate store inventories and
negotiations with landlords to terminate lease obligations. We currently expect the store closure charges to be at the low end of our previous estimates, which were $12 to $15 million
pre-tax. If costs to liquidate inventory are greater than we currently estimate or the terms of lease terminations are less favorable than estimated, expenses for closure of the retail
stores could exceed our estimates. In addition, the stores were used to showcase our products and provided brand recognition. If we are unable to showcase our brand effectively without the use of our
stores, our business may be materially harmed.

Results of Operations

Three Months Ended January 31, 2003 Compared With Three Months Ended January 31, 2002

|                         |                                           | Three Months Ended
January 31, 2003 |        | Three Months Ended
January 31, 2002 |  
|------------------------ | ----------------------------------------- | ----------------------------------- | ------ | ----------------------------------- | -
|
|Net sales                |                                           | $                                   | 25,583 |                                     | $
|Gross profit             |                                           |                                     | 9,975  |                                     |  
|Operating expenses:      |                                           |                                     |        |                                     |  
|                         | Depreciation & amortization               |                                     |        | 1,383                               |  
|                         | Other selling, general and administrative |                                     |        | 10,153                              |  
|                         | Restructuring and asset impairment        |                                     |        | (45                                 | )
|                         | Retail store closure expenses             |                                     |        |                                    |  
|                         | Restatement                               |                                     |        | 1,275                               |  
|                         |                                           |                                     |        |                                     |  
|                         | Total operating expenses                  |                                     |        | 12,766                              |  
|Interest expense         |                                           |                                     | 157    |                                     |  
|Other income             |                                           |                                     | (62    | )                                   |  
|                         |                                           |                                     |        |                                     |  
|Loss before income taxes |                                           | $                                   | (2,886 | )                                   | $
|                         |                                           |                                     |        |                                     |  

Net SalesDuring the third quarter of fiscal 2003 net sales increased approximately $1.3 million or
3.9% from $33.3 million in the same period of the prior year to $34.6 million. Net sales in our wholesale segment decreased $2.8 million or 9.9% compared to the same period in the
prior year. This decrease was more than offset by an increase of $4.1 million or 84.4% in net sales in our retail segment. The detail of net sales by strategic business unit (SBU) was as
follows:

Three Months Ended January 312003

2002

Increase
(Decrease)

Percent
ChangeIn Thousands, except percent changeGolf

$
5,808

$
7,021

$
(1,213
)
(17.3
)%Corporate


12,963


11,668


1,295

11.1Specialty


4,020


5,126


(1,106
)
(21.6
)International


674


1,867


(1,193
)
(63.9
)Other


2,118


2,719


(601
)
(22.1
)Total Wholesale


25,583


28,401


(2,818
)
(9.9
)Retail


9,000


4,882


4,118

84.4Total Consolidated

$
34,583

$
33,283

$
1,300

3.9
%


18

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As
mentioned in our "risks" section, some of the decline in sales in each SBU may be attributable to customer's fears about our stability after the announcement of the
need to restate earnings. In the third quarter of fiscal 2003, net sales in our golf SBU decreased by $1.2 million or 17.3% to $5.8 million from $7.0 million in the same period of
the prior year. Net sales in our golf SBU continued to be negatively impacted by the economy, flat demand, an oversupply of product in the golf marketplace and a decrease in the number of rounds
played. Net sales in our corporate SBU increased $1.3 million or 11.1% to $13.0 million from $11.7 million in the same period of the prior year. During the first quarter of fiscal
2003 we launched a new corporate catalog which had a positive impact on sales in the third quarter of fiscal 2003. Net sales in our specialty SBU decreased $1.1 million or 21.6% to
$4.0 million from $5.1 million in the same period of the prior year. Specialty sales decreased as a result of the discontinuation of our dressy women's line and the difficult conditions
facing independent specialty stores. Net sales in our international SBU decreased by approximately $1.2 million or 63.9% to $0.7 million from $1.9 million in the same period of
the prior year. For the quarter ended January 31, 2002, net sales in our international SBU included approximately $0.9 million in sales generated by our European subsidiary. This
subsidiary was closed and substantially liquidated at the end of fiscal 2002. As a result, net sales for the three months ended January 31, 2003 does not include any European sales. Our
European operations were replaced with a licensing relationship with Eurostyle Ltd. (Eurostyle) effective May 1, 2002. We anticipate it will take some time before this relationship gains
momentum. Because we will no longer sell directly in Europe, we will generate licensing revenues, instead of direct sales, on all future sales of our products in that market. These licensing revenues
are calculated as a percentage of net sales of our products by Eurostyle. The remaining $0.3 million decrease in net sales in our international SBU is due to a decrease in licensing and royalty
income. Net sales in our other SBU include liquidation sales and shipping income and decreased $0.6 million or 22.1% to $2.1 million from $2.7 million in the same period of the
prior year. This decrease was primarily due to lower liquidation sales in the third quarter of fiscal 2003 compared to fiscal 2002.

Net
sales in our retail segment increased to $9.0 million in the third quarter of fiscal 2003 from $4.9 million in the third quarter of fiscal 2002. This increase was due
to the liquidation sales at the retail stores.

Gross ProfitIn the third quarter of fiscal 2003, gross profit increased to 43.0% of net sales compared to 33.2% in the same
period of the prior year. The increase in gross profit was due to an increase in gross profit from our wholesale segment partially offset by a decrease in gross profit from our retail segment. Gross
profit from our wholesale segment increased from 28.7% in the prior year to 39.0% for the three months ended January 31, 2003. For the third quarter of fiscal 2002, cost of sales relating to
our wholesale segment included inventory write-downs related to our fiscal 2002 restructuring plan. This restructuring plan included closure of our European operations and exiting our golf shoe
business and the inventory write-downs were recorded because we expected inventory to be sold below cost. For the three months ended January 31, 2003, cost of sales relating to our wholesale
segment did not include write-downs of the same nature hence, the improvement in gross profit. Gross profit for the three months ended January 31, 2003 also improved due to lower liquidation
sales compared to the same period of the prior year.

Gross
profit from our retail segment decreased from 59.4% in the third quarter of fiscal 2002 to 54.3% in the third quarter of fiscal 2003. In connection with the closure of the stores
we initiated special sales events which increased liquidation sales and had a corresponding decrease in gross profit.

Depreciation and AmortizationDepreciation and amortization increased $0.1 million or 8.6% from $1.5 million to
$1.6 million for the three months ended January 31, 2003. For the wholesale segment, depreciation and amortization was $1.4 million compared to $1.2 million in the same
period of the prior year. The increase is primarily due to depreciation expense on new capital expenditures. The prior year amount included approximately $0.1 million related to our European
operations. For the

19

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retail segment, depreciation and amortization was $0.2 million compared to $0.3 million in the prior year. The decrease in depreciation and amortization in the retail segment is due to
the write-down of store assets in connection with the closure of the retail stores. The write-down was recorded as part of the retail store closure expenses.

Other Selling, General and Administrative ExpenseOther selling, general and administrative expenses decreased $0.2 million
or 1.1% compared to the same period in the prior year. For the wholesale segment selling, general and administrative expenses decreased approximately $1.8 million. Approximately
$0.8 million of this decrease related to the closure of our European operations and the remaining $1.0 million decrease related to lower salaries, commissions, marketing and selling
expenses. These decreases were partially offset by increased professional fees and legal expenses. Other selling, general and administrative expenses relating to our retail segment increased
$1.6 million. The increase is primarily due to expenses related to the Hilco agency agreement.

Restructuring and Asset ImpairmentRestructuring and asset impairment expenses were $4.9 million for the three months
ended January 31, 2002 compared to a reversal of $45 thousand in the third quarter of fiscal 2003. Of the $4.9 million recorded in fiscal 2002, $3.3 million related to the
closure of our European operations and $1.6 million related to the consolidation and restructuring of our women's line sales force. The reversal of $45 thousand in the third quarter of
fiscal 2003 is due to actual expenses being lower that amounts previously accrued for.

Retail store closure expensesStore closure expenses were $9.6 million for the three months ended January 31,
2003 and $2.5 million for the three months ended January 31, 2002. Our fiscal 2002 restructuring plan included refining our retail strategy and evaluating the recoverability of the
assets relating to our retail stores. We concluded from the results of the evaluation that a significant impairment of long-lived assets had occurred and decided to close three
under-performing full-price stores and adjusted the net book value of another two full-price stores to their estimated fair value. The three under-performing stores were to be
closed during fiscal 2003. As a result, in fiscal 2002 we recorded a charge of $2.5 million related to store fixed asset write-downs (primarily leasehold improvements) and lease termination
costs.

In
the third quarter of fiscal 2003 we announced plans to close all of our retail stores by April 30, 2003 and recorded an additional charge of $9.6 million relating to
store closure costs. This charge included lease termination costs, termination and severance benefits to be paid as a result of the involuntary termination of approximately 127 employees at our retail
stores, the write-down of other current assets, furniture and equipment and deferred rent to net realizable value and other costs resulting from the closure of our retail stores. We expect
to substantially complete the closure of our retail stores and to settle the related liabilities by April 30, 2003.

In
connection with the decision to close the retail stores we entered into an agreement with Hilco Merchant Resources, LLC (Hilco) to act as our agent for conducting the liquidation of
store inventories and to assist with negotiations for termination of the store leases. As a guaranty of Hilco's performance we receive a guaranteed payment of 31.2% of the aggregate retail price of
the inventory being liquidated. As compensation for its services, Hilco receives a base fee up to 2.5% of the retail price of the liquidation inventory plus all expenses incurred in connection with
the liquidation event (this includes store level operating expenses). To the extent the proceeds from the liquidation sales exceed the sum of the guaranteed payment plus all expenses (store operating
and Hilco's internal expenses) plus Hilco's base fee such excess proceeds are to be split 80% to us and 20% to Hilco. As of January 31, 2003, the guaranteed payment totaled approximately
$4.7 million and Hilco's fees totaled approximately $3.1 million. The $3.1 million has been recorded in selling, general and administrative expenses and includes Hilco's base
fees, reimbursable expenses incurred by Hilco and certain store level operating expenses paid for by Hilco under the terms of the agreement.

20

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Restatement ExpensesAs described in Note 1 to our financial statements, we restated certain of our historical
financial statements for irregularities and errors. The restatements required a thorough investigation of what had occurred and how it should be corrected. In addition to the extensive efforts of our
employees in this investigation, we utilized our regular outside legal counsel, special independent legal counsel, a forensic accounting firm, our independent auditors and other specialists for
additional procedures. The resulting professional fees plus accrued retention bonuses to certain key employees and amortization of the premium for the replacement Directors' and Officers' liability
insurance amounted to approximately $1.3 million for the three months ended January 31, 2003. Although the restatement has been completed, we will continue to incur substantial legal and
other professional service costs in connection with the shareholder lawsuits and responding to the inquiries of the SEC. These expenses cannot be estimated at this time. In addition, there will be an
ongoing charge each quarter until April 2004 for the retention bonus, which will aggregate to as much as $2.4 million payable in March 2004.

Operating LossAs a result of the above items, operating loss decreased $0.4 million or 3.4% to $11.7 million
in the third quarter of fiscal 2003 compared to $12.1 million in the third quarter of fiscal 2002.

Income TaxesWe recorded approximately $2.1 million of income tax benefit in the third quarter of fiscal 2003 compared
to $3.9 million in the third quarter of fiscal 2002. We have provided a valuation allowance against our deferred tax assets which include net operating loss carryforwards. As a result, the
effective rates for income taxes in the third quarter of fiscal 2003 and 2002 were 18% and 32%, respectively.

Nine Months Ended January 31, 2003 Compared With Nine Months Ended January 31, 2002

|                         |                                           | Nine Months Ended
January 31, 2003 |        | Nine Months Ended
January 31, 2002 |  
|------------------------ | ----------------------------------------- | ---------------------------------- | ------ | ---------------------------------- | -
|
|Net sales                |                                           | $                                  | 95,395 |                                    | $
|Gross profit             |                                           |                                    | 38,688 |                                    |  
|Operating expenses:      |                                           |                                    |        |                                    |  
|                         | Depreciation & amortization               |                                    |        | 3,935                              |  
|                         | Other selling, general and administrative |                                    |        | 31,822                             |  
|                         | Restructuring and asset impairment        |                                    |        | 3,845                              |  
|                         | Retail store closure expenses             |                                    |        |                                   |  
|                         | Restatement                               |                                    |        | 2,529                              |  
|                         |                                           |                                    |        |                                    |  
|                         | Total operating expenses                  |                                    |        | 42,131                             |  
|Interest expense         |                                           |                                    | 528    |                                    |  
|Other income             |                                           |                                    | (207   | )                                  |  
|                         |                                           |                                    |        |                                    |  
|Loss before income taxes |                                           | $                                  | (3,764 | )                                  | $
|                         |                                           |                                    |        |                                    |  

Net SalesDuring the first nine months of fiscal 2003 net sales decreased approximately $7.8 million or 6.6% to
$110.5 million from $118.3 million in the prior year. Net sales in our wholesale segment decreased $13.0 million or 12.0% compared to the same period in the prior year. This

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decrease was offset by an increase of $5.2 million in net sales in our retail segment. The detail of net sales by strategic business unit (SBU) was as follows:

Nine Months Ended January 312003

2002

Increase
(Decrease)

Percent
ChangeIn Thousands, except percent changeGolf

$
29,734

$
33,372

$
(3,638
)
(10.9
)%Corporate


41,330


42,197


(867
)
(2.1
)Specialty


16,358


19,067


(2,709
)
(14.2
)International


2,353


6,048


(3,695
)
(61.1
)Other


5,620


7,727


(2,107
)
(27.3
)Total Wholesale


95,395


108,411


(13,016
)
(12.0
)Retail


15,144


9,901


5,243

53.0Total Consolidated

$
110,539

$
118,312

$
(7,773
)
(6.6
)%


As
mentioned in our "risks" section, some of the decline in sales in each SBU may be attributable to customer's fears about our stability after the announcement of the need to restate
earnings. For the nine months ended January 31, 2003 net sales in our golf SBU decreased by $3.6 million or 10.9% to $29.7 million from $33.4 million in the same period of
the prior year. Net sales in our golf SBU continued to be negatively impacted by the economy, flat demand, an oversupply of product in the golf marketplace and a decrease in the number of rounds
played. Net sales in our corporate SBU decreased by $0.9 million or 2.1% to $41.3 million from $42.2 million in the same period of the prior year. In the first quarter of fiscal
2003 net sales in our corporate SBU decreased by $1.9 million as corporate customers spent less on marketing programs. A new corporate catalog was launched in the first quarter of fiscal 2003
but the increase in sales as a result of the new catalog occurred in the second and third quarters of fiscal 2003. The increases in these quarters partially offset the first quarter decrease. Net
sales in our specialty SBU decreased $2.7 million or 14.2% to $16.4 million from $19.1 million in the same period of the prior year. Specialty sales decreased as a result of the
discontinuation of our dressy women's line, the loss of a customer and the difficult conditions facing independent specialty stores. Net sales in our international SBU decreased by approximately
$3.7 million or 61.1% to $2.4 million from $6.0 million in the same period of the prior year. For the nine months ended January 31, 2002, net sales in our international SBU
included approximately $3.4 million in sales from our European subsidiary. This subsidiary was closed and substantially liquidated at the end of fiscal 2002. As a result, net sales for the nine
months ended January 31, 2003 does not include any European sales. Our European operations were replaced with a licensing relationship with Eurostyle Ltd. (Eurostyle) effective
May 1, 2002. We anticipate it will take some time before this relationship gains momentum. Because we will no longer sell directly in Europe, we will generate licensing revenues, instead of
direct sales, on all future sales of our products in that market. These licensing revenues are calculated as a percentage of net sales of our products by Eurostyle. The remaining $0.3 million
decrease in sales in our international SBU is due to a decrease in licensing and royalty income. Net sales in our other SBU include liquidation sales and shipping income and decreased
$2.1 million or 27.3% to $5.6 million from $7.7 million in the same period of the prior year. This decrease was primarily due to lower liquidation sales for the nine months ended
January 31, 2003 compared to January 31, 2002.

Net
sales in our retail segment increased to $15.1 million for the nine months ended January 31, 2003 compared to $9.9 million in the prior year. This increase was
due to the impending closure of our retail stores and the related increase in liquidation sales from sales events at the stores.

Gross ProfitIn the first nine months of fiscal 2003, gross profit increased to 42.5% of net sales compared to 38.3% in the
same period of the prior year. The increase in gross profit was due to an increase in gross profit from our wholesale segment partially offset by a decrease in gross profit from our retail segment.
Gross profit from our wholesale segment increased to 40.6% from 36.4% in the

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prior year. This increase in gross profit was primarily due to lower cost of sales in our wholesale segment. For the first nine months of fiscal 2002, cost of sales relating to our wholesale segment
included inventory write-downs related to the closure of our European operations and exiting our golf shoe business and the write-downs were recorded because we expected inventory to be sold below
cost. For the nine months ended January 31, 2003, cost of sales relating to our wholesale segment did not include inventory write-downs of the same nature. Gross profit for the first nine
months of fiscal 2003 was also favorably impacted by lower liquidation sales and a gain on sale of inventory to Eurostyle.

Gross
profit from our retail segment decreased to 54.4% from 58.9% in the prior year. This decrease was due to higher liquidation sales as a result of the closure of our retail stores
and an increase in promotions on a wider selection of merchandise in the stores.

Depreciation and AmortizationDepreciation and amortization expense decreased $0.2 million compared to the prior year.
This was primarily due to a decrease in depreciation and amortization expense for the retail segment. Depreciation and amortization expense for the wholesale segment remained relatively unchanged for
the nine months ended January 31, 2003 and 2002. The decrease in depreciation and amortization expense related to the closure of our European operations was $0.3 million and this
decrease was offset by increased depreciation and amortization from new capital expenditures as well as accelerated depreciation on our old corporate facilities.

Other Selling, General and Administrative ExpenseOther selling, general and administrative expenses decreased
$5.9 million or 12.9% to $39.8 million or 36.0% of net sales from $45.7 million or 38.6% of net sales in the prior year. Other selling, general and administrative expenses in our
wholesale segment decreased approximately $7.3 million or 18.6%. This decrease was partially offset by a $1.4 million increase in selling, general and administrative expenses from our
retail segment. Approximately $2.6 million of the decrease in other selling, general and administrative expenses from our wholesale segment was due to the closure of our European operations and
the remaining $4.7 million decrease related to lower salaries, commissions, marketing and selling expenses. The decreases in these expenses were partially offset by increased professional fees
and legal expenses. Other selling, general and administrative expenses in our retail segment increased $1.4 million. The increase is primarily due to the fees paid to Hilco for conducting the
liquidation sales at our retail stores which were partially offset by decreased store level operating expenses.

Restructuring and Asset ImpairmentFor the nine months ended January 31, 2003 we recorded a restructuring charge of
$3.8 million compared to $4.9 million in the prior year. The restructuring charge in both years related to our wholesale segment. Of the $3.8 million recorded in fiscal 2003,
$3.3 million related to losses on subleases of our excess warehouse capacity at our distribution center, $0.3 million related to additional reserves against receivable balances with both
our former Chief Executive Officer and our former President and $0.2 million related to additional expenses resulting directly from our restructuring plan. The liability resulting from
recognizing the losses on subleases has been recorded in other current liabilities and other long term liabilities on the Condensed Consolidated Balance Sheets. For the nine month period ended
January 31, 2002 restructuring and asset impairment charges were $4.9 million. Of the $4.9 million recorded in fiscal 2002, $3.3 million related to the closure of our
European operations and $1.6 million related to the consolidation and restructuring of our women's line sales force. The charge related to our European operations included termination and
severance benefits, reserves necessary to write-down the operations' receivables due to lower than anticipated recoveries, the write-down of other current assets, furniture and
equipment and leasehold improvements to net realizable value and other costs resulting from closure of the operations. The consolidation and restructuring of our women's line sales force resulted in
the write-off of commission draws and sample receivable balances.

Effective
May 1, 2002, we entered into a license agreement with Eurostyle to distribute our men's and women's Golf and Classic apparel collections and golf accessories throughout
Europe. The license agreement requires Eurostyle to make certain minimum royalty payments and expires on June 30, 2005.

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Effective May 1, 2002 we also entered into an asset purchase agreement with Eurostyle to sell inventory, certain accounts receivable balances and fixtures.

Retail Store Closure ExpensesRetail store closure expenses were $9.6 million for the nine months ended
January 31, 2003 and $2.5 million for the nine months ended January 31, 2002. In December 2002 we announced plans to close all of our retail stores by April 30, 2003
and recorded a charge of $9.6 million relating to store closure costs. This charge included lease termination costs, termination and severance benefits to be paid as a result of the involuntary
termination of approximately 127 employees at our retail stores, the write-down of other current assets, furniture and equipment and deferred rent to net realizable value and other costs
resulting from the closure of our retail stores. We expect to substantially complete the closure of our retail stores and to settle the related liabilities by April 30, 2003.

In
connection with the decision to close the retail stores we entered into an agreement with Hilco Merchant Resources, LLC (Hilco) to act as our agent for conducting the liquidation of
store inventories and to assist with negotiations for termination of the store leases. As a guaranty of Hilco's performance we receive a guaranteed payment of 31.2% of the aggregate retail price of
the inventory being liquidated. As compensation for its services, Hilco receives a base fee up to 2.5% of the retail price of the liquidation inventory plus all expenses incurred in connection with
the liquidation event (this includes store level operating expenses). To the extent the proceeds from the liquidation sales exceed the sum of the guaranteed payment plus all expenses (store operating
and Hilco's internal expenses) plus Hilco's base fee such excess proceeds are to be split 80% to us and 20% to Hilco. As of January 31, 2003, the guaranteed payment totaled approximately
$4.7 million and Hilco's fees totaled approximately $3.1 million. The $3.1 million has been recorded in selling, general and administrative expenses and includes Hilco's base
fees, reimbursable expenses incurred by Hilco and certain store level operating expenses paid for by Hilco under the terms of the agreement.

Costs
to close retail stores were $2.5 million for the nine months ended January 31, 2002. Our fiscal 2002 restructuring plan included refining our retail strategy and
evaluating the recoverability of the assets relating to our retail stores. We concluded from the results of the evaluation that a significant impairment of long-lived assets had occurred
and decided to close three under-performing full-price stores and adjusted the net book value of another two full-price stores to their estimated fair value. The three
under-performing stores were to be closed in fiscal 2003. As a result, in fiscal 2002 we recorded a charge of $2.5 million related to store fixed asset write-downs (primarily leasehold
improvements) and lease termination costs.

Restatement ExpensesAs described in Note 1 to our financial statements, we restated certain of our historical
financial statements for irregularities and errors. The restatements required a thorough investigation of what had occurred and how it should be corrected. In addition to the extensive efforts of our
employees in this investigation, we utilized our regular outside legal counsel, special independent
legal counsel, a forensic accounting firm, our independent auditors and other specialists for additional procedures. The resulting professional fees plus accrued retention bonuses to certain key
employees and amortization of the premium for the replacement Directors' and Officers' liability insurance amounted to approximately $2.5 million for the nine months ended January 31,
2003. Although the restatement has been completed, we will continue to incur substantial legal and other professional service costs in connection with the shareholder lawsuits and responding to the
inquiries of the SEC. These expenses cannot be estimated at this time. In addition, there will be an ongoing charge each quarter until April 2004 for the retention bonus, which will aggregate
to as much as $2.4 million payable in March 2004.

Operating LossAs a result of the above items, our operating loss increased $0.9 million to $13.4 million in
the first nine months of fiscal 2003 from $12.6 million in the first nine months of fiscal 2002.

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Income TaxesWe recorded approximately $2.8 million of income tax benefits in the first nine months of fiscal 2003
compared to $4.5 million in the first nine months of fiscal 2002. We have provided a valuation allowance against our deferred tax assets which include net operating loss carryforwards. As a
result, the effective rates for income taxes in the first nine months of fiscal 2003 and 2002 were 20% and 33%, respectively.

Liquidity and Capital Resources

Net cash provided by operating activities for the nine months ended January 31, 2003 was approximately $14.3 million compared to approximately
$21.3 million for the nine months ended January 31, 2002. Net cash used in investing activities was approximately $1.9 million for the nine months ended January 31, 2003
and $1.8 million for the nine months ended January 31, 2002. Net cash used in financing activities for the nine months ended January 31, 2003 was approximately
$10.6 million compared to $17.0 million in the prior year.

We
have a loan agreement with Washington Mutual (see Note 6) to provide a $20 million line of credit which expires on March 31, 2003. The amount available under the
line of credit is limited by our borrowing base calculation. Outstanding letters of credit under this agreement totaled approximately $13.1 million and after adjustments required by our
borrowing base calculation the amount available under our line of credit is $6.8 million. The loan agreement contains certain restrictive covenants covering minimum working capital and tangible
net worth. At January 31, 2003 we were in compliance with these covenants. Under the terms of our loan agreement we established a money market account for cash collateral to be used as
additional security. The $7.0 million balance of restricted cash is pledged through March 31, 2003, the termination date of the renewed and modified loan agreement with Washington
Mutual. On March 13, 2003 we entered into a loan agreement with Wells Fargo Bank, N.A (Wells Fargo) for a $35 million line of credit, replacing our previous line of credit with
Washington Mutual. The loan agreement contains certain restrictive covenants covering minimum net worth,
minimum working capital and maximum capital expenditures. We are currently in compliance with these covenants. Our loan agreement with Wells Fargo contains no requirement for a cash collateral
account.

As
described in Note 9 to our financial statements are closing all of our retail stores. We currently expect the store closure charges to be at the low end of our previous
estimates, which were $12 to $15 million pre-tax. The full tax effect of the charge has not been determined and to the extent losses cannot be carried back they will be available to
offset future profits. We currently estimate the after-tax charge to be in the range of $10 to $13 million. The after-tax cash impact of the charge is expected to be $5
to $7 million. These charges are in addition to the $2.5 million pre-tax charge take in fiscal year 2002 to write-down certain retail stores as impaired assets.

In
February 2003 we received approximately $4.7 million in federal tax refunds. We believe that cash on hand and cash generated from ongoing operations, as well as the
ability to borrow under bank lines of credit or alternative sources of financing will be sufficient to meet our cash requirements in the short-term and during the next fiscal year.
However, our capital needs will depend on many factors, including our growth rate, the need to finance increased production and inventory levels, the success of our various sales and marketing
programs, expenses associated with the risks and uncertainties related to our restatement, including those risks and uncertainties set forth above and various other factors.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 to the consolidated financial statements included in the Company's filing on
Form 10-K for the year ended April 30, 2002. Our discussion and analysis of 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. The preparation of the financial statements requires us to make estimates and

25

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judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate the
estimates that we have made. These estimates are based upon our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Our 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.

Allowance for Doubtful Accounts and Returns

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments, which is included in
bad debt expense. We determine the
adequacy of this allowance by regularly reviewing our accounts receivable aging and evaluating individual customer receivables, considering customers' financial condition, credit history and current
economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We also
maintain an estimate of potential future product returns related to current period product receivables. We analyze the rate of historical returns when evaluating the adequacy of the allowance for
sales returns, which is included with the allowance for doubtful accounts on our balance sheets.

Inventories

Inventories, which are predominantly finished goods, are valued at the lower of cost or market, with cost determined using the first-in,
first-out method. A detailed analysis of inventory is performed on a quarterly basis to identify unsold out-of-season fashion merchandise. The net realizable value
of the out-of-season merchandise is estimated based upon disposition plans and historical experience. A valuation allowance is established to reduce the carrying amount of
out-of-season merchandise to its estimated net realizable value. If actual market conditions are less favorable than those projected by management, additional allowances may be
required.

Impairment of Long-Lived Assets

We review the carrying values of our long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be
recoverable. Unforeseen events and changes in circumstances and market conditions and changes in estimates of future cash flows could negatively affect the fair value of our assets and result in an
impairment charge. Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including
quoted market prices or valuations by third parties, present value techniques based on estimates of cash flows, or multiples of earnings or revenues performance measures. The fair value of the asset
could be different using different estimates and assumptions in these valuation techniques.

Restructuring Liabilities, Retail Store Closure Expenses

Restructuring related liabilities and retail store closure expenses include estimates for termination benefits, anticipated disposition of lease obligations and
other costs. Key variables in determining such estimates include the anticipated timing of sublease rentals, estimates of sublease rental payment amounts and estimates for brokerage and other related
costs. We periodically evaluate and, if necessary, adjust our estimates based on currently available information.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

None

26

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Item 4. Controls and Procedures

Evaluation of the Company's Controls and Procedures.Within the 90 days prior to the date of this Quarterly Report on
Form 10-Q, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures ("Disclosure Controls"), and our internal controls and procedures for
financial reporting ("Internal Controls"). This evaluation (the "Controls Evaluation") was done under the supervision and with the participation of management, including our Chief Executive Officer
and Chief Financial Officer. Rules adopted by the Securities and Exchange Commission require that we present in this section of our Quarterly Report the conclusions of our CEO and CFO about the
effectiveness of our Disclosure Controls and Internal Controls based on and as of the date of the Controls Evaluation.

CEO and CFO Certifications.Appearing immediately following the Signatures section of this Quarterly Report there are two
separate forms of "Certifications" of the CEO and the CFO. The first form of Certification is required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302
Certification). This portion of our Quarterly Report is our disclosure of the results of our Controls Evaluation, referred to in the Section 302 Certifications and this information should be
read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

Disclosure Controls and Internal Controls.Disclosure Controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in the Company's reports filed under the Securities Exchange Act of 1934 (the "Exchange Act"), such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and
communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Internal Controls are procedures which are designed with the
objective of providing reasonable assurance that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use and our transactions are properly recorded
and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

Limitations on the Effectiveness of Controls.Our management, including, without limitation, our CEO and CFO, does not expect
that our Disclosure Controls or our Internal Controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. The design of our control system reflects the fact that there are resource constraints and the benefits of such controls were considered
relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of control. The design of any system of
controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation.We operated without a CFO from August 8, 2002 to November 15, 2002. During
that time, our current CEO served as our principal accounting officer in addition to acting in her official capacity as CEO. Our current CFO was appointed to that position on November 15, 2002,
and has had only a short time to affect our current controls and procedures. While he has assisted in our most recent evaluation efforts, his evaluation of our controls and procedures has

27

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relied heavily on the reports of others within the Company, and his 302 Certification must be read in that context. Our current CEO was appointed in late April 2002. Throughout the majority of
her tenure, we have been undertaking the restructuring of our operations and the restatement of certain of our historical financial results, and responding to the resulting shareholder lawsuits, SEC
investigation, Nasdaq investigation and Nasdaq delisting proceedings. Each of these matters has required significant attention from our senior management, including our CEO. Our CEO's evaluation of
our internal controls has been necessarily constrained as a result of these matters and her 302 Certification must be read in that context.

During
the quarter covered by this quarterly report on Form 10Q, our evaluation of our Disclosure Controls and our Internal Controls concentrated on an initial review, performed
by an independent accounting firm, of our internal conrols. This initial review was based on employees reports of their processes. The review has indicated some areas for improvement, and we are
planning followup activities as well as continuing the accounting firm's review. We have also continued to institute new practices designed to enhance internal controls.

In
previous quarters, our evaluation emphasized our investigation into accounting irregularities and errors leading to the restatement of certain of our historical financial statements.
With the assistance of our legal advisors, special legal counsel and the accountants for the special legal counsel, we conducted an investigation for any errors in our financial statements, which
would in turn lead to identifying data errors, controls problems or acts of fraud and to confirming that appropriate corrective action,
including process improvements, was being undertaken. Our independent auditors also performed numerous tests to satisfy themselves on the same issues.

Conclusions.As reported in Note 1 to our financial statements, we recently restated our financial results for the
fiscal years ended April 30, 2000 and 2001, and for the quarters ended July 31, 2001, October 31, 2001 and January 31, 2002, as a result of accounting irregularities
stemming from a failure of our internal controls and procedures. During the course of our restatement, our independent auditors indicated to us that they believe there was a material weakness in our
Internal Controls, as evidenced by the ability of our former management to override our Internal Controls.

Even
before this communication by our independent auditors, we started to institute corrective measures to ensure that all of our managers and employees follow our policies and
procedures. These measures included bringing in new managers, implementing new procedures for transaction reporting, establishing a confidential reporting procedure by which employees can report
concerns directly to the CEO or the audit committee and holding management and employee meetings at which expectations of integrity were explicitly discussed.

After
the extensive investigative work of our staff, our auditors, our counsel, independent counsel, and the independent counsel's accountants, we have not found irregularities other
than those previously disclosed. This lack of additional indications of irregularities is a principal factor in our belief that for the quarter and up to the present date, our controls and procedures
are adequate to permit the preparation of our financial statements in conformity with generally accepted accounting principles. However, we see areas where additional controls would provide welcome
additional assurance. We intend to continue to assess our controls and to improve them. We do not yet have formal written controls and procedures in place for all of our internal operations. We
engaged a firm of accountants to assist us in the documentation of our controls and procedures. This work is the first phase of establishing our internal audit function. Our intent is that the
Disclosure Controls and Internal Controls will be maintained as dynamic systems that change and improve as conditions and resources warrant. We will periodically reevaluate our controls so that our
conclusions concerning controls' effectiveness can be reported in our Quarterly reports on Form 10-Q and Annual Report on Form 10-K

28

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PART IIOTHER INFORMATION

Item 1. Legal Proceedings

On November 7, 2002, a shareholder derivative lawsuit entitled, Morris Haimowitz, Derivately on behalf of Cutter & Buck, Inc. v.
Frances M. Conley, Michael S. Brownfield, Larry C. Mounger, James C. Towne, Harvey N. Jones, Martin J. Marks and Stephen S. Lowber and Cutter &
Buck, Inc., No. 02-2-32038-4SEA, was filed by Morris Haimowitz in the Superior Court of the State of Washington, for King County. The complaint names
as defendants certain of the Company's current and former directors and the Company's former CFO. It is purportedly brought on behalf of the Company. The complaint alleges that the individual
defendants are liable to the Company for breach of their fiduciary duties, abuse of control, gross mismanagement and unjust enrichment in connection with the events giving rise to the Company's
restatement of its financial statements. It seeks unspecified damages, costs and attorney fees as well as equitable relief.

We
remain a defendant in three shareholder class action lawsuits in the United States District Court for the Western District of Washington and alleging violations of federal securities
laws, purportedly filed on behalf of all persons who purchased the Company's common stock during the period from June 23, 2000 to August 12, 2002: Steven Bourret v. Cutter &
Buck Inc., Harvey N. Jones and Stephen S. Lowber; Stanley Sved v. Cutter & Buck Inc. and Harvey N. Jones; and Jason P. Hebert v. Cutter & Buck Inc., Harvey N. Jones
and Stephen S. Lowber.

On
November 12, 2002, the Tilson Growth Fund filed a motion asking the Court: (i) to consolidate the Bourret, Sved and Hebert shareholder class action suits into a single
proceeding before the Honorable Robert Lasnik, United States District Court Judge for the Western District of Washington, (ii) for pretrial and trial proceedings, (iii) to enter an Order
requiring the defendants to preserve documents, (iv) to appoint Tilson Growth Fund as the lead plaintiff under Section 21D(a)(3)(B) of the Securities Exchange Act of 1934, and
(v) approve Tilson Growth Fund's selection of plaintiff's lead and liaison counsel. On February 20, 2003, the Court granted the motion to appoint the Tilson Growth Fund as lead
plaintiff, ordered the cases to be consolidated, denied the Tilson Growth Fund's motion for the appointment of liason counsel and directed the lead plaintiff to file a consolidated complaint
within 60 days.

On
December 6, 2002, Genesis Insurance Company notified the Company that it intends to rescind the Company's primary Directors' and Officers' liability insurance coverage as a
result of alleged misrepresentations made in connection with the Company's policy applications in 2001 and 2002. The Company subsequently obtained replacement Directors' and Officers' liability
insurance coverage from another carrier. This coverage will not, however, protect the Company against any liabilities arising from the existing shareholder class action and derivative lawsuits
described above.

On
December 26, 2002, the Company filed a lawsuit entitled, Cutter & Buck Inc. v. Genesis Insurance Company, Executive Risk Indemnity, Inc., and Lumbermens
Mutual Casualty Company, in the United States District Court for the Western District of Washington. The Company's complaint alleges that Genesis' attempt to rescind the Company's primary Directors'
and Officers' liability insurance is unlawful, and seeks damages resulting from Genesis' breach of contract and the duty of good faith and fair dealing, and seeks declaratory relief with respect to
Genesis and the Company's excess Directors' and Officers' liability insurance carriers.

On
November 4, 2002, the Securities and Exchange Commission issued a formal order of investigation with respect to the circumstances underlying our recent decision to restate our
historical financial results. We are cooperating fully with the investigation.

We
also remain a party to a lawsuit related to labor issues in Saipan: Does vs. The Gap, Inc. The Company has entered into a settlement of the claims against it. This settlement
is subject to court approval. The hearing for preliminary approval of the settlement occurred in February 2002. The court

29

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granted preliminary approval of the settlement in May 2002. The settlement was revised as part of a global settlement with other previously non-settling parties on
October 7, 2002 and the Court granted preliminary approval of the settlement on October 31, 2002. A hearing as to whether to grant final approval of the settlement is currently scheduled
on March 20, 2003.

We
are also party to other routine litigation incidental to our business. Management believes the ultimate resolution of these other routine matters will not have a material adverse
effect on our financial position and results of operations.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K



|Exhibit
Number |  | Description                                                                                                        
|-------------- |  | -------------------------------------------------------------------------------------------------------------------
|10.1           |  | Fifth Amended and Restated Loan Agreement, dated January 23, 2003 between Washington Mutual Bank and the Registrant
|99.1           |  | Certification of the Company's Chief Executive Officer                                                             
|99.2           |  | Certification of the Company's Chief Financial Officer                                                             
|99.3           |  | Press Release Announcing Third Quarter Fiscal 2003 Results                                                         



None

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SIGNATURES

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

|                      |  |    |  | Cutter & Buck Inc.
(Registrant)                                                                                                     
|--------------------- |  | -- |  | ------------------------------------------------------------------------------------------------------------------------------------
|Dated: March 17, 2003 |  | By |  | /s/ERNEST R. JOHNSONErnest R. Johnson Senior Vice president and Chief Financial Officer
(Principal Accounting and Financial Officer)

31

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CERTIFICATIONS

I, Frances M. Conley, Chairman and Chief Executive Officer of Cutter & Buck Inc., certify that:



Dated:
March 17, 2003

| |  | /s/FRANCES M. CONLEYFrances M. Conley
Chief Executive Officer
| |  | -------------------------------------------------------------

32

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CERTIFICATIONS

I, Ernest R. Johnson, Senior Vice President and Chief Financial Officer of Cutter & Buck Inc., certify that:



Dated:
March 17, 2003

| |  | /s/ERNEST R. JOHNSONErnest R. Johnson
Chief Financial Officer
| |  | -------------------------------------------------------------

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