<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations

    THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED
NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUAL REPORT.  IN ADDITION TO THE
HISTORICAL INFORMATION CONTAINED HEREIN, THIS DISCUSSION AND ANLYSIS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.  THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY.  FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, STYLE CHANGES AND PRODUCT
ACCEPTANCE, PRODUCT DELAYS, RELATIONS WITH SUPPLIERS AND INDEPENDENT SALES
REPRESENTATIVES, THE ABILITY OF THE COMPANY TO CONTROL COSTS AND EXPENSES AND TO
EFFECTIVELY MANAGE ITS CREDIT AND COLLECTION OPERATIONS, SHORTAGES OF RAW
MATERIALS SUCH AS COTTON, THE ABILITY TO PENETRATE ITS CHOSEN DISTRIBUTION
CHANNELS, THE POSITIONING OF THE COMPANY IN ITS CHOSEN MARKET, THE IMPACT OF
COMPETITIVE SELECTION AND TO A LESSER EXTENT PRICING, AND THE EFFECT OF INTEREST
RATES, TRADE RELATIONS AND GENERAL ECONOMIC CONDITIONS.  ALL REFERENCES TO
FISCAL YEARS ARE REFERENCES TO THE COMPANY'S FISCAL YEAR ENDING APRIL 30.

OVERVIEW

    The Company markets its Cutter & Buck brand sportswear and outerwear
predominantly through golf pro shops and resorts, better men's specialty stores
and corporate sales accounts.  The Company's sales to golf pro shops have
increased in the last three fiscal years to $27.7 million, representing
approximately 59% of the Company's net sales in fiscal 1997.  Sales to corporate
accounts also increased to $9.2 million, or approximately


                                       PAGE -1-
<PAGE>

20% of net sales in fiscal 1997.  Sales to specialty stores, the dominant
channel of distribution for the Company's products during its first few years,
amounted to $5.7 million in fiscal 1997, representing approximately 12% of net
sales for the fiscal year.

    The Company's $16.3 million increase in net sales to the golf 
distribution channel in fiscal 1997 represented approximately 65% of the 
Company's total increase in net sales for that year.  This growth in net 
sales to the golf distribution channel is primarily attributable to (i) an 
increase in the number of golf pro shops purchasing the Company's products 
(approximately 2,400 golf pro shops in fiscal 1997 compared to 1,800 golf pro 
shops in fiscal 1996), and (ii) an increase in the average annual net sales 
per golf pro shop.  The Company believes that the golf distribution channel 
is comprised of approximately 14,000 U.S. golf pro shops.  The increase in 
the number of the Company's golf pro shop customers is due to the growth in 
the size of its golf pro shop sales force and to the increasing proportion of 
these sales representatives exclusively selling Cutter & Buck products.  The 
increase in average annual net sales per customer for fiscal 1997 compared to 
fiscal 1996 is the result of the Company offering more product styles and 
increasing the average annual net sales per style.  The Company believes 
these increased purchasing levels by its customers reflect the establishment 
of cooperative working relationships between the Company's sales force and 
golf pro shops, particularly in the area of merchandising the Company's 
coordinated themes and collections, as well as consumer acceptance of, and 
increasing demand for, the Company's products.  The Company plans to increase 
the size and effectiveness of its sales force and further augment its product 
offerings.

    The Company increased its inventory levels in fiscal 1997 to support
planned sales growth, reducing inventory turns.  The Company believes that
higher inventory levels enabled it to improve overall merchandise availability,
to better accommodate in-season orders for its FASHION merchandise (i.e.,
products incorporating the latest innovations in color, fabric and styling 
which tend to remain in the line for only one season) across a broad range of
styles, and to satisfy increased demand from all distribution channels for quick
delivery of its CLASSIC merchandise (i.e., predominantly solid-color garments
with multi-season appeal).  The ability to provide quick delivery of CLASSIC
knit shirts is of particular importance to the corporate sales and golf
distribution channels.

    In the fourth quarter of fiscal 1996, the Company reacquired the exclusive
distribution rights for its apparel in the United Kingdom and in the first
quarter of fiscal 1997 formed a new European subsidiary for the direct
marketing, sales and distribution of Cutter & Buck sportswear and outerwear in
the United Kingdom and Europe.

    As the volume of Cutter & Buck products has increased, the Company has been
able to increase its gross profit margin by negotiating improved cost
arrangements with its suppliers. The Company also anticipates that its overhead
costs as a percentage of net sales will decline due to operating leverage as the
Company continues to grow.


RESULTS OF OPERATIONS

The following table sets forth for the fiscal years indicated certain statements
of operations data expressed as a percentage
of net sales:


                                       PAGE -2-
<PAGE>


                                                 FISCAL YEAR ENDED APRIL 30,
                                                -----------------------------
                                                 1995      1996      1997
                                                -----------------------------
Statements of Operations Data:
         Net sales                                    100.0%  100.0%  100.0%
         Cost of sales                                 65.2    63.1    60.2
                                                       ----    ----    ----
         Gross profit                                  34.8    36.9    39.8
Operating expenses:
         Design and production                          5.6     4.8     2.7
         Selling and handling                          18.2    17.8    18.8
         General and administrative                    10.1     9.5     7.6
                                                       ----     ---     ---
              Total operating expenses                 33.9    32.1    29.1
                                                       ----    ----    ----

Operating income                                        0.9     4.8    10.7

Other income (expense):
         Factor commissions and interest expense
           net of interest income                      (2.8)   (1.1)   (0.4)
         License and royalty income                     3.7     2.1     0.9
                                                        ---     ---     ---
              Total other income                        0.9     1.0     0.5
                                                        ---     ---     ---

Income before income taxes                              1.8     5.8    11.2

Income taxes                                            0.0     1.2     3.5
                                                        ---     ---     ---
Net income                                              1.8%    4.6%    7.7%
                                                        ---     ---     ---
                                                        ---     ---     ---



YEARS ENDED APRIL 30, 1997, 1996 AND 1995

NET SALES
          During fiscal 1997 and fiscal 1996, net sales increased 
from the prior year period by 115.3% and 61.1%, respectively.  The expansion 
of the Company's sales to the golf distribution channel had a significant 
impact on its sales growth.  Net sales to this channel increased $16.3 
million, or approximately 143%, to $27.7 million in fiscal 1997, increased 
$5.7 million, or approximately 100%, to $11.4 million in fiscal 1996, and 
increased $2.9 million, or approximately 104%, to $5.7 million in fiscal 
1995.  Net sales in the golf distribution channel through the Company's 
European subsidiaries included in these figures increased to $2.8 million in 
fiscal 1997 from $399,000 in fiscal 1996.  The Company's development of a 
directed sales effort in its corporate sales channel beginning in the second 
half of fiscal 1995 also had a significant impact on its sales growth.  Net 
sales to this channel increased $6.2 million, or approximately 210%, to $9.2 
million in fiscal 1997, and increased approximately 261% to $3.0 million in 
fiscal 1996 from $831,000 in fiscal 1995. Retail channel sales to better 
men's specialty stores increased 19.1% in fiscal 1997 when compared to fiscal 
1996 and increased 23.8% in fiscal 1996 compared to fiscal 1995.  Despite the 
overall sales growth in this channel, specialty store sales declined to 
approximately 12% of total Company sales in fiscal 1997 from 21% in fiscal 
1996 and 36% in fiscal 1995.  The Company's sales of seasonal remainder 
merchandise to off-price retailers was approximately 4% of net sales in 
fiscal 1997, compared to approximately 3% of net sales in fiscal 1996 and 7% 
of net sales in fiscal 1995.  The decline in the portion of total sales to 
off-price retailers in fiscal 1997 and 1996 when compared to fiscal 1995 was 
primarily attributable to the Company's expanded market penetration and its 
ability to more accurately forecast sales to the golf and corporate 
distribution channels.  The Company's sales to other distribution channels 
were less than 10% of net sales in each of fiscal years 1997, 1996 and 1995.

    GROSS PROFIT MARGIN


         In fiscal 1997, the Company's gross profit margin was 39.8% of net
sales, compared to 36.9% in fiscal 1996 and 34.8% in fiscal 1995.  The increase
during fiscal 1997 was primarily due to economies of scale.  Higher production
volumes have given the Company increased negotiating leverage to purchase
product at lower unit costs and the ability to expand its international
sourcing.  Gross profit margin improvement in fiscal 1997 also reflected cost of
sales reductions due to the development of an in-house embroidery operation,
which has decreased costs of production.  The Company has also increased use of
letters of credit, thereby eliminating financing costs previously included in
product costs charged by the Company's international sources.

         The gross profit margin increase in fiscal 1996 was also primarily due
to economies of scale, improved product sourcing and letter of credit financing,
and was also the result of higher production costs in fiscal 1995 due to the
late deliveries of approximately 10 styles in the Company's 1995 spring
collection that were caused by production delays at a new foreign manufacturing
source.  These delays resulted in increased expediting costs and markdowns.


                                       PAGE -3-
<PAGE>

         During fiscal 1997, the Company established an in-house embroidery
manufacturing operation.  This facility has enabled the Company to handle
directly more than half of the embroidered logo requirements of its golf, resort
and corporate customers.  The Company expects to produce directly up to 70% of
its embroidered sales in fiscal 1998 versus 50% in fiscal 1997 thereby further
reducing embroidery costs with an accompanying beneficial effect on gross
margins.

    DESIGN AND PRODUCTION EXPENSES


         Design and production expenses increased by $212,000 or 20.2%, to
$1.3 million in fiscal 1997 from $1.0 million in fiscal 1996 but decreased as a
percentage of net sales to 2.7% in 1997 from 4.8% in 1996 and 5.6% in 1995.  The
dollar increase in these expenses is primarily attributable to increased
management and staffing costs associated with expansion of the Company's product
line and increased embroidery design and production costs for the golf
distribution and corporate channels.  The decrease as a percentage of net sales
primarily resulted from the Company's ability to spread its design and
production development costs over increased sales volume.

    SELLING AND HANDLING EXPENSES

         Selling and handling expenses increased by $4.9 million, or 127.4%, to
$8.8 million in fiscal 1997 from $3.9 million in fiscal 1996, representing 18.8%
of net sales in fiscal 1997 and 17.8% in fiscal 1996.  The dollar amount
increase was primarily attributable to increased salaries and commissions,
management and marketing expenses, increased costs of samples associated with
the expanded sales force and product line, and additional direct overhead
costs resulting from the establishment of the Company's direct warehouse
operation.  The Company expanded the size of its domestic golf sales force from
26 at the end of fiscal 1996 to 32 at the end of fiscal 1997.  In April 1996,
the Company reorganized the management of its golf distribution sales channel by
reducing the direct sales responsibilities of the Company's regional sales
managers to allow them to focus their attention on management of the sales
force.  The Company employed two regional sales managers at the end of fiscal
1997.  The Company believes this revised organizational structure will provide
more effective sales management in generating the Company's planned sales
growth.  The Company also increased the size of its sales force for the
corporate channel to 19 sales representatives at the end of fiscal 1997 from
nine at the end of fiscal 1996 and six at the end of fiscal 1995 and increased
the size of its sales force for the specialty store channel to nine at the end
of fiscal 1997 from seven at the end of fiscal 1996 and from five at the end of
fiscal 1995.  The Company's sales representatives for the specialty store
channel also sell to the corporate channel.

         Selling and handling expense increased by $1.4 million, or 57.7%, to
$3.9 million in fiscal 1996 from $2.4 million in fiscal 1995, representing
approximately 18% of net sales in both years.  The $1.4 million increase
primarily resulted from increased commissions and, to a lesser extent, from
management and marketing expenses.  The Company expanded the size of its golf
sales force to 26 sales representatives at the end of fiscal 1996 from 22 at the
end of fiscal 1995.  To provide the necessary management for this increase in
sales representatives, three of these sales representatives also assumed
regional management responsibilities at the end of fiscal 1996, which resulted
in an increase in sales management expense.

         During fiscal 1997 and fiscal 1996, the Company purchased and 
installed $997,000 and $284,000, respectively, of point of sale fixturing to 
enhance collection merchandising in a total of 526 of its customers' 
locations.  The Company expects to purchase an additional $1.4 million of 
fixtures in fiscal 1998 to be targeted to an additional 150 locations, 
reaching a total of 676 golf pro shop and men's better specialty stores by 
the end of fiscal 1998.  Customer eligibility for the fixturing program is 
conditioned on minimum order commitments for Cutter & Buck products.  The 
investment in these fixtures is being amortized as a marketing expense over a 
three year period.  This program represents an intentional increase in the 
Company's level of marketing expense as a component of selling and handling 
expenses and, to the extent it remains successful, is expected to continue at 
comparable levels in future years.

                                       PAGE -4-
<PAGE>

    GENERAL AND ADMINISTRATIVE EXPENSES


         General and administrative expenses increased by $1.5 million, or
72.0%, to $3.5 million in fiscal 1997 from $2.0 million in fiscal 1996 and $1.4
million in fiscal 1995, but decreased as a percent of net sales to 7.5% in
fiscal 1997 from 9.5% in fiscal 1996 and 10.1% in fiscal 1995.  The dollar
amount increase over the three year period was primarily due to increased
management, staffing and facilities to support the Company's expanded
operations, along with additional insurance expense and professional fees
related to the Company's public reporting.  Commencing in fiscal 1997, general
and administrative expenses included the cost of an expanded credit and
collections function which replaced a significant portion of factor commission
expense incurred in prior years.


    FACTOR COMMISSIONS AND NET INTEREST EXPENSE


         Factor commissions and net interest expense decreased by $40,000, or 
16.9%, to $197,000 in fiscal 1997 from $237,000 in fiscal 1996, representing 
0.4% and 1.1% of net sales in fiscal 1997 and fiscal 1996, respectively.  The 
reduction in the dollar amount is primarily due to interest savings made 
possible by the Company's ability to fund its working capital growth with the 
net proceeds of the Company's public offering in November 1996, and limiting 
factoring services in the United States to the specialty store channel.  In 
fiscal 1996, factor commissions and net interest expense decreased by 
$139,000, or 36.9%, to $237,000 from $376,000 in fiscal 1995, representing 
1.1% and 2.8% of net sales in fiscal 1996 and fiscal 1995, respectively. The 
reduction in the dollar amount is primarily due to interest savings made 
possible by the net proceeds of the Company's initial public offering in 
August 1995.

    LICENSE AND ROYALTY INCOME


         License and royalty income decreased by $49,000, or 10.7%, to
$409,000, representing 0.9% of net sales in fiscal 1997, from $457,000 and 2.1%
of net sales in fiscal 1996.  The reduction in license and royalty income
reflects the Company's shift towards direct international sales and exclusive
distributor relationships and away from licensing relationships.  This decline
in license and royalty income in fiscal 1997 was primarily attributable to the
Company's decision to repurchase its outerwear license effective May 1996.  In
fiscal 1996, license and royalty income decreased by $40,000, or 7.9%, to
$457,000 from $497,000 and 3.7% of net sales in fiscal 1995. This decline in
license and royalty income was primarily due to the Company's decision to
discontinue its relationship with its licensee for Central and South America.


    INCOME TAXES


         The Company recorded $1.6 million of income tax expense in fiscal
1997, $260,000 in fiscal 1996 and none in fiscal 1995.  Tax expenses are lower
than statutory rates primarily due to the utilization of net operating loss
carryforwards.  As of April 30, 1997, there are no remaining net operating loss
carryforwards available to offset future taxable income.



Quarterly Results and Seasonality


    Historically, the Company has experienced its lowest level of net sales in
its first and third quarters, ending July 31 and January 31, respectively.
Correspondingly, the Company's highest level of sales are achieved in its second
and fourth quarters, ending October 31 and April 30, respectively.  This
seasonality has resulted primarily from the timing of shipments to golf pro
shops and better men's specialty stores in the second and fourth quarters.
Other factors contributing to the variability of the Company's quarterly results
include seasonal fluctuations in consumer demand, the timing and amount of
orders from key customers, the timing of sales of seasonal remainder merchandise
and availability of product.  This pattern of sales creates seasonal
profitability, working capital financing and liquidity issues, as the Company
generally must finance higher levels of inventory during the first and third
quarters when sales are lowest.  Regardless of seasonal fluctuations, there can
be no assurance that the Company will be profitable in any particular quarter.


                                       PAGE -5-
<PAGE>

    The following tables set forth certain operating data of the Company,
including percentages of net sales, for the eight quarters ending April 30,
1997.

<TABLE>
<CAPTION>
 
                                                FISCAL 1996 QUARTER ENDED               FISCAL 1997 QUARTER ENDED
                                       -------------------------------------------- --------------------------------------------
                                        July 31,  October 31, January 31, April 30,  July 31, October 31, January 31,  April 30,
                                          1995       1995       1996      1996       1996        1996        1997      1997
                                       -------------------------------------------- --------------------------------------------
                                                                            (IN THOUSANDS)

<S>                                     <C>        <C>        <C>         <C>        <C>       <C>        <C>          <C>
Statements of Operations Data:
Net Sales                                  $3,305     $5,131     $5,210     $7,999     $8,000    $12,290     $8,452    $17,851
Cost of sales                               2,077      3,197      3,377      5,013      5,020      7,494      4,963     10,577
                                            -----      -----      -----      -----      -----      -----      -----     ------

Gross profit                                1,228      1,934      1,833      2,986      2,980      4,796      3,489      7,274

Operating expenses:
         Design and production                215        230        275        325        336        365        362        193
         Selling and handling                 668        980        874      1,336      1,712      2,221      1,903      2,938
         General and administrative           411        487        510        634        714        913        876      1,010
                                              ---        ---        ---        ---        ---        ---        ---      -----

            Total operating expenses        1,294      1,697      1,659      2,295      2,762      3,499      3,141      4,141
                                            -----      -----      -----      -----      -----      -----      -----      -----

Operating income (loss)                       (66)       237        174        691        218      1,297        348      3,133

Other income (expense):
         Factor commissions and
            interest income, net of
            interest expense                 (113)       (28)       (12)       (84)      (111)      (119)        40         (7)
         License and royalty income           116         83        102        156         96         61         92        160
                                              ---         --        ---        ---         --         --         --        ---
            Total other income (expense)        3         55         90         72        (15)       (58)       132        153
                                                -         --         --         --        ---        ---        ---        ---

Income (loss) before income taxes             (63)       292        264        763        203      1,239        480      3,286
Income taxes                                    0        (50)       (60)      (150)       (61)      (374)      (156)    (1,019)
                                                -        ---        ---        ---        ---       ----       ----     ------
Net income (loss)                          $  (63)    $  242     $  204     $  613     $  142     $  865     $  324    $ 2,267
                                           ------     ------     ------     ------     ------     ------     ------    -------
                                           ------     ------     ------     ------     ------     ------     ------    -------

                                                FISCAL 1996 QUARTER ENDED               FISCAL 1997 QUARTER ENDED
                                       -------------------------------------------- --------------------------------------------
                                        July 31,  October 31, January 31, April 30,  July 31, October 31, January 31,  April 30,
                                          1995       1995       1996      1996       1996        1996        1997      1997
                                       -------------------------------------------- --------------------------------------------

As a Percentage of Net Sales:
Net Sales                                   100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0%
Cost of sales                                62.8       62.3       64.8       62.7       62.8       61.0       58.7       59.3
                                             ----       ----       ----       ----       ----       ----       ----       ----

Gross profit                                 37.2       37.7       35.2       37.3       37.2       39.0       41.3       40.7
Operating expenses:
         Design and production                6.5        4.5        5.3        4.1        4.2        3.0        4.3        1.1
         Selling and handling                20.3       19.1       16.8       16.7       21.4       18.1       22.5       16.4
         General and administrative          12.4        9.5        9.8        7.9        8.9        7.4       10.4        5.7
                                             ----        ---        ---        ---        ---        ---       ----        ---
            Total operating expenses         39.2       33.1       31.9       28.7       34.5       28.5       37.2       23.2
                                             ----       ----       ----       ----       ----       ----       ----       ----

Operating income (loss)                     (2.0)        4.6        3.3        8.6        2.7       10.5        4.1       17.5

Other income (expense):
         Factor commissions and
            interest income, net of
            interest expense                 (3.4)      (0.5)      (0.2)      (1.1)      (1.4)      (1.0)       0.5       (0.0)
         License and royalty income           3.5        1.6        2.0        2.0        1.2        0.5        1.1        0.9
                                              ---        ---        ---        ---        ---        ---        ---        ---

            Total other income (expense)      0.1        1.1        1.8        0.9       (0.2)      (0.5)       1.6        0.9
                                              ---        ---        ---        ---       ----       ----        ---        ---
Income (loss) before income taxes            (1.9)       5.7        5.1        9.5        2.5       10.0        5.7       18.4

Income taxes                                  0.0       (1.0)      (1.2)      (1.9)      (0.8)      (3.0)      (1.9)      (5.7)
                                              ---       ----       ----       ----       ----       ----       ----       ----
Net income (loss)                           (1.9)%       4.7%       3.9%       7.6%       1.7%       7.0%       3.8%      12.7%
                                            -----        ---        ---        ---        ---        ---        ---       ----
                                            -----        ---        ---        ---        ---        ---        ---       ----


</TABLE>
 
Liquidity and Capital Resources
    The Company's primary need for funds is to finance working capital.  The
Company's increased working capital requirements during the three years ended
April 30, 1997 related to increasing accounts receivable and finished goods
inventory levels associated with growth in sales volume.  To date, working
capital has been funded primarily by profitable operations and by a combination
of increased accounts payable, accounts receivable financing through a factor,
bank borrowing, the private sale of Preferred Stock and the public sale of
Common Stock.

    Net cash used in operating activities in fiscal 1997 was $7.8 million. This
resulted primarily from an increase in inventory of $7.8 million and an increase
in accounts receivable of $7.3 million which were partially offset by profitable
operations and an increase in accounts payable and accrued liabilities and
income taxes payable of $3.1 million.  The Company's inventory increased as a
consequence of sales growth and the need to increase inventory levels of CLASSIC
products to satisfy increased demand from all distribution channels for quick


                                       PAGE -6-
<PAGE>


merchandise delivery and from the golf distribution and corporate sales channels
for CLASSIC knit shirts in particular.

    In fiscal 1997, net cash provided by financing activities was $15.0
million, resulting primarily from the receipt of net proceeds of $14.6 million
from the Company's public offering of Common Stock in November 1996 and by a
$563,000 increase in advances from the European factor.

    Net cash used in investing activities was $1.6 million in fiscal 1997 and
was substantially the result of an increased investment in furniture and
fixtures of $1.7 million.

    The Company incurred capital expenditures and lease purchases of $2.5
million, $655,000 and $208,000 in fiscal years 1997, 1996 and 1995,
respectively.  In fiscal 1997, expenditures for capital assets included $997,000
for in-store fixtures, $917,000 for warehouse and embroidery equipment and a
total of $586,000 for other furniture and equipment.  In fiscal 1996,
expenditures for capital assets included $284,000 for in-store fixtures,
$116,000 for construction of a new trade show booth and other furniture and
equipment purchases totaling $255,000.  In fiscal 1995, capital expenditures
were primarily for the acquisition of office furniture and equipment for the
Company's corporate headquarters.  Capital expenditures of $3.3 million are
planned for fiscal 1998, including additional investments in in-store fixturing
of $1.4 million, the purchase of warehouse and embroidery equipment of $600,000,
upgrades to computer hardware and software totaling $1.1 million and other
purchases totaling $200,000.

    On February 20, 1997, the Company entered into a loan agreement with
Washington Mutual Bank d/b/a Western Bank ("Western Bank") for a $20.0 million
line of credit, replacing the Company's previous line of credit.  The Western
Bank line of credit is to be used for international letters of credit, working
capital advances and other corporate purposes.  Interest on borrowings is
charged and payable monthly at Western Bank's prime rate.  The line of credit is
collateralized by a security interest in the Company's inventory, accounts
receivable, contract rights and general intangibles.  The loan agreement
contains certain restrictive covenants covering minimum working capital and
tangible net worth, as well as a maximum debt to equity ratio.  Western Bank and
Republic Factors Corp. ("Republic") have entered into an intercreditor agreement
allocating between them priority as to the Company's assets in which both
financial institutions have a security interest.

    Pursuant to an agreement (the "Factoring Agreement") with Republic,
Republic acts as the Company's sole factor in the United States for its accounts
receivable.  The Factoring Agreement provides that the Company can sell its
qualified accounts receivable to Republic and Republic will pay the Company an
amount equal to the gross amount of the Company's accounts receivable from
customers reduced by certain offsets, including, among other things, discounts
and returns and a .95% commission payable by the Company to Republic.  The
intercreditor agreement between Western Bank and Republic prohibits the Company
from taking advances under the Factoring Agreement.  Subject to its credit
review procedures, Republic may decline to accept the credit risk on certain
accounts receivable.  The Factoring Agreement continues in force from year to
year and may be terminated by Republic on any anniversary of its effective date
(April 7) or by the Company at any time, provided that in each case the
terminating party gives 60 day's prior written notice.

    In fiscal 1996, the Company increased its internal credit and accounts
receivable management and staffing in preparation for decreasing its reliance on
its factoring arrangement with Republic.  In fiscal 1997, the Company directly
managed the accounts receivable credit and collection functions associated with
its sales to the golf, corporate and international distribution channels.  The
Company plans to continue to use Republic's accounts receivable management
exclusively for its sales to the specialty store channel.  In conjunction with
this change to its accounts receivable management and financing, the Company
plans to primarily use the Western Bank line of credit to fund its anticipated
working capital needs.  The Company believes that this change in its credit
management practices will enable it to better control its overall collection
costs.  The Company, however, has limited experience in managing credit and
collection operations.  Consequently, there can be  no assurance that this
change will continue to benefit the Company's financial condition and results of
operations.

    As of May 31, 1997, the Company had working capital of approximately
$29.5 million.  The Company's principal source of liquidity in fiscal 1998, in
addition to cash on hand, is expected to be the Western Bank line of credit in
the amount of $20 million, of which the Company had open letters of credit in
the amount of $6.1 million as of June 30, 1997 and no outstanding loans.

    The Company believes that cash generated from operations and the ability to
borrow under its line of credit will be sufficient to meet its operating needs
in fiscal 1998.  However, the Company's capital needs will depend on many
factors, including the Company's growth rate, the


                                       PAGE -7-
<PAGE>

need to finance increased production and inventory levels, the success of the
Company's various sales and marketing programs and various other factors.
Depending upon its growth and working capital needs, the Company may require
additional financing in the future through debt or equity offerings, which may
or may not be available or may be dilutive.  The Company's ability to obtain
additional financing will depend on its operations, financial condition and
business prospects, as well as conditions then prevailing in the relevant
capital markets.


                                       PAGE -8-
<PAGE>

Selected Financial Data


    The following selected financial data as of April 30, 1995, 1996 and 
1997, and for each of the three years in the period ended April 30, 1997 are 
derived from the consolidated financial statements of Cutter & Buck Inc., 
which have been audited by Ernst & Young LLP, Independent Auditors, and are 
included elsewhere in this Annual Report. The following selected financial 
data as of April 30, 1993 and 1994 and for the year ended April 30, 1993 are 
derived from the Company's financial statements which were also audited by 
Ernst & Young LLP and that are not included herein. The data should be read 
in conjunction with the Company's Consolidated Financial Statements and Notes 
thereto included elsewhere in this Annual Report and with "Management's 
Discussion and Analysis of Financial Condition and Results of Operations."

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
 
                                                                            YEAR ENDED APRIL 30,
                                                 -------------------------------------------------------------------------
                                                      1993           1994           1995           1996           1997
                                                 -------------------------------------------------------------------------
                                                                     (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                                  <C>            <C>           <C>            <C>            <C>
Statement of Operations Data:
Net sales                                            $8,036         $9,882        $13,435        $21,645        $46,593
Cost of sales                                         5,991          6,444          8,760         13,664         28,054
                                                      -----          -----          -----         ------         ------

Gross profit                                          2,045          3,438          4,675          7,981         18,539
Operating expenses:
    Design and production                               495            510            747          1,045          1,256
    Selling and handling                              1,136          1,781          2,446          3,858          8,774
    General and administrative                          784          1,053          1,364          2,042          3,513
                                                        ---          -----          -----          -----          -----

         Total operating expenses                     2,415          3,344          4,557          6,945         13,543
                                                      -----          -----          -----          -----         ------

Operating income (loss)                                (370)            94            118          1,036          4,996

Other income (expense):
    Factor commissions and interest expense,
         net of interest income                        (207)          (278)          (376)          (237)          (197)
    License and royalty income                           39            285            497            457            409
                                                         --            ---            ---            ---            ---

         Total other income (expense)                  (168)             7            121            220            212
                                                       ----              -            ---            ---            ---

Income (loss) before income taxes                      (538)           101            239          1,256          5,208
Income taxes                                             --             --             --           (260)        (1,612)
                                                     ------         ------         ------          -----          -----

Net income (loss)                                    $ (538)        $  101         $  239         $  996        $ 3,598
                                                     ------         ------         ------         ------        -------
                                                     ------         ------         ------         ------        -------

Net income per share (1)                                            $ 0.05         $ 0.12         $ 0.29        $  0.77
Shares used in computation of net income
    per share                                                        1,993          2,034          3,476          4,676


BALANCE SHEET DATA

                                                                               APRIL 30,
                                                 -------------------------------------------------------------------------
                                                      1993           1994           1995           1996           1997
                                                 -------------------------------------------------------------------------
                                                                             (IN THOUSANDS)
Balance Sheet Data:
Cash                                                   $135           $327           $499         $2,010        $7,442
Receivables (2)                                         635            981          2,335          7,653        14,419
Inventories                                             598            561          1,890          4,693         12,489
Working capital                                         998          1,058          3,209         12,488         29,811
Total assets                                          1,818          2,488          5,693         17,170         38,960
Long-term debt                                           48             38             98             --            523
Total shareholders' equity                            1,285          1,387          3,566         14,023         32,187


</TABLE>
 
(1) Such Amounts for 1993 are not considered meaningful.

(2) Includes factored receivables, net of factor advances.  See Note 3 to Notes
    to Consolidated Financial Statements.


                                       PAGE -9-
<PAGE>

<TABLE>
<CAPTION>
 
CONSOLIDATED BALANCE SHEETS



                                                                ASSETS
                                                                                                   APRIL 30,
                                                                                      ----------------------------------
                                                                                          1996                  1997
                                                                                      ----------------------------------

<S>                                              <C>                                    <C>                 <C>
Current Assets:
    Cash                                                                                $ 2,010,047        $  7,441,717
    Accounts receivable, net of allowances for doubtful
         accounts, and returns and allowances of $472,402 in 1996
         and $754,700 in 1997 (Note 3)                                                    7,652,613          14,419,108
    Inventories                                                                           4,693,433          12,489,410
    Deferred income taxes                                                                   180,000             284,000
    Prepaid expenses and other current assets (Note 2)                                    1,098,972           1,426,983
                                                                                       ------------        ------------
              Total current assets                                                       15,635,065          36,061,218

Furniture and equipment (Note 4)                                                            798,922           2,646,018
Other assets                                                                                735,931             252,923
                                                                                        ---------------------------------
              Total assets                                                              $17,169,918         $38,960,159
                                                                                        ---------------------------------
                                                                                        ---------------------------------

                                                 LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                                                    $ 2,313,937        $ 4,481,380
    Accrued liabilities                                                                     319,362             740,746
    Income taxes payable                                                                    400,000             887,632
    Loan payable to bank                                                                    114,119                  --
    Current portion of capital lease obligations                                                 --             140,545
                                                                                        ---------------------------------
              Total current liabilities                                                   3,147,418           6,250,303

Capital lease obligations                                                                        --             522,547

Commitments (Note 7)

Shareholders' equity (Note 8):
    Preferred stock, no par value,
         6,000,000 shares authorized, none issued and outstanding                                --                 --
    Common stock, no par value:
         25,000,000 shares authorized; 3,666,715 issued and outstanding
              in 1996 and 5,156,397 in 1997                                              15,156,702          29,750,791
    Note receivable from shareholder                                                        (44,520)                 --
    Retained earnings (accumulated deficit)                                              (1,089,682)          2,507,935
    Currency translation adjustment                                                              --             (71,417)
                                                                                        ---------------------------------
              Total shareholders' equity                                                 14,022,500          32,187,309
                                                                                        ---------------------------------
              Total liablilities and shareholders' equity                               $17,169,918         $38,960,159
                                                                                        ---------------------------------
                                                                                        ---------------------------------

</TABLE>

                             See accompanying notes.

                                                                  PAGE -10-
<PAGE>


<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF INCOME



                                                                         YEAR ENDED APRIL 30,
                                                               -------------------------------------------
                                                                  1995           1996           1997
                                                               -------------------------------------------

<S>                                                            <C>            <C>            <C>
Net sales                                                      $13,434,788    $21,645,202    $46,592,758
Cost of sales                                                    8,759,623     13,664,607     28,053,845
                                                               -------------------------------------------
Gross profit                                                     4,675,165      7,980,595     18,538,913

Operating expenses:
    Design and production                                          747,381      1,044,692      1,256,247
    Selling and shipping                                         2,445,951      3,858,184      8,773,380
    General and administrative                                   1,364,053      2,042,194      3,512,824
                                                               -------------------------------------------
         Total operating expenses                                4,557,385      6,945,070     13,542,451
                                                               -------------------------------------------
Operating income                                                   117,780      1,035,525      4,996,462

Other income (expense):
    Factor commission and interest expense,
         net of interest income of $8,538 in 1995,
         $134,915 in 1996, and $212,968 in 1997                   (375,643)      (236,962)      (196,973)
    License and royalty income                                     497,095        457,787        408,728
                                                               -------------------------------------------
         Total other income                                        121,452        220,825        211,755
                                                               -------------------------------------------
Income before income taxes                                         239,232      1,256,350      5,208,217

Income taxes (Note 6)                                                   --        260,000      1,610,600
                                                               -------------------------------------------
Net income                                                     $   239,232    $   996,350    $ 3,597,617
                                                               -------------------------------------------
                                                               -------------------------------------------

    Net income per share                                       $      0.12    $      0.29    $      0.77
                                                               -------------------------------------------
                                                               -------------------------------------------

Shares used in computation of net
    income per share (Note 1)                                    2,034,210      3,475,581      4,675,592
                                                               -------------------------------------------
                                                               -------------------------------------------

</TABLE>

                             See accompanying notes.

                                                                  PAGE -11-
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY




                                                             PREFERRED STOCK
                                                SERIES A                      SERIES B                    COMMON STOCK
                                        -------------------------    ---------------------------   ---------------------------
                                          SHARES        AMOUNT          SHARES         AMOUNT         SHARES        AMOUNT
                                        ----------    -----------    ------------     ----------   ------------   ------------
<S>                                     <C>           <C>            <C>              <C>          <C>            <C>
BALANCE, APRIL 30, 1994                  2,932,000     $3,655,988              -       $      -        327,819     $  100,790
Sale of Series B convertible
        preferred stock, net of
        offering expenses
        of $75,828                               -              -        529,530      1,375,084              -              -

Conversion of loan
        and note payable,
        including accrued
        interest, to Series B
        preferred stock                          -              -        205,980        564,385              -              -
Net Income                                       -              -              -              -              -              -

                                        -------------------------    ---------------------------   ------------   ------------
BALANCE, APRIL 30, 1995                  2,932,000      3,655,988        735,510      1,939,469        327,819        100,790
Sale of Series B convertible
        preferred stock, net of
        offering expenses
        of $66,288                               -              -        403,618      1,039,625              -              -

Conversion of Series A and B
        convertible preferred stock
        to common stock                 (2,932,000)    (3,655,988)    (1,139,128)    (2,979,094)     1,883,021      6,635,082

Sale of common stock,
        net of offering expenses
        of $1,770,295                            -              -              -              -      1,455,875      8,420,830
Net income                                       -              -              -              -              -              -

                                        -------------------------    ---------------------------   ------------   ------------
BALANCE, APRIL 30, 1996                          -              -              -              -      3,666,715     15,156,702
Sale of common stock,
        net of offering expenses
        of $1,434,356                            -              -              -              -      1,454,307     14,563,021

Stock issued under
        employee stock purchase plan             -              -              -              -          2,796         12,549

Exercise of stock options                        -              -              -              -          5,812         18,519

Exercise of stock warrants                       -              -              -              -         26,767              -

Repayment of note receivable                     -              -              -              -              -              -

Foreign currency translation                     -              -              -              -              -              -

Net income                                       -              -              -              -              -              -

                                        -------------------------    ---------------------------   ------------   ------------
BALANCE, APRIL 30, 1997                          -     $        -              -       $      -      5,156,397    $29,750,791
                                        -------------------------    ---------------------------   ------------   ------------
                                        -------------------------    ---------------------------   ------------   ------------

<CAPTION>

                                     NOTE RECEIVABLE                   CURRENCY
                                           FROM         RETAINED      TRANSLATION
                                       SHAREHOLDER      EARNINGS       ADJUSTMENT      TOTAL
                                     ---------------  ------------   ------------   ------------

BALANCE, APRIL 30, 1994                 $  (44,520)   ($2,325,264)    $        -    $ 1,386,994
Sale of Series B convertible
        preferred stock, net of
        offering expenses
        of $75,828                               -              -              -      1,375,084

Conversion of loan
        and note payable,
        including accrued
        interest, to Series B
        preferred stock                          -              -              -        564,385
Net Income                                       -        239,232              -        239,232

                                        -----------   -----------    ------------   ------------
BALANCE, APRIL 30, 1995                    (44,520)    (2,086,032)             -      3,565,695
Sale of Series B convertible
        preferred stock, net of
        offering expenses
        of $66,288                               -              -              -      1,039,625

Conversion of Series A and B
        Convertible preferred stock
        to common stock                          -              -              -              -

Sale of common stock,
        net of offering expenses
        of $1,770,295                            -              -              -      8,420,830
Net Income                                       -        996,350              -        996,350

                                        -----------   -----------    ------------   ------------
BALANCE, APRIL 30, 1996                    (44,520)    (1,089,682)             -     14,022,500
Sale of common stock,
        net of offering expenses
        of $1,434,356                            -              -              -     14,563,021

Stock issued under
        employee stock purchase plan             -              -              -         12,549

Exercise of stock options                        -              -              -         18,519

Exercise of stock warrants                       -              -              -              -

Repayment of note receivable                44,520              -              -         44,520

Foreign currency translation                     -              -        (71,417)       (71,417)

Net income                                       -      3,597,617              -      3,597,617

                                        -----------   -----------    ------------   ------------
BALANCE, APRIL 30, 1997                 $        -    $ 2,507,935     $  (71,417)   $32,187,309
                                        -----------   -----------    ------------   ------------
                                        -----------   -----------    ------------   ------------


</TABLE>
 
                               See accompanying notes.

                                      PAGE -12-

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
 
                                                                                          YEAR ENDED APRIL 30,
                                                                        --------------------------------------------------------
                                                                             1995                1996                1997
                                                                        --------------------------------------------------------
<S>                                                                     <C>                 <C>                 <C>
OPERATING ACTIVITIES
Net income                                                                $  239,232        $    996,350        $  3,597,617
Adjustments to reconcile net income
    to net cash used in operating activities:
      Depreciation and amortization                                          133,220             231,487           1,057,348
      Deferred income taxes                                                       --            (180,000)           (104,000)
      Changes in assets and liabilities:
         Receivables, net                                                 (2,255,894)         (2,996,564)         (7,329,046)
         Inventories                                                      (1,328,793)         (2,803,818)         (7,795,977)
         Prepaid expenses and other current assets                          (312,178)           (584,729)           (328,011)
         Accounts payable and accrued liabilities                          1,542,453             627,258           2,588,827
         Income taxes payable                                                     --             400,000             487,632
                                                                        --------------------------------------------------------
Net cash used in operating activities                                     (1,981,960)         (4,310,016)         (7,825,610)

INVESTING ACTIVITIES
Purchase of furniture and equipment                                         (119,004)           (654,723)         (1,716,583)
Decrease (increase) in trademarks, patents and marketing rights               (4,122)           (656,751)             83,671
                                                                        --------------------------------------------------------
Net cash used in investing activities                                       (123,126)         (1,311,474)         (1,632,912)

FINANCING ACTIVITIES
Proceeds from (repayments of) note payable to bank                                --             114,119            (114,119)
Principal payments under capital lease obligation                            (40,787)           (121,563)           (125,432)
Net increase (decrease) in advances from factor                              943,642          (2,320,891)            562,551
Proceeds from note receivable from shareholder                                    --                  --              44,520
Issuance of preferred stock                                                1,375,084           1,039,625                 --
Issuance of common stock                                                          --           8,420,830          14,594,089
                                                                        --------------------------------------------------------
Net cash provided by financing activities                                  2,277,939           7,132,120          14,961,609

Effects of foreign exchange rate changes on cash                                  --                  --             (71,417)
                                                                        --------------------------------------------------------
Net increase in cash                                                         172,853           1,510,630           5,431,670


Cash, beginning of year                                                      326,564             499,417           2,010,047
                                                                        --------------------------------------------------------
Cash, end of year                                                         $  499,417        $  2,010,047        $  7,441,717
                                                                        --------------------------------------------------------
                                                                        --------------------------------------------------------

SUPPLEMENTAL INFORMATION
Cash paid during the year for interest                                    $  259,133        $    173,502        $    176,191
                                                                        --------------------------------------------------------
                                                                        --------------------------------------------------------
Cash paid during the year for income taxes                                $       --        $     40,000        $    991,500
                                                                        --------------------------------------------------------
                                                                        --------------------------------------------------------

Noncash financing and investing activities:
      Equipment acquired with capital leases                              $   89,184        $         --        $    788,524
                                                                        --------------------------------------------------------
                                                                        --------------------------------------------------------
      Conversion of loan and note payable to
        shareholders, including accrued interest,
        to Series B preferred stock                                       $  564,385        $         --        $         --
                                                                        --------------------------------------------------------
                                                                        --------------------------------------------------------
</TABLE>

                               See accompanying notes.


                                      PAGE -13-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.  Description of the Business and Summary of Significant Accounting Policies



Description of the Business

    Cutter & Buck Inc. (the "Company") designs, sources and markets men's
sportswear and outerwear apparel.  The Company's trade customers are principally
golf pro shops and resorts, and better men's specialty stores.  During 1995,
the Company changed its name from Jones/Rodolfo Corporation to Cutter & Buck
Inc.

    In March 1996, the Company formed a wholly owned subsidiary, Cutter & Buck
(UK) Ltd., for the purpose of direct marketing, sales and distribution of Cutter
& Buck sportswear and outerwear in the United Kingdom.  In May 1996, the Company
formed another wholly owned subsidiary, Cutter & Buck (Europe) B.V. to perform
the same function throughout Europe.  The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries
from the date of formation.  All significant intercompany accounts and
transactions have been eliminated.

Inventories

    Inventories, which are predominantly finished goods, are valued at the
lower of cost or market, with cost determined under the first-in, first-out
method.

Sample Costs

    The Company defers costs to produce samples that relate to goods to be sold
in future selling seasons.  Such costs are charged to expense in the season to
which the samples relate.

Furniture and Equipment

    Furniture and equipment is valued at cost.  Depreciation is provided on a
straight-line basis over estimated useful lives of five years.  Furniture and
equipment acquired under capital leases is amortized on a straight-line basis
over the lesser of the lease term or the estimated economic useful life of the
asset.  Store fixtures are depreciated on a straight-line basis over three
years.

Advertising

    Advertising costs are expensed as incurred.  Advertising expense was
$250,000, $326,000 and $800,000 for the years ended April 30, 1995, 1996 and
1997 respectively.

Income Taxes

    The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities measured using
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.

Concentrations of Credit Risk

    The Company is subject to credit risk on receivables that are not factored.
These non-factored receivables are geographically disbursed throughout the
United States, Europe and selected foreign countries where formal distributor
agreements exist.  The Company sells its products to approved customers on an
open account basis, subject to established credit limits, cash in advance, or
cash on delivery terms.  Generally, the receivables are insured or are supported
by letters of credit.

Revenue Recognition

    Revenue is recognized at the time the product is shipped to the customer.
There is no right to return for customers, other than for defective products.
Allowances for these estimated sales returns are provided when the related
revenue is recorded.

Foreign Currency Translation

    Assets and liabilities denominated in foreign currencies are translated to
U.S. dollars at the exchange rate on the balance sheet date.  Revenues, costs
and expenses are translated at the average rates of exchange prevailing during
the year.  Translation adjustments resulting from this process are shown
separately in shareholders' equity.

Stock-Based Compensation

    The Company accounts for stock option grants in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes
no compensation expense for stock options when the exercise price is equal to
the fair market value at the date of grant.  Compensation expense is recognized
when options are issued at less than the fair market value.

Net Income Per Share

    Net income per share is computed based on the weighted average number of
common shares outstanding and gives effect to the following adjustments: (i)
common stock equivalents, consisting of Common Stock options, warrants and
Preferred Stock, are included in the weighted average number of shares
outstanding, except when the effect of their inclusion would be antidilutive;
(ii)


                                      PAGE -14-

<PAGE>

pursuant to the rules of the Securities and Exchange Commission, Common Stock
and common stock equivalents issued during the 12 months immediately preceding
the filing date of the Company's initial public offering are included in the
calculation as if they were outstanding for all periods presented using the
treasury stock method and the initial public offering price; and (iii) all
outstanding shares of Preferred Stock are included on an
as-converted-to-Common-Stock basis. Historical net income per share information
is not considered meaningful due to the significant changes in the Company's
capital structure that occurred upon the closing of the Company's initial public
offering; accordingly, such per share information is not presented.

Use of Estimates

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

Reclassifications

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


2.  Prepaid Expenses and Other Current Assets

    Prepaid expenses and other current assets consisted of the following:



                                         April 30,
                           ----------------------------------
                                1996                1997
                           ----------------------------------
Prepaid expenses           $    461,524        $  1,028,474
Sample costs                    588,869             265,643
Other                            48,579             132,866
                           ----------------------------------
                           $  1,098,972        $  1,426,983
                           ----------------------------------
                           ----------------------------------

3.  Accounts Receivable

    Pursuant to the terms of factoring agreements, the Company assigns a
portion of its qualifying accounts receivable to factors on a preapproved,
nonrecourse basis.  The factors' charges, totaling $160,643 for the year ended
April 30, 1997 ($255,393 in 1996 and $257,829 in 1995), include a commission on
net sales and interest on advances at prime, plus 1-1/2% (10% at April 30,
1997).  The Company is permitted to receive advances from the European factor
against uncollected amounts factored.  Accounts receivable consisted of the
following:



                                                           April 30,
                                                -------------------------------
                                                    1996              1997
                                                -------------------------------
Unmatured receivables
      Nonrecourse                               $ 5,779,659       $ 2,704,702
      With recourse                                  55,385            13,765
Matured receivables                                 160,331           213,019
Advances                                                 --          (562,551)
                                                -------------------------------
      Due from factor                             5,995,375         2,368,935
Nonfactored receivables                           2,129,640        12,804,873
Allowance for doubtful accounts and reserve for
      sales returns and allowances
                                                   (472,402)         (754,700)
                                                -------------------------------
                                                $ 7,652,613       $14,419,108
                                                -------------------------------
                                                -------------------------------

4.  Furniture and Equipment

    Furniture and equipment consisted of the following:



                                                            April 30,
                                                -------------------------------
                                                    1996             1997
                                                -------------------------------
Leasehold improvements                           $   33,382      $    166,293
Equipment                                           534,925         1,618,871
Store fixtures                                      284,257         1,281,447
Furniture and other fixtures                        459,621           750,681
                                                -------------------------------
                                                  1,312,185         3,817,292
Less accumulated depreciation and amortization     (513,263)       (1,171,274)
                                                -------------------------------
                                                 $  798,922      $  2,646,018
                                                -------------------------------
                                                -------------------------------


                                      PAGE -15-

<PAGE>

5.  Line of Credit



    On February 20, 1997, the Company entered into a loan agreement with
Washington Mutual Bank d/b/a Western Bank (Western Bank) for a $20 million line
of credit, replacing the Company's previous line of credit.  The line of credit
with Western Bank is to be used for international letters of credit, working
capital advances and other corporate purposes.  Interest on borrowings is
charged and payable monthly at Western Bank's prime rate.  The line of credit is
collateralized by a security interest in the Company's inventory, accounts
receivable, contract rights and general intangibles.  The loan agreement
contains certain restrictive covenants covering minimum working capital and
tangible net worth, as well as a maximum debt-to-equity ratio.  Western Bank and
Republic Factors Corp. have entered into an intercreditor agreement allocating
between them priority as to the Company's assets in which both financial
institutions have a security interest.  At April 30, 1997, letters of credit
outstanding against this line of credit totaled $5,184,908, and there were no
working capital advances.



6.  Income Taxes


    The provision for income taxes consists of the following:



                                                 Year Ended April 30,
                                       ----------------------------------------
                                        1995         1996             1997
                                       ----------------------------------------
Current tax provision:
      Federal                          $   -     $  340,000        $1,514,600
      State                                -        100,000           200,000
                                       ----------------------------------------
                                           -        440,000         1,714,600
Deferred federal tax benefit               -       (180,000)         (104,000)
                                       ----------------------------------------
                                       $   -     $  260,000        $1,610,600
                                       ----------------------------------------
                                       ----------------------------------------



    The provision for income taxes differs from the amount of tax determined by
applying the federal statutory rate for the following reasons:


<TABLE>
<CAPTION>
 
                                                             Year Ended April 30,
                                                  -----------------------------------------
                                                     1995          1996           1997
                                                  -----------------------------------------
<S>                                               <C>           <C>            <C>
Tax provision at federal statutory tax rate       $  81,338     $  427,159     $1,770,794
Foreign loss not benefited                                -              -         33,065
Nondeductible expenses                                    -              -         18,862
Decrease in valuation allowance                     (91,838)      (259,569)      (440,278)
State income taxes, net of federal benefit                -         66,000        132,000
Other                                                10,500         26,410         96,157
                                                  -----------------------------------------
                                                  $       -     $  260,000     $1,610,600
                                                  -----------------------------------------
                                                  -----------------------------------------
</TABLE>
 

    The 1996 and 1997 tax provisions are recorded net of the benefit of 
utilizing net operating loss carryforwards (approximately $500,000 in 1996 
and $1,139,000 in 1997).  Significant components of the Company's deferred 
tax assets and liabilities are as follows:

                                                              April 30,
                                                 ------------------------------
                                                       1996              1997
                                                 ------------------------------
Deferred income tax assets:
      Reserve for doubtful accounts              $  152,616       $   145,710
      Reserve for inventory obsolescence             68,517            33,247
      Net operating loss carryforwards              387,114                 -
      Unicap                                              -            65,749
      Other                                          25,588            50,842
                                                 ------------------------------
Total deferred income tax assets                    633,835           295,548

Valuation reserve for deferred tax assets          (440,278)                -
                                                 ------------------------------
Net deferred tax assets                             193,557           295,548

Deferred income tax liabilities:
      Accelerated depreciation                      (13,557)          (11,548)
                                                 ------------------------------
Total deferred income tax liabilities               (13,557)          (11,548)
                                                 ------------------------------
Net deferred taxes                               $  180,000        $  284,000
                                                 ------------------------------
                                                 ------------------------------


    The decrease in the valuation allowance of $440,278 in fiscal year 1997 is
primarily attributable to the utilization of net operating loss carryforwards
and related changes in the estimate of the amount of deferred tax assets to be
realizable.


                                      PAGE -16-

<PAGE>

7.  Commitments



       The Company leases its office facilities, a retail store, and a
warehouse and embroidery production facility under operating leases.  Total rent
expense amounted to $154,096 in 1995, $217,292 in 1996, and $472,823 in 1997.

Future minimum rental payments under noncancelable operating leases are as
follows:



              Year Ending April 30,
              -----------------------
                      1998                            $  424,454
                      1999                               410,930
                      2000                               302,287
                      2001                               186,000
                      2002                                     -
                                                   -------------
                                                      $1,323,671
                                                   -------------
                                                   -------------

8.  Shareholders' Equity



    Preferred Stock:  During fiscal 1995, the Company authorized the sale of
1,200,000 shares of Series B Preferred Stock to qualified investors at $2.74 per
share.  As of April 30, 1995, 735,510 shares of Series B Preferred Stock were
issued and outstanding.  During fiscal 1996, an additional 403,618 shares of
Series B Preferred Stock were sold.  Of the total, 933,148 shares were sold
through subscription agreements.  Proceeds to the Company, net of offering
expenses of $142,117, amounted to $2,979,094.  The remaining 205,980 shares were
issued as a result of the conversion of a loan and note payable to shareholders
and accrued interest, aggregating $564,385.

    Conversion of the Preferred Stock into Common Stock occurred automatically
upon the closing of the Company's initial public offering of Common Stock.
Effective as of the closing of the initial public offering, every 2.162 shares
of Preferred Stock were converted into one share of Common Stock.

    Common Stock:  On July 20, 1995, the Company's shareholders adopted
Restated Articles of Incorporation and Bylaws affecting shareholders' equity,
including increasing the number of authorized shares of Common Stock to
25,000,000, increasing the number of authorized shares of Preferred Stock to
6,000,000 and implementing a 1 for 2.162 reverse stock split of the issued and
outstanding shares of Common Stock.  The number of shares of Common Stock
presented in the accompanying consolidated financial statements has been
restated to reflect the stock split.

    In August 1995, the Company sold 1,250,000 shares of Common Stock at an
initial public offering price of $7 per share.  Pursuant to the exercise of the
underwriters' over-allotment option, the Company sold an additional 205,875
shares of Common Stock at $7 per share in September 1995.  Proceeds to the
Company, net of offering expenses of $1,770,295, amounted to $8,420,830.

    On November 1, 1996 the Company sold 1,329,307 shares of its Common Stock
to the public at $11 per share.  Pursuant to the exercise of the Underwriters'
over-allotment option, the Company sold an additional 125,000 shares of Common
Stock at $11 per share on December 3, 1996.  Proceeds to the Company, net of
underwriting discounts and commissions and offering expenses totaling
$1,434,356, amounted to $14,563,021.

    Common Stock Warrants:  In connection with the Company's initial public
offering, the Company issued warrants to the underwriters of the offering to
purchase 131,531 shares of Common Stock at an exercise price of $8.40.  In April
1997, 52,612 of these warrants were exercised in a cashless transaction, and
26,767 shares of Common Stock were issued.  The remaining warrants are
exercisable through August 2000.

    Stock Option Plans:  The Company has three stock option plans that provide
for the granting of options to employees, officers and directors of the Company
to purchase up to 525,313 shares of Common Stock.  Options granted under the
1991 plan provide for 50% vesting on the first anniversary from the date of
grant and 25% vesting on each of the second and third anniversaries.  Options
granted under the 1995 employee plan generally provide for vesting over a
five-year period with vesting at 20% each year.  Options granted under the 1995
director plan become exercisable six months after the date of grant.  Options
under the plans expire after 10 years and have been granted at fair value on the
date of grant.

    The fair value of stock options used to calculate pro forma net income and
net income per share disclosures was determined using the Black-Scholes
option-pricing model with the following assumptions in effect on the option
grant date:  risk-free interest rate of 5.5% to 6.8%; expected volatility of 49%
to 68%; expecting holding period of 3 to 5 years from the vest date; and a
dividend yield of 0.0%.  The Company's pro forma net income and net income per
share under Statement 123 are as follows:



                                                        Year Ended April 30,
                                                    ---------------------------
                                                        1996          1997
                                                    ---------------------------
Net income                                          $  996,350   $  3,597,617
Pro forma compensation expense under Statement 123     (41,476)      (177,457)
                                                    ---------------------------
Pro forma net income under Statement 123            $  954,874   $  3,420,160
                                                    ---------------------------
                                                    ---------------------------

Pro forma net income per share                         $  0.27        $  0.73


                                      PAGE -17-

<PAGE>

       Under Statement 123, compensation expense representing the fair value of
the option grant is recognized over the vesting period.  The initial impact on
pro forma net income may not be representative of compensation expense in future
years, when the effect of the amortization of multiple awards would be reflected
in earnings.

       A summary of the Company stock option activity, and related information
is as follows:

<TABLE>
<CAPTION>
 
                                                                                    April 30,
                                             ------------------------------------------------------------------------------------
                                                       1995                           1996                        1997
                                             ----------------------------  ---------------------------  -------------------------
                                               Options     Weighted Avg.    Options     Weighted Avg.   Options    Weighted Avg.
                                                          Exercise Price                Exercise Price             Exercise Price
                                             ---------    ---------------  ----------   --------------  --------  ---------------
<S>                                          <C>          <C>              <C>          <C>             <C>       <C>
Balance, beginning of year                    34,686          $2.16          252,074        $2.16        407,322     $  5.08
Granted                                      238,202           2.16          155,248         9.82         37,248       13.05
Exercised                                          -              -                -            -         (5,812)       3.19
Canceled                                     (20,814)          2.16                -            -              -
                                             ---------                     ---------                    --------           -
Balance, end of year                         252,074          $2.16          407,322        $5.08        438,758     $  5.78
                                             ---------                     ---------                    --------
                                             ---------                     ---------                    --------
Exercisable at end of year                    39,310          $2.16          142,224        $2.16        246,317     $  3.74

</TABLE>
 
       The following information is provided for options outstanding and
exercisable at April 30, 1997:

<TABLE>
<CAPTION>
 
                                                        Outstanding                                     Exercisable
                                  ---------------------------------------------------         -------------------------------
                                                Weighted Average
                                 Number         Remaining           Weighted Average         Number         Weighted Average
Range of Exercise Price          Outstanding    Contractual Life    Exercise Price           Exercise         Exercise Price
-----------------------           -----------    ----------------    ----------------         --------       ----------------
<S>                               <C>            <C>                 <C>                      <C>            <C>
    $2.16 - $  4.74                264,762              7.0             $  2.32               202,321             $  2.25
     7.13 -   10.75                136,748              8.9               10.51                34,748                9.79
    13.50 -   13.63                 37,248              9.4               13.05                 9,248               13.63
                                  --------                                                    -------
                                   438,758                                                    246,317
                                  --------                                                    -------
                                  --------                                                    -------

</TABLE>
 


    At April 30, 1997, 80,397 shares were available for future grant.

       Employee Stock Purchase Plan:  In December 1995, the Company adopted an
Employee Stock Purchase Plan which allows eligible employees to buy Company
stock at a 15% discount from market price utilizing payroll deductions.  A total
of 250,000 shares have been reserved for issuance under this plan.  As of
April 30, 1997, 2,796 shares had been issued under the plan.


9.  Employee Benefits



       Effective January 1, 1995, the Company implemented a salary deferral
401(k) plan for substantially all of its employees.  The plan allows employees
to contribute a percentage of their pretax earnings annually, subject to
limitations imposed by the Internal Revenue Service.  The plan also allows the
Company to contribute an amount at its discretion.  To date, the Company has
made no contributions to the plan.



 10.  Quarterly Financial Data (unaudited)



       Financial results by quarter for the fiscal years ended April 30, 1996
and 1997 are as follows:


<TABLE>
<CAPTION>
 
                                                                   Fiscal Quarter Ended
                                             -------------------------------------------------------------
                                              July 31         October 31     January 31       April 30
                                             -------------------------------------------------------------
                                                           (in thousands, except share amounts)

<S>                                          <C>              <C>            <C>              <C>
     1996
           Net sales                               $  3,305       $  5,131       $  5,210       $  7,999
           Gross profit                               1,228          1,934          1,833          2,986
           Net income (loss)                            (63)           242            204            613
           Net income (loss) per share                (0.02)          0.07           0.05           0.16

     1997
           Net sales                               $  8,000        $12,290       $  8,452      $  17,851
           Gross profit                               2,980          4,796          3,489          7,274
           Net income                                   142            865            324          2,267
           Net income per share                        0.04           0.22           0.06           0.42

</TABLE>
 

                                      PAGE -18-

<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors and Shareholders
Cutter & Buck Inc.

    We have audited the accompanying consolidated balance sheets of Cutter &
Buck Inc. as of April 30, 1996 and 1997, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended April 30, 1997.  These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cutter & Buck
Inc. at April 30, 1996 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
April 30, 1997, in conformity with generally accepted accounting principles.




                                       /s/ ERNST & YOUNG LLP
Seattle, Washington
June 16, 1997
















                                      PAGE -19-