<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

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

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended February 3, 2001

                        Commission file number 333-81307

                                G+G RETAIL, INC.
            --------------------------------------------------------
             (Exact name of registrant as specified in its charter)


<TABLE>
<S>                                                              <C>
                         Delaware                                                   22-3596083
 --------------------------------------------------------        -----------------------------------------------
     (State or other jurisdiction of incorporation or                (I.R.S. Employer Identification Number)
                       organization)

              520 Eighth Avenue, New York, NY                                         10018
 --------------------------------------------------------        -----------------------------------------------
         (Address of principal executive offices)                                   (Zip Code)

                              Registrant's telephone number, including area code: (212) 279-4961
</TABLE>

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

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

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

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

         As of May 3, 2001 all of the common stock of the registrant was held by
an affiliate. On May 3, 2001, 10 shares of the registrant's Class B common
stock, par value $.01 were outstanding.




<PAGE>



         As used in this Annual Report on Form 10-K, the terms "we," "us," "our"
and "G+G Retail" mean G+G Retail, Inc., a Delaware corporation, and its
subsidiaries, unless the context indicates a different meaning. The term "common
stock" means our Class B common stock, $.01 par value per share. The term
"Holdings" means our parent company, G&G Retail Holdings, Inc.

         Except as otherwise specified, the financial data described in this
report is derived from the combined financial statements of the business that we
acquired in August 1998, comprised of G&G Shops, Inc. and the stores operated by
G&G Shops that were owned by subsidiaries of Petrie Retail, Inc. through August
28, 1998 and from the consolidated financial statements of G+G Retail after that
date.

                                     PART I

Item 1.  Business

General

         We are a leading national mall-based retailer of popular-price female
apparel. We sell substantially all of our merchandise under private label names,
including Rave, Rave Up, Rave Girl, Rave City, R4R and In Charge, and provide
our customers with fashionable, high quality apparel and accessories at lower
prices than brand name merchandise. We emphasize the purchasing of merchandise
domestically and seek to keep inventory lead times short in order to respond
quickly to fashion trends and minimize mark-downs. Our pricing strategy, which
emphasizes delivering consistent value to our customers rather than driving
sales with periodic promotions, is also intended to contribute to a low rate of
mark-downs.

         As of April 2001, we had 530 stores, generally in major enclosed
regional shopping malls, throughout the United States, Puerto Rico and the U.S.
Virgin Islands which operate primarily under the G+G, Rave and Rave Girl names.
We use the same store format for our G+G/Rave stores and apply this format in
all of our markets. Our G+G/Rave stores average approximately 2,400 gross square
feet and are designed to create a lively and exciting shopping experience for
our teenaged customers.

         In July 1999, we opened our first Rave Girl store which sells apparel
primarily for 7- to 12-year-old girls. We believe that the market for the sale
of popularly priced fashion apparel to this age group is currently under served.
We entered this market at a relatively low incremental cost by leveraging our
existing administrative, distribution and marketing infrastructure. As of April
2001, we had 69 Rave Girl stores located in 21 states coast to coast and Puerto
Rico. Our Rave Girl stores are approximately 2,000 gross square feet and are
designed with bright colors, unique lighting and exciting graphics.

         Our Internet web sites provide information about our company history,
merchandise offerings and store locations. The sites also provide an opportunity
for visitors to see the latest fashion trends for the season as well as
available employment opportunities with our company. The web sites addresses are
www.gorave.com and goravegirl.com.

         Our principal executive offices are located at 520 Eighth Avenue, New
York, New York 10018, telephone number (212) 279-4961.

Business Strategy

         Our business strategy is to expand our operations and increase our
sales and earnings through the opening of new stores, including through the
acquisition of individual or multiple leases, primarily in mall locations that
we believe are favorable for business. During the fiscal years 1999, 2000 and
2001, we


                                       2




<PAGE>



opened 92 G+G/Rave stores and 52 Rave Girl stores. We opened 6 G+G/Rave stores
and 17 Rave Girl stores to date in fiscal 2002 and expect to open between 30 and
40 additional stores, in total, in the fiscal year. We believe that our strong
relationships with our existing landlords provide us with a good opportunity to
negotiate favorable lease terms in new locations.

Merchandising and Marketing

Merchandising Strategy

         Our merchandising strategy is to deliver the latest fashions to our
customers more quickly and at lower prices than our competitors. Our G+G/Rave
store merchandise is designed primarily to appeal to young women between the
ages of 13 and 19 years old who desire fashion, quality and value. However, due
to our merchandise and our geographic diversity, over the past few years our
G+G/Rave stores also have increasingly attracted the 20- to 30-year-old female
customer. Our Rave Girl store merchandise is designed primarily to appeal to the
fashion desires of girls between the ages of 7 and 12 years old and the quality
and value demands of parents who regularly replenish a growing child's wardrobe.
A portion of our merchandise is private label that is manufactured to our
specifications. This strategy gives us tighter control over apparel production
and delivery than we would have if we purchased and sold brand-name merchandise.
We offer the latest fashion in both apparel and accessories in stores that are
designed to be bright, energetic and welcoming to create a fun and enjoyable
shopping experience. Our apparel offerings include tops, bottoms, dresses,
lingerie, coordinates and outerwear. We also carry accessories and shoes. We
utilize an everyday value pricing strategy, as opposed to offering discounts on
marked-up merchandise.

         In order to react quickly to teenagers' and girls' changing tastes and
to keep our stores stocked with current fashions, we purchase most of our
merchandise domestically. Maintaining current merchandise allows us to turn over
our inventory frequently and to achieve high sales per square foot while
improving profitability. The speed of our merchandising and buying capability
enables us to change our product mix in season. As a result, we seek to respond
immediately to, rather than to try to anticipate, fashion trends.

         Our merchandise team identifies and targets fashion trends and customer
demand by, among other things, shopping domestic and foreign markets, reviewing
magazines and catalogs and viewing television shows and movies directed to our
customers, monitoring sell-through trends and attending selected fashion shows.
We also maintain an office in California to ensure proper coverage of the
trend-setting West Coast market. We review inventory levels constantly. Our
planning and distribution staff plans our inventory on a store-by-store basis
and is responsible for understanding the fashion demands of our customers.

Visual Presentation and Advertising

         We believe that effective and strong visual merchandising is critical.
Our goal is to capture a customer's interest in the few seconds that she is
exposed to the store front. Merchandise presentation is a product of store
design, use of fixtures and in-store marketing that complements our merchandise.
Our merchants and the marketing department jointly design the merchandise floor
plan, which is integral to merchandise presentation. Once approved, we
communicate a consistent presentation to all of our G+G/Rave or Rave Girl stores
through a formal layout. We finalize the merchandise layout based on seasonal
and climatic differences among regional markets. We prepare major floor changes
for each major selling season and sale period. We forward modifications to the
layout to all of our stores on a bi-weekly basis.


                                       3


<PAGE>



         We primarily advertise in our stores, stressing fashion, quality and
value in support of our everyday value pricing strategy. Our marketing
department creates a seasonal set of store signs that accentuates the
merchandise presentation. Each season, we select and highlight key items with a
comprehensive program of in-store posters and signs. The set of signs reflects
new merchandise colors and fashion trends to keep the stores looking current and
visually stimulating. The merchandise package also targets the customer with
value pricing slogans in the form of large store-spanning banners and rack-top
signs. Our store bags, boxes, name badges and other store peripherals emphasize
our brand recognition.

Merchandise Planning

         Our financial department prepares seasonal merchandise plans that are
approved by senior management. Our merchandise planning department then
allocates these plans by merchandise category based on historical and current
trends. The preparation and monitoring of merchandise plans independent of
purchasing functions is essential for controlling inventory levels. We monitor
our inventory through an automated inventory system.

Purchasing and Suppliers

         We purchase all of our inventory from third-party suppliers or
manufacturers. We do not own or operate any manufacturing facilities. Most of
our private label merchandise is manufactured domestically, with the remainder
manufactured overseas. We supply the designs and specifications to the
manufacturers. Our manufacturers continually consult with us regarding
developing fashion trends so that they can respond quickly to our merchandise
orders. Prior to delivery, we regularly inspect samples of our manufactured
goods for quality based on materials, color and sizing specifications.

         We believe that we have established relationships with an adequate
number of suppliers to meet our ongoing inventory needs and that we have strong
relationships with these suppliers. During fiscal 2001, we purchased our
inventory from more than 300 suppliers. We have been purchasing inventory from
our top three suppliers for more than five years. We do not have long-term
contracts with our suppliers, and we transact business principally on an
order-by-order basis. During fiscal 2001, our top three suppliers accounted for
10%, 9% and 6% of our inventory purchases. No other supplier accounted for more
than 5% of our inventory purchases.

Distribution and Transportation

         We maintain a 165,000 square foot leased distribution center in North
Bergen, New Jersey. All of our vendors ship the merchandise that we purchase to
our distribution center, which is then shipped to our stores.

         We employ an internally developed allocation system that interfaces
with our store cash registers, order and receiving system and distribution
system. The allocation system maintains unit inventory and sales data by store
at the style level, enabling us to identify specific store needs for
replenishment. We use national and regional package carriers to ship merchandise
to our stores, and we also use air freight to ship merchandise to stores in
certain regions. Transit time to stores generally is two to three days, and
merchandise is available for sale by stores on the day it is received.
Therefore, the time period from receipt of goods at the distribution center to
display in our stores is generally less than five days. A majority of
merchandise coming into our distribution center is pre-ticketed, and a
substantial portion of this merchandise is vendor pre-packed. Pre-ticketing and
pre-packing save time, reduce labor costs and enhance inventory management.


                                       4


<PAGE>



Locations and Format of Our Stores

Store Locations

         As of April 2001, we had 530 stores in 42 states in the United States,
Puerto Rico and the U.S. Virgin Islands as set forth below:

<TABLE>
<CAPTION>
State/Territory             Number of Stores                  State/Territory            Number of Stores
---------------             ----------------                  ---------------            ----------------
<S>                               <C>                         <C>                               <C>
Alabama                            9                          Missouri                           9
Arkansas                           2                          Nebraska                           1
Arizona                            4                          Nevada                             1
California                        39                          New Hampshire                      4
Colorado                          10                          New Jersey                        20
Connecticut                        7                          New Mexico                         3
Delaware                           2                          New York                          43
Florida                           55                          North Carolina                     9
Georgia                           18                          Ohio                              20
Hawaii                             1                          Oklahoma                           1
Idaho                              1                          Oregon                             2
Illinois                          24                          Pennsylvania                      26
Indiana                            6                          Puerto Rico                       56
Kansas                             1                          Rhode Island                       1
Kentucky                           4                          South Carolina                     5
Louisiana                         13                          Tennessee                          8
Maine                              1                          Texas                             36
Maryland                          17                          Virginia                          11
Massachusetts                     19                          Virgin Islands                     2
Michigan                          18                          Washington                        12
Minnesota                          1                          Wisconsin                          3
Mississippi                        4                          West Virginia                      1
</TABLE>


Store Format

         We use a similar store format for our G+G/Rave stores. Our Rave Girl
stores have their own unique store format. We consistently apply our store
formats in all the markets that we serve. In general, the G+G name is used in
the New York, New Jersey and Connecticut markets, and the Rave name is used in
other markets.

         Our stores are predominantly located in major enclosed regional
shopping malls. Within such malls, we seek locations for our G+G/Rave stores in
proximity to stores and areas having high teen traffic flow, such as music
stores, shoe stores and food courts We locate our Rave Girl stores both in major
regional shopping malls and in strip centers where we seek locations in
proximity to other speciality stores that sell products to young girls. Our
G+G/Rave stores are typically 2,400 gross square feet in size. Our Rave Girl
stores are approximately 2,000 gross square feet.

         Our stores are designed to create a lively and exciting shopping
experience for the customer. All of our stores are bright, colorful and fitted
with various fixtures to display the merchandise in an appealing manner.
Approximately 15% of the total space is committed to fitting rooms and storage
space. Our merchandising staff centrally controls the store layout and
merchandise placement. Typically, we update store and merchandise layouts on a
bi-weekly basis, or sooner when necessary, to stay current with the seasons and
fashion trends.


                                       5


<PAGE>



         Sales have been evenly balanced among our store base, with our highest
volume store accounting for less than 1% of gross sales during fiscal 2001.

Store Operations

         Our district/area managers manage all aspects of store operations other
than purchasing. Each of these district/area managers is responsible for
approximately six to ten stores and reports to a regional manager who oversees
seven to eight district/area managers. The regional managers, in turn, report to
our Senior Vice President Store Operations.

         Generally, each of our stores employs five to ten employees, consisting
of a store manager who is in charge of all aspects of operations, including
recruiting, training, customer service and merchandising, two assistant managers
and sales employees. Store managers report to a district/area manager, and
assistant managers and sales employees report to a store manager. We seek to
hire sales employees who have prior retail sales experience and have an
entrepreneurial spirit. Sales personnel are knowledgeable about our merchandise.
Our sales personnel and assistant store managers are trained by experienced
store managers, and our store managers are trained by experienced district/area
managers, in order to offer customers courteous and knowledgeable service.

         Our customers may pay for merchandise with cash, checks or third-party
credit cards. Our merchandise return policy permits returns to be made within 30
days from the date of purchase. We give refunds if the customer has a receipt.
Otherwise, we issue a store credit.

Store Openings and Closings

         We have implemented an ongoing program of opening new stores in
locations that we believe are favorable for our business and closing
underperforming stores. Since the beginning of fiscal 2001, we have opened 97
stores. During this same period, we have closed 23 underperforming stores. We
plan to open between 30 and 40 additional stores and we anticipate that we will
close approximately eleven stores during fiscal 2002.

         In deciding whether to open or close a store, we project store
profitability based on the following:

         o    the location of the store in the mall;
         o    the rental rate for the property where the store is or will be
              located;
         o    the performance of other apparel retail stores in the mall;
         o    mall location and whether the particular mall environment is
              suitable for the store;
         o    the quality of anchor stores in the mall in which the store is or
              will be located; and
         o    the extent of competition from other mall tenants.

Competition

         The retail apparel business is highly competitive, with fashion,
quality, price, location, store environment and customer service being the
principal competitive factors. We compete with a number of mall-based popular
priced junior and girls fashion retailers. Our competitors in the junior and
girls retail apparel businesses include Wet Seal, Inc. and Limited Too,
respectively, both of which are mall-based apparel retailers that offer current
fashions at generally higher price points than we offer. In addition, we compete
with several discount department stores, local and regional department store
chains and other apparel retailers that overlap with our merchandise offerings
and price points. Some of our competitors are larger and may have greater
financial, marketing and other resources than we have. In addition, we


                                       6


<PAGE>



compete for favorable site locations and lease terms in shopping malls. In the
future, we may experience increased competition from catalog and Internet
retailers.

Seasonality

         Our fourth fiscal quarter, which includes the Christmas shopping
season, historically accounts for the largest percentage of our annual net
sales. Our first fiscal quarter historically accounts for the smallest
percentage of annual net sales. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality and
Quarterly Results."

Management Information Systems

         Our management information and control systems provide our management,
buyers, planners and distributors with information by the next business day to
identify sales trends, replenish depleted store inventories, re-price
merchandise and monitor merchandise mix. Our automated and integrated allocation
and material handling systems enable us to move the majority of our merchandise
through our distribution center within 24 hours of receipt.

         All of our stores have point-of-sale terminals that record sales at the
style level, mark-downs, distribution center receipts, interstore transfers and
store payroll. This information is transmitted daily to our host systems. During
fiscal 2001, we completed our installation of our new point-of-sale equipment
and software in all our stores.

Trademarks and Service Marks

         We own various trademarks, service marks and trade names, including
G+G, Rave, Rave Up, Rave Girl, Rave City, R4R, In Charge and American High.

Employees

         As of April 2001, we had a total of approximately 4,200 employees,
consisting of approximately 800 full-time salaried employees, approximately
1,200 full-time hourly employees and approximately 2,200 part-time hourly
employees. The number of part-time hourly employees fluctuates due to the
seasonal nature of our business.

         As of April 2001, Local 2326 of the UAW/AFL/CIO represented
approximately 180 hourly employees in our distribution center. The collective
bargaining agreement covering these employees expires on January 31, 2002. None
of our other employees are members of a union. We consider our relations with
both our union and non-union employees to be satisfactory.

Forward Looking Statements and Factors Affecting Future Performance.

         This report contains "forward-looking statements," within the meaning
of the federal securities laws. These statements describe our beliefs concerning
future business conditions and the outlook for our business based on currently
available information. Wherever possible, we have identified these
forward-looking statements by using words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and similar expressions. While these
statements reflect our current judgment about the direction of our business, our
actual results could differ materially from the estimates, assumptions and other
future performance contained in the forward-looking statements due to a number
of risks and uncertainties. These risks and uncertainties include the strength
of the women's and girls' apparel industries and the other risks and
uncertainties described below. We do not intend to update publicly any


                                       7


<PAGE>



forward-looking statements, whether as a result of new information, future
events or otherwise. Forward-looking statements in this report may be found in
the materials set forth under "Item 1. Business," "Item 2. Properties," "Item 3.
Legal Proceedings" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," among others.

         We have significant debt. Our level of debt and the resulting amount of
leverage may:

         o    make it more difficult for us to make required payments under our
              outstanding notes and revolving credit facility;
         o    require us to dedicate a substantial portion of cash flow from
              operations to principal and interest payments with respect to our
              debt, thereby reducing the availability of cash flow to fund
              working capital, capital expenditures or other general corporate
              purposes;
         o    limit our ability to obtain additional financing to fund future
              working capital, capital expenditures and other general corporate
              requirements;
         o    increase our vulnerability to general adverse economic and
              industry conditions;
         o    limit our flexibility in planning for, or reacting to, changes in
              our business and industry; and
         o    place us at a competitive disadvantage compared to our
              competitors that have less debt.

         The junior and girls retail apparel business is highly competitive. We
compete for sales in the junior retail apparel business primarily with specialty
apparel retailers. We also compete with several discount department stores and
local and regional department store chains and other apparel retailers with
which our merchandise offerings and price points overlap. Some of our
competitors are larger and may have greater financial, marketing and other
resources than we do. In addition, we compete with retailers and other
businesses for favorable site locations and lease terms in shopping malls and
strip centers. Competition from our current competitors, as well as from catalog
and Internet retailers, may increase in the future.

         Our profitability largely depends upon our ability to identify the
fashion tastes of our customers and to provide merchandise that appeals to their
preferences in a timely manner. The fashion preferences of our core customers
change frequently. Our failure to identify or react appropriately to changes in
styles or trends could lead to, among other things, excess inventories and
higher markdowns than we expect. In addition, our fashion misjudgments could
decrease our profitability and affect our image with our customers.

         Our continued growth significantly depends upon our ability to open new
stores on a profitable basis and to manage growth and expanded operations.
Accomplishing our expansion goals will depend upon a number of factors,
including the availability of funds and our ability to identify favorable
geographical locations and suitably sized locations for new stores at acceptable
costs.

         General economic conditions, including business conditions, levels of
employment and consumer confidence in future economic conditions, affect the
level of consumer spending. In addition, because our stores are located
primarily in malls, we depend upon the continued popularity of malls as a
shopping destination and the ability of mall anchor tenants and other
attractions to generate customer traffic to our stores. Mall traffic or economic
conditions in the markets in which our stores are located may decline and may
result in lower revenues and profits.

         We handle distribution functions for all of our stores from a single
facility. We rely upon our existing management information systems in operating
and monitoring all major aspects of our business. Any significant disruption in
either the operation of our distribution facility or our management information
systems would decrease our profitability.


                                       8


<PAGE>



         Our results of operations fluctuate based on the seasons. In addition,
comparisons to prior-period results of operations may not be indicative of
results for future periods. Historically, the fourth fiscal quarter has
generated the largest percentage of our annual net sales. In contrast, the first
fiscal quarter historically has generated the smallest percentage of our net
sales. Our quarterly results of operations also may fluctuate significantly as a
result of a variety of other factors, including the number and timing of store
openings and closings, the level of markdowns taken and the amount of revenue
contributed by new stores.

         Our success depends significantly upon the performance of our senior
management and merchandising staff. The loss of a number of persons in that
group could affect our strategic and operational capabilities.

         A significant number of our stores are located in Florida, California
and the Caribbean. In addition, we plan to open more stores in theses areas. As
a result, we are susceptible to fluctuations in our business caused by the
severe weather or natural disasters which occur from time to time in these
geographic regions. Also, unseasonable weather conditions such as an unusually
cold spring or warm fall may have a negative effect on sales of or profit margin
on seasonable merchandise.

Item 2.  Properties

         Our corporate headquarters is located in New York City and consists of
35,000 square feet of leased office space. From our headquarters, we administer
our purchasing, merchandising, finance, store operations, management information
systems, marketing, real estate, human resources and store construction
functions. During the first quarter of fiscal year 2002, we leased an additional
5,000 square feet of office space to accommodate our growing needs. The lease
for our headquarters expires on January 31, 2006. We have one five-year renewal
option under which the rent will be equal to 90% of the fair market value of the
premises.

         As of April 2001, we had 530 stores in 42 states in the United States,
Puerto Rico and the U.S. Virgin Islands. All of our store sites are leased. This
table shows the number of store leases expiring during the years indicated,
assuming the exercise of all available renewal options:

<TABLE>
<CAPTION>
            Fiscal Year                        Leases Expiring
            -----------                        ---------------
                <S>                                <C>
                2002                                  62
                2003                                  67
                2004                                  51
                2005                                  42
                2006                                  59
             thereafter                              208
</TABLE>

         As of April 2001, we also had 41 stores with expired leases, many of
which we have reached agreement to extend subject to final documentation. We
occupy those premises on a month-to-month basis. As of April 2001, we leased
approximately 19% and 9% of our stores from our two largest landlords.

         We lease our distribution center located in North Bergen, New Jersey.
The lease expires in August 2004. We have one five-year renewal option under
which the rent will be equal to 90% of the fair market value of the premises.


                                       9


<PAGE>



Item 3.  Legal Proceedings.

         From time to time, we are involved in litigation relating to claims
arising out of our operations in the normal course of business. As of May 3,
2001, we were not engaged in any legal proceedings that are expected to have a
material adverse effect on us.

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

         None.


                                       10





<PAGE>



                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

         There is no public trading market for our common stock. Holdings is the
only record holder of our common stock. We have not paid any dividends on our
common stock during the last three fiscal years. Holdings has four authorized
classes of common stock, and three authorized series of preferred stock, none of
which are traded publicly. For more information about Holdings stock, see "Item
12. Security Ownership of Certain Beneficial Owners and Management" and "Item
13. Certain Relationships and Related Transactions."

Item 6.  Selected Financial Data

         We account for our operations on a fiscal year rather than a calendar
year basis. Each reference in this report to a "fiscal" year means the 52 or 53
week fiscal year that ends on the Saturday nearest January 31 in the particular
calendar year. Fiscal 2001 consisted of 53 weeks, all other years presented
consisted of 52 weeks. The combined financial statements include the accounts of
G&G Shops and stores operated by G&G Shops that were owned by Petrie Retail. We
purchased the assets of all of the stores that G&G Shops operated and the
trademarks used in that business in an acquisition that occurred on August 28,
1998.

         We derived the following selected financial and operating data from:

         o    the combined balance sheets as of February 1, 1997 and January
              31, 1998 and the related combined statements of operations and
              cash flows for fiscal 1997 and 1998 and the seven months ended
              August 28, 1998 from the audited financial statements of the
              business we acquired in the acquisition; and

         o    the consolidated balance sheets as of January 30, 1999, January
              29, 2000 and February 3, 2001 and the related consolidated
              statements of income and cash flows for the five months ended
              January 30, 1999, fiscal 2000 and 2001 from our audited financial
              statements.

         We did not conduct operations from the date of our incorporation on
June 26, 1998 to August 28, 1998, when we completed the acquisition. We
completed our private offering of notes on May 17, 1999. On November 2, 1999,
the notes that we issued in the private placement were exchanged for our senior
notes.

         Our selected financial and operating data should be read in conjunction
with "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our combined and consolidated financial statements
and related notes included elsewhere in this report.


                                       11




<PAGE>



                                G+G Retail, Inc.

                      Selected Financial and Operating Data

<TABLE>
<CAPTION>
                                                     Acquired Assets                              G+G Retail, Inc.
                                        ------------------------------------------   -------------------------------------------
Dollars in thousands  except for sales
  per gross square foot                         Fiscal Year
                                        ---------------------------   Feb. 1, 1998   Aug. 29, 1998
                                                                       to Aug. 28,    to Jan. 30,    Fiscal Year    Fiscal Year
                                             1997           1998          1998           1999           2000           2001
                                          ---------      ---------    ------------   -------------   ------------   ------------
<S>                                       <C>            <C>           <C>           <C>            <C>              <C>
Statement of Operations Data:
Net Sales                                 $ 266,362      $ 286,938     $ 162,823      $131,567       $318,506         $350,040
Cost of sales (including occupancy
  costs)                                    166,636        177,765       106,056        79,267        196,330          217,032
Selling, general, administrative, and
  buying expenses (1)                        76,684         79,702        49,330        36,170         89,352          107,928
Depreciation and amortization expense         4,526          4,489         2,845         5,141         11,800           13,178
                                          ---------      ---------     ---------     ---------      ---------        ---------
Operating income                             18,516         24,982         4,592        10,989         21,024           11,902
Interest expense, net                             -              -             -         7,395         12,983           14,012
                                          ---------      ---------     ---------     ---------      ---------        ---------

Income (loss) before extraordinary
  loss and provision (benefit) for
  income taxes                               18,516         24,982         4,592         3,594          8,041           (2,110)
Provision (benefit) for income taxes          7,629         10,293         1,892         1,581          3,428             (808)
                                          ---------      ---------     ---------     ---------      ---------        ---------
Income (loss) before extraordinary
  loss                                       10,887         14,689         2,700         2,013          4,613           (1,302)
Extraordinary loss, net of $354 of
  income tax                                      -              -             -             -           (450)               -
                                          ---------      ---------     ---------     ---------      ---------        ---------
Net income (loss)                         $  10,877      $  14,689     $   2,700      $  2,013       $  4,163         $ (1,302)
                                          =========      =========     =========     =========      =========        =========
Other Operating Data:
Sales per gross square foot (2)           $     277      $     295     $     160      $    130       $    296         $    291
Inventory turnover (3)                         6.4X           6.6X          6.0X          6.5X           5.6X             6.1X
Same store net sales increase
  (decrease) (4)(5)                           13.0%           4.5%        (3.0)%        (1.1)%         (0.5)%           (3.7)%
Capital expenditures:
  New stores                              $     829      $   2,972     $   1,299      $  1,027       $ 10,200         $ 13,615
  Remodels                                      892          3,320         1,809         1,341          6,680            7,877
  POS equipment                                   -              -             -             -          2,469            4,164
  Non-store assets and systems                  231            713           292           411          1,276              639
                                          ---------      ---------     ---------     ---------      ---------        ---------
Total capital expenditures                $   1,952      $   7,005     $   3,400      $  2,779       $ 20,625         $ 26,295
                                          =========      =========     =========     =========      =========        =========
Number of Stores

  Beginning balance                             416            395           408           415            422              456
  New stores opened                              11             25             9            13             48               74
  Existing stores closed                         32             12             2             6             14               19
                                          ---------      ---------     ---------     ---------      ---------        ---------
  Ending balance                                395            408           415           422            456              511
                                          =========      =========     =========     =========      =========        =========
Other Financial Data:
EBITDA as adjusted (6)                    $  24,791      $  31,305     $   8,449      $ 16,130       $ 32,824         $ 25,080
EBITDA margin as adjusted (7)                   9.3%          10.9%          5.2%         12.3%          10.3%             7.2%
Cash provided by operating activities     $  20,043      $  25,588     $  15,793      $ 11,943       $ 20,592         $ 18,908
Cash used in investing activities            (1,952)        (7,005)       (3,400)     (137,658)       (20,625)         (26,295)
Cash (used in) provided by financing
  activities                                (18,545)       (19,069)      (14,140)      137,069          5,997            2,862
</TABLE>

<TABLE>
<CAPTION>
                                            Acquired Assets                     G+G Retail, Inc.
                                      -------------------------      --------------------------------------
Dollars in thousands                   Feb. 1,         Jan. 31,      Jan. 30,       Jan. 29,        Feb. 3,
                                        1997             1998          1999           2000            2001
                                      -------          --------      --------       --------       --------
<S>                                   <C>              <C>           <C>            <C>             <C>
Balance Sheet Data:
Total assets                            $  25,818      $  28,157     $ 167,664      $ 186,742      $ 197,169
Total long-term debt                       20,591         20,866        90,000        101,480        104,465
</TABLE>


                                       12



<PAGE>



                 Notes to Selected Financial and Operating Data

(1)  Selling, general, administrative and buying expenses include royalty
     expense and store closing expenses. Royalty expense represents an amount
     charged by Petrie Retail for the use of trademarks that we purchased in the
     acquisition.
(2)  Our sales per gross square foot was $287 for the first 52 weeks of fiscal
     year 2001.
(3)  Calculated by dividing the sum of monthly net retail sales by average
     monthly retail inventory. The fiscal 2000 inventory turn was negatively
     impacted by the off-season inventory purchases made during the fiscal year.
     Without these off-season purchases, inventory turn for fiscal 2000 would
     have been 6.1 times.
(4)  A store becomes comparable after it is open 12 full months.
(5)  Our same store net sales decreased 5.3% for the first 52 weeks of fiscal
     year 2001.
(6)  We define EBITDA as operating income plus depreciation and amortization. In
     addition, we have further adjusted EBITDA to add back royalty expense. See
     note (1). EBITDA as adjusted does not represent cash flow from operations.
     You should not consider EBITDA as adjusted to be an alternative to
     operating or net income computed in accordance with generally accepted
     accounting principles, an indicator of our operating performance, an
     alternative to cash from operating activities as determined in accordance
     with GAAP or a measure of liquidity. We believe that EBITDA is a standard
     measure commonly reported and widely used by analysts, investors and other
     interested parties in the retail industry. As a result, we present this
     information to give you a more complete comparative analysis of our
     operating performance relative to other companies in the industry. Not all
     companies calculate EBITDA using the same methods. Therefore, the EBITDA as
     adjusted figures that we present may not be comparable to EBITDA reported
     by other companies.
(7)  Computed by dividing EBITDA as adjusted by net sales.



Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

         You should read the following in conjunction with the selected
financial data and our combined and consolidated financial statements and the
related notes included elsewhere in this report.

Overview

         We are a leading national mall-based retailer of popular price female
junior and pre-teen apparel. For over 30 years, we and our predecessors have
built a reputation for providing fashion apparel and accessories distinctly
targeted primarily at teenaged women. During fiscal 2000, we began to sell
fashion apparel and accessories targeted at pre-teens aged 7- to 12-years old.
In August 1998, we acquired the business of G&G Shops and the stores operated by
subsidiaries of Petrie Retail and the trademarks and other assets used in that
business. We obtained financing for the acquisition by a net capital
contribution by Holdings to us of $49.8 million and by borrowing $90.0 million
under senior bridge notes that we subsequently repaid with the issuance of our
senior notes. We accounted for the acquisition under the purchase method of
accounting.

Results of Operations

         The statement of operations for fiscal 2001 and 2000 are not comparable
to fiscal 1999 because of the change in basis of accounting that resulted from
our August 28, 1998 acquisition of substantially all of the assets and
assumption of certain liabilities of G&G Shops and its subsidiaries and certain
other subsidiaries of Petrie Retail. Since that acquisition, we incurred
additional depreciation, amortization and interest expense, all of which are
associated with the acquisition and reflected in the financial statements for
the period August 29, 1998 through January 30, 1999 and the fiscal year ended
January 29, 2000 and February 3, 2001. Interest expense for the periods August
29, 1998 to May 17, 1999 reflects interest associated with our senior bridge
notes, while interest expense for the period May 18, 1999 to January 29,


                                       13




<PAGE>


2000 and for fiscal year 2001 reflects interest associated with our senior
notes. Except for depreciation, amortization, and interest expense noted above,
the statement of operations for fiscal 2000 is comparable to fiscal 1999.

         The following table sets forth selected operating statement data,
expressed as a percentage of net sales, of:

         o    the companies from which we acquired our business for the period
              from February 1, 1998 to August 28, 1998; and

         o    G+G Retail for the period from August 29, 1998 to January 30,
              1999, fiscal 2000 and fiscal 2001.


<TABLE>
<CAPTION>
                                                         Acquired
                                                          Assets                           G+G Retail, Inc.
                                                      ---------------     ----------------------------------------------------
                                                                          Aug. 29, 1998
                                                      Feb. 1, 1998 to           to
                                                       Aug. 28, 1998      Jan. 30, 1999    Fiscal Year 2000   Fiscal Year 2001
                                                      ---------------     -------------    ----------------   ----------------
<S>                                                      <C>                <C>               <C>                 <C>
      Net Sales                                          100.0%             100.0%            100.0%              100.0%
      Cost of Sales (including occupancy costs)           65.1               60.2              61.6                62.0
      Selling, general, administrative and
        buying expenses                                   30.3               27.5              28.1                30.8
      Depreciation and amortization expense                1.7                3.9               3.7                 3.8
      Operating income                                     2.9                8.4               6.6                 3.4
      Interest expense, net                                --                 5.6               4.1                 4.0
      Income (loss) before extraordinary loss
        and provision (benefit) for income taxes           2.9                2.8               2.5                (0.6)
      Extraordinary loss, net of tax                       --                 --                0.1                 --
      Net income (loss)                                    1.7                1.5               1.3                (0.4)
      EBITDA as adjusted                                   5.2               12.3              10.3                 7.2
</TABLE>

Comparison of Fiscal 2001 and Fiscal 2000

         Our fiscal year ends on the Saturday closest to January 31 and
generally results in a 52 week fiscal year. However, every five or six years,
our fiscal year is 53 weeks. Fiscal 2001 included 53 weeks. For purposes of
annual comparisons, unless otherwise noted, we have not adjusted for this
difference.

         Net sales increased to $350.0 million in fiscal 2001 from $318.5
million in fiscal 2000. The $31.5 million or 9.9% increase in net sales was due
to the opening of new stores, which contributed $42.9 million to the net sales
increase in fiscal 2001 and was offset by a $11.4 million, or a 3.7% decrease in
same store sales compared to fiscal 2000 (a 5.3% same store sales decrease based
on the first 52 weeks of fiscal 2001). The same store sales decline for the
fiscal year 2001 was positively impacted by the same store sales increase of
3.9% in the fourth quarter of fiscal 2001 (comparing the first 13 weeks of the
fourth quarter of fiscal 2001 to the 13 weeks of fiscal 2000). Average sales per
gross square foot decreased 1.7%, to $291 in fiscal 2001 from $296 in fiscal
2000. We operated 511 stores as of February 3, 2001 as compared to 456 stores as
of January 29, 2000. This was the result of opening 74 stores and closing 19
stores during the period.

         Cost of sales, including occupancy costs, increased 10.6% to $217.0
million in fiscal 2001 from $196.3 million in fiscal 2000. As a percentage of
net sales, cost of sales including occupancy costs increased 0.4%, from 61.6% in
fiscal 2000 to 62.0% in fiscal 2001. This 0.4% increase resulted from a 0.7%
decrease in cost of sales, which was offset by a 1.1% increase in occupancy
costs as a percentage of sales. The decrease in cost of sales as a percentage of
net sales was due to an increase in the initial mark-on


                                       14




<PAGE>


and a $500,000 increase in vendor allowances received in fiscal 2001 as compared
to fiscal 2000, offset in part by an increase in markdowns. We recognize vendor
allowances when executed agreements are received from our vendors. These
allowances primarily benefit our fourth fiscal quarter in each year. Allowances
recognized in the first three quarters of our fiscal year are mark-down
allowances received from vendors for specific poor-performing styles of
merchandise and have historically aggregated less than 15% of total vendor
allowances received in a fiscal year. Year-end allowances, which represent the
balance of vendor allowances, are negotiated and recorded in the fourth quarter
based on vendor profitability and volume for the calendar year. Vendor
allowances for fiscal 2001 were $3.6 million, as compared to $3.1 million in
fiscal 2000. The occupancy cost increase as a percent of sales resulted from an
overall increase in occupancy costs coupled with a decrease in same store sales.

         Selling, general, administrative and buying expenses increased $18.5
million or 20.7% to $107.9 million in fiscal 2001 from $89.4 million, in fiscal
2000. As a percentage of net sales, these expenses increased to 30.8% of sales
in fiscal 2001, as compared to 28.1% in fiscal 2000. Fiscal 2001 expenses
reflects additional selling costs related to new store openings, an increase in
same store selling expenses and an increase in administrative costs.

         Depreciation and amortization expense for fiscal 2001 was $13.2 million
compared to $11.8 million for fiscal 2000. The increase is mainly attributable
to the additional depreciation and amortization expense related to new stores,
remodels and relocations.

         Net interest expense in fiscal 2001 was $14.0 million or 4.0% of net
sales, as compared to $13.0 million or 4.1% of net sales for fiscal 2000. The
period January 31, 1999 through May 17, 1999 reflects interest on our senior
bridge notes and amortization of the related issuance costs. The period May 18,
1999 through January 29, 2000 and fiscal 2001 reflects interest on our senior
notes and the amortization of the $7.3 million original issue discount, the
$470,000 value assigned to the warrants issued by Holdings and deferred
financing costs. In fiscal 2001, there was capital lease interest of $456,000 as
compared to $36,000 in fiscal 2000. In fiscal 2001, there was interest expense
of approximately $200,000 on our short-term borrowings. In fiscal 2000 there
were no short-term borrowings.

         The income tax benefit for fiscal 2001 was $808,000 or a 38.3% income
tax benefit rate as compared to income tax expense of $3.4 million, excluding
$354,000 of income tax benefit from the extraordinary loss, or a income tax rate
of 42.6% for fiscal 2000. The lower income tax benefit rate in fiscal 2000 was
due the mix of income between U.S. and foreign sources.

         There was a net loss of $1.3 million in fiscal 2001 as compared to a
net income of $4.2 million in fiscal 2000. The net loss for fiscal 2001 was
positively impacted by the $6.9 million of net income in the fourth quarter of
fiscal 2001 as compared to the net income of $5.7 million in the fourth quarter
of fiscal 2000.

Comparison of Fiscal 2000 and Fiscal 1999

         Net sales increased to $318.5 million in fiscal 2000 from $294.4
million in fiscal 1999. The $24.1 million or 8.2% increase in net sales was due
to the opening of new stores, which contributed $25.5 million to the net sales
increase in fiscal 2000 and was offset by a $1.4 million, or 0.5%, decrease in
same store sales compared to fiscal 1999. Average sales per gross square foot
increased 2.1%, to $296 in fiscal 2000 from $290 in fiscal 1999. We operated 456
stores as of January 29, 2000 as compared to 422 stores as of January 30, 1999.
This was the result of opening 48 stores and closing 14 stores during the
period.

         Cost of sales, including occupancy costs, increased 5.9% to $196.3
million in fiscal 2000 from $185.3 million in fiscal 1999. As a percentage of
net sales, cost of sales including occupancy costs


                                       15




<PAGE>



decreased 1.4%, from 63.0% in fiscal 1999 to 61.6% in fiscal 2000. This 1.4%
decrease resulted from a 1.5% decrease in cost of sales, which was offset in
part by a slight increase in occupancy costs as a percentage of sales. The
decrease in cost of sales as a percentage of net sales was due to an increase in
initial mark-on and a $600,000 increase in vendor allowances received in fiscal
2000 as compared to fiscal 1999. We recognize vendor allowances when executed
agreements are received from our vendors. These allowances primarily benefit our
fourth fiscal quarter in each year. Allowances recognized in the first three
quarters of our fiscal year are mark-down allowances received from vendors for
specific poor-performing styles of merchandise and have historically aggregated
less than 15% of total vendor allowances received in a fiscal year. Year-end
allowances, which represent the balance of vendor allowances, are negotiated and
recorded in the fourth quarter based on vendor profitability and volume for the
calendar year. Vendor allowances for fiscal 2000 were $3.1 million, as compared
to $2.5 million in fiscal 1999. The occupancy cost increase as a percent of
sales resulted from an overall increase in occupancy costs coupled with a
decrease in same store sales.

         In fiscal 2000, selling, general, administrative and buying expenses
totaled $89.4 million, compared to $85.5 million in fiscal 1999. As a percentage
of net sales, these expenses decreased to 28.1% of sales in fiscal 2000, as
compared to 29.0% in fiscal 1999. Fiscal 1999 expenses included a non-recurring
$3.3 million success fee obligation paid to two of our officers in connection
with their assistance in connection with the acquisition of the business of G&G
Shops, as well as a $1.0 million royalty charge from Petrie Retail for the use
of certain trademarks which were owned by Petrie Retail. We purchased these
trademarks in connection with the acquisition. Fiscal 2000 expenses reflects
additional selling costs related to new store openings, an increase in same
store selling expenses and an increase in administrative costs which is
partially offset by a gain from insurance proceeds received in the second
quarter from a prior year hurricane loss of approximately $300,000.

         Depreciation and amortization expense for fiscal 2000 was $11.8
million. Depreciation and amortization expense for the period February 1, 1998
to August 28, 1998, and for the period August 29, 1998 to January 30, 1999 was
$2.8 million and $5.1 million, respectively. The increase is mainly attributable
to the additional depreciation and amortization related to the incremental value
assigned to the property and equipment and goodwill related to the acquisition.
Additional depreciation and amortization was recorded in fiscal 2000 for stores
opened in that period.

         Net interest expense in fiscal 2000 was $13.0 million or 4.1% of net
sales, as compared to $7.4 million or 5.6% of net sales for the period August
29, 1998 to January 30, 1999. We had no borrowings for the period February 1,
1998 to August 28, 1998. The period August 29, 1998 to January 30, 1999 and the
period January 31, 1999 through May 17, 1999 reflect interest on our senior
bridge notes and amortization of the related issuance costs. The period May 18,
1999 through January 29, 2000 reflects interest on our senior notes and the
amortization of the $7.3 million original issue discount, the $470,000 value
assigned to the warrants issued by Holdings and deferred financing costs. In
fiscal 1999, we wrote-off deferred financing costs of approximately $390,000 in
connection with the termination and replacement of our previous working capital
facility.

         The income tax expense for fiscal 2000 was $3.4 million, excluding
$354,000 of income tax benefit from the extraordinary loss. The income tax
expense was $1.9 million and $1.6 million, respectively, for the period February
1, 1998 to August 28, 1998 and the period August 29, 1998 to January 30, 1999.
The effective income tax rate for fiscal 2000 was 42.6% as compared to 41.2% for
the period February 1, 1998 to August 28, 1998 and 43.9% for the period August
29, 1998 to January 30, 1999. The lower tax rate in fiscal 2000 as compared to
the period August 29, 1998 to January 30, 1999 was due the mix of income between
U.S. and foreign sources.


                                       16




<PAGE>



         The extraordinary loss of $450,000, net of $354,000 of income taxes,
resulted from the write-off of the unamortized finance fees related to our
senior bridge notes. These senior bridge notes were repaid in the second quarter
of fiscal 2000 with the proceeds from the issuance of our senior notes.

         Net income was $4.2 million in fiscal 2000. Net income was $2.7 million
and $2.0 million for the seven months ended August 28, 1998 and the five months
ended January 30, 1999. The difference was caused by factors discussed above.

Liquidity and Capital Resources

         Our primary sources of liquidity are cash flow from operating
activities and borrowings under our revolving credit facility. Our primary cash
requirements are for (i) seasonal working capital, (ii) the construction of new
stores, (iii) the remodeling or upgrading of existing stores and (iv) upgrading
and maintaining computer systems.

         On May 2, 2001, we replaced our revolving credit facility with a new
three-year facility that provides for a line of credit in an amount of up to
$30.0 million (including a sublimit of $10.0 million for letters of credit). We
may use the revolving credit facility for general operating, working capital and
other proper corporate purposes. Amounts available under the revolving credit
facility are subject to the value of our eligible inventory and credit card
receivables subject to certain conditions. The borrowing base provides for
seasonal fluctuations in inventory with peak borrowing availability during the
months July through November. Interest on outstanding borrowings can range
either from prime to prime plus .25% or from 1.50% over the Eurodollar Rate to a
maximum 2.25% over the Eurodollar rate, based on the profitability and amount of
indebtedness of the Company. The revolving credit facility subjects us to a
minimum net worth covenant (as defined) of $40.0 million and contains other
customary restrictive covenants. Our obligations under the revolving credit
facility are secured by a lien on all or substantially all of our assets,
excluding our leasehold interests. As of February 3, 2001, under the revolving
credit facility then in place, we had no borrowings outstanding, but had
approximately $412,500 of letters of credit outstanding.

         Net cash provided by operating activities in fiscal 2001 was $18.9
million, as compared to $20.6 million in fiscal 2000. The decrease in net cash
provided by operating activities in fiscal 2001, as compared to fiscal 2000, was
due to the net loss in fiscal 2001, an increase in inventory of $2.5 million,
offset by an $8.9 million increase in accrued expenses and accounts payable.

         Capital expenditures for fiscal 2001, 2000 and 1999 were $26.3 million,
$20.6 million and $6.2 million respectively. Capital expenditures were limited
for the period February 1, 1998 to August 28, 1998 due to liquidity problems at
Petrie Retail. For fiscal 2002, management estimates capital expenditures will
be between $16.0 million and $18.0 million.

         We have an agreement from a lending institution for $6.5 million of
capital lease financing for the purchase of the point of sale equipment and
software. The lease provides for monthly payments that depend on the amount of
equipment leased. The lease terms include variable interest rates based on the
purchase date and leases expire five years from the date of the initial
equipment financed. As of February 3, 2001, $6.0 million of lease financing was
incurred under this arrangement and the balance of the capital lease line will
be used in fiscal 2002. The capital lease obligation outstanding as of February
3, 2001 was $5.2 million.


                                       17




<PAGE>



         We review the operating performance of our stores on an ongoing basis
to determine which stores, if any, to expand or close. We closed eight stores in
fiscal 1999, fourteen stores in fiscal 2000 and nineteen stores in fiscal 2001.

         As of February 3, 2001, we had $14.6 million in cash. We historically
have maintained negligible accounts receivable balances since our customers
primarily pay for their purchases with cash, checks and third-party credit cards
which are promptly converted to cash.

         On May 17, 1999, we and Holdings completed a private placement of an
aggregate of $107.0 million face amount of outstanding notes issued by us and
warrants issued by Holdings to purchase 8,209 shares of nonvoting Class D Common
Stock at an exercise price of $.01 per share. The net proceeds from this private
placement were $93.9 million, after deducting the original issue discount of
$7.3 million and fees of $5.8 million. We used the net proceeds to repay the
senior bridge notes and for general corporate purposes. On November 2, 1999, our
privately placed notes were exchanged for notes that are freely tradable. At
February 3, 2001, our indebtedness under our senior notes totaled $100.6
million, which reflects the aggregate face amount of the senior notes of $107.0
million, net of $6.1 of unamortized original issue discount, and approximately
$355,000 of unamortized value assigned to the warrants issued by Holdings. The
interest on the senior notes is 11% per annum, payable semi-annually.

         We have minimum annual rental commitments of approximately $26.0
million in fiscal 2002 under existing store leases and the leases for our
corporate headquarters and distribution center.

         We believe that our cash flow from operating activities, cash on hand
and borrowings available under the revolving credit facility will be sufficient
to meet our operating and capital expenditure requirements through the end of
fiscal 2002. In addition, we believe that cash flow from operations will be
sufficient to cover the interest expense arising from the revolving credit
facility, our capitalized lease and our long-term debt. However, the sufficiency
of our cash flow is affected by numerous factors affecting our operations,
including factors beyond our control. As of February 3, 2001, we had negative
working capital of $2.4 million

         If a "change of control" (as defined in the indenture agreement for our
senior notes) occurs, we will be required under the indenture to offer to
repurchase all our notes. However, we may not have sufficient funds at the time
of the change of control to make the required repurchases, or restrictions in
our revolving credit facility may prohibit the repurchases. We may not be able
to raise enough money to finance the change of control offer required by the
indenture related to the senior notes. If there is a change in control, we could
be in default under the indenture. In addition, upon a change of control, our
parent company may not have sufficient funds to redeem its preferred stock
unless we pay a dividend of such amount to it.

Seasonality and Quarterly Operating Results

         Our fourth fiscal quarter historically accounts for the largest
percentage of our annual net sales. Our first fiscal quarter historically
accounts for the smallest percentage of annual net sales. In fiscal 2001, our
fourth quarter accounted for approximately 32.5% of annual net sales, as
compared to 28.6% in fiscal 2000.

         Our quarterly results of operations may also fluctuate significantly as
a result of a variety of factors, including the timing of store openings, the
amount of revenue contributed by new stores, changes in the mix of products
sold, the timing and level of mark-downs, the timing of store closings and
expansions, competitive factors and general economic conditions.


                                       18




<PAGE>



Inflation

         We do not believe that inflation has had a material effect on the
results of operations during the past three fiscal years. However, our business
may be affected by inflation in the future.

Recently Issued Accounting Pronouncements

         In June 1998, the FASB issued SFAS No. 133 ("Statement 133"),
Accounting for Derivative Instruments and Hedging Activities. This Statement
requires that all derivatives be recorded in the balance sheet as either an
asset or liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company will be required to adopt
Statement 133, as amended by Statement No. 137, which defers the effective date,
as of January 1, 2001. The provisions of this statement shall not be applied
retroactively to financial statements of prior periods. Because of the Company's
minimal use of derivatives, management does not anticipate the adoption of the
new Statement will have a significant effect on earnings or the financial
position of the Company.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

         Not applicable.

Item 8.  Financial Statements and Supplementary Data.

         Our Consolidated Financial Statements are included in this report
immediately following Part IV.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

         Not applicable.


                                    19




<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

         Our directors and executive officers are:

<TABLE>
<CAPTION>
Name                            Age    Position
----                            ---    --------
<S>                             <C>    <C>
Jay Galin                       65     Chairman of the Board of Directors and Chief Executive Officer
Scott Galin                     42     President, Chief Operating Officer and Director
Craig Cogut                     47     Director
Donald D. Shack                 72     Director
Lenard B. Tessler               48     Director
Michael Kaplan                  47     Senior Vice President, Chief Financial Officer, Treasurer and Secretary
James R. Dodd                   59     Senior Vice President Store Operations
Robert W. Tinbergen             53     Senior Vice President Merchandise Planning and Distribution
Jeffrey Galin                   39     Senior Vice President/Merchandise Manager
</TABLE>

Biographical Information

         Jay Galin worked for G&G Shops for over 40 years and served as
President of G&G Shops from 1972 to August 1998. He became our Chairman of the
Board and Chief Executive Officer in August 1998. Mr. Galin also served as
Senior Vice President of Petrie Retail from 1981 to 1990 and Executive Vice
President of Petrie Retail from 1990 to 1995. Mr. Galin served as a board member
of Petrie Stores, Petrie Retail's predecessor, from 1980 to 1995 and is a member
of the Board of Directors of Ark Restaurants Corp. Mr. Galin is the father of
Scott Galin and Jeffrey Galin.

         Scott Galin worked for G&G Shops for over 20 years and served as
Executive Vice President and Chief Operating Officer of G&G Shops from 1992 to
August 1998. He became our President, Chief Operating Officer and a director in
August 1998. From 1985 to 1992, Mr. Galin served as a Senior Vice President of
G&G Shops and held executive positions in real estate, finance and store
operations. Mr. Galin also served as Senior Vice President of Petrie Retail from
1985 to 1995. Scott Galin is the son of Jay Galin and the brother of Jeffrey
Galin.

         Craig Cogut is a senior founding principal of Pegasus Capital Advisors,
L.P., which, with its affiliates, manages approximately $800 million in equity
capital. Pegasus' first investment partnership was formed in August 1996. He
joined our Board of directors in August 1998 and was our President from July
1998 to August 1998. From 1990 to 1995, Mr. Cogut was a senior principal of
Apollo Advisors, L.P. and Lion Advisors, L.P., partnerships which managed
several billion dollars of equity capital for investment partnerships and
private accounts. Mr. Cogut serves as a member of the Board of Directors of Vail
Resorts, Inc.

         Donald D. Shack is a founding member of the law firm of Shack Siegel
Katz Flaherty & Goodman, P.C., general counsel to G+G Retail and Holdings. He
joined our Board of directors in August 1998. Before the formation of Shack
Siegel Katz Flaherty & Goodman, P.C. in April 1993, Mr. Shack was a member of
the law firm of Whitman & Ransom from 1990 to 1993 and a member of the law firm
of Golenbock & Barell from 1959 to 1989. Mr. Shack is a member of the Board of
Directors of Ark Restaurants Corp., Just Toys, Inc. and International Citrus,
Inc.

                                       20




<PAGE>


         Lenard B. Tessler is a founding principal of TGV Partners, a private
investment partnership which was formed in April 1990. He joined our Board of
Directors in August 1998. Mr. Tessler served as Chairman of the Board of Empire
Kosher Poultry from 1994 to 1997, after serving as its President and Chief
Executive Officer from 1992 to 1994. Before founding TGV Partners, Mr. Tessler
was a founding partner of Levine, Tessler, Leichtman & Co., a leveraged buyout
firm formed in 1987. Mr. Tessler serves as a member of the Board of Directors of
Opinion Research Corporation, Inc.

         Michael Kaplan served as Vice President and Chief Financial Officer of
G&G Shops from 1988 to August 1998. He became our Vice President, Chief
Financial Officer, Treasurer and Secretary in August 1998 and Senior Vice
President in October 1999. Mr. Kaplan is a certified public accountant and from
1976 to 1980 held various auditing positions with Ernst & Young LLP.

         James R. Dodd has worked in the apparel industry for over 30 years. He
served as Vice President of Store Operations of G&G Shops from April 1998 to
August 1998. He became our Vice President Store Operations in August 1998 and
Sr. Vice President Store Operations in October 1999. From July 1995 to May 1998,
he was Vice President--Retail Division for JH Collectibles in Milwaukee,
Wisconsin. On October 4, 1996, JH Collectibles filed a voluntary petition
pursuant to Chapter 11 of the United States Bankruptcy Code with the United
States Bankruptcy Court. As of March 31, 1999, the plan of liquidation for that
company was substantially consummated. From 1994 to May 1995, Mr. Dodd was Vice
President of Operations for Tommy Hilfiger.

         Robert W. Tinbergen has worked in the apparel industry for over 25
years. He served as Vice President of Planning and Distribution of G&G Shops
from March 1988 to August 1998. He became our Vice President Merchandise
Planning and Distribution in August 1998 and Senior Vice President Merchandise
Planning and Distribution in October 1999. From 1982 to 1987, he served as
director of distribution for Orbachs.

         Jeffrey Galin served as divisional merchandise manager of G&G Shops
from 1991 to August 1998. He became our Vice President Merchandising in August
1998 and Senior Vice President/Merchandise Manager in October 1999. From 1989 to
1991, Mr. Galin was employed as a sales associate for Bergdorf Goodman. From
1985 to 1988, Mr. Galin worked as a commercial real estate salesperson. Mr.
Galin started his career as an associate buyer for G&G Shops from 1983 to 1984.
Jeffrey Galin is the son of Jay Galin and the brother of Scott Galin.

         Our executive officers were elected to serve in their capacities until
the next annual meeting of our Board of Directors and until their respective
successors are elected and qualified. We employ Jay Galin and Scott Galin under
employment agreements. See "Item 11. Executive Compensation--Employment
Contracts and Severance Agreements."

         All of our executive officers were also executive officers of G&G Shops
prior to the acquisition. In addition, Jay and Scott Galin were executive
officers of Petrie Retail. In October 1995, Petrie Retail and its affiliates,
including G&G Shops, filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code. In August 1998, we purchased the assets of
G&G Shops from these companies.

Board of Directors

         Under the certificate of incorporation of Holdings, so long as Holdings
controls us, Holdings is required to cause our Board of directors to be
identical to its board of directors. The board of directors of Holdings and, as
a result, our board of directors each consists of five members. All of our
Directors hold office until the next annual meeting of stockholders and until
their successors are duly elected and

                                       21




<PAGE>


qualified. Holders of class A common stock of Holdings are currently entitled to
elect three directors, and holders of class B common stock of Holdings are
currently entitled to elect two directors. Messrs. Jay and Scott Galin and Mr.
Shack were elected to the Board of Directors of Holdings by the holders of class
A common stock of Holdings. Mr. Cogut and Mr. Tessler were elected to the Board
of Directors of Holdings by the holders of class B common stock. As of May 1,
2001, Jay and Scott Galin collectively owned, assuming the exercise of their
vested stock options, approximately 83.6% of the outstanding class A common
stock of Holdings. Affiliates of Pegasus Investors owned 100% of the class B
common stock of Holdings. See "Item 12. Security Ownership of Certain Beneficial
Owners and Management." See "Item 13. Certain Relationships and Related
Transactions" for descriptions of agreements relating to the stock ownership and
management of our business.

         Holders of class A common stock of Holdings will be entitled to elect
two of our directors, and holders of class B common stock of Holdings will be
entitled to elect three of our directors, upon the occurrence of any of the
following events:

         o    the consolidated earnings of Holdings before interest, taxes,
              depreciation and amortization for the most recent 12 full months
              being less than $15.0 million;

         o    the occurrence of defaults under any debt facilities of G+G Retail
              or Holdings;

         o    termination of the employment of either of Jay Galin or Scott
              Galin by us for cause or by either of them without good reason, as
              these terms are defined in each executive's employment agreement;
              or

         o    the failure of Holdings to perform specified obligations to the
              holders of its series B preferred stock.

         From and after the time that there are no longer any shares of the
class B, class C or class D common stock of Holdings outstanding, the Board of
Directors of Holdings will be elected at each annual meeting of stockholders by
a plurality of the votes cast by holders of the class A common stock of
Holdings.

         Under an agreement dated August 28, 1998 among Pegasus Investors, G+G
Retail, Pegasus Partners, L.P. and Pegasus Related Partners, L.P., the Pegasus
entities agreed that they will elect Lenard Tessler as a director of G+G Retail
and Holdings, for as long as:

         o    TGV/G+G Investors LLC, an affiliate of TGV Partners of which
              Lenard Tessler is a principal, is a limited partner of Pegasus G&G
              Retail; and

         o    the Pegasus entities have the power to elect at least two
              Directors to the Board of Directors of Holdings.

         In the event that Lenard Tessler votes, or after inquiry indicates his
intention to vote, on any issue brought before the Board of Directors of
Holdings differently than the other director elected by the Pegasus entities,
then the obligation of the Pegasus entities to elect Lenard Tessler to the Board
of Directors of Holdings will terminate, Mr. Tessler will immediately resign
from our Board of Directors and from the Board of Directors of Holdings, and the
Pegasus entities will be entitled to elect a new director to replace Mr.
Tessler. In this event, the Pegasus entities will appoint Mr. Tessler or another
individual acceptable to the Pegasus entities as an observer at meetings of the
Board of Directors of Holdings until the time that their obligation to elect Mr.
Tessler as a director would otherwise have terminated.

                                       22




<PAGE>


Item 11. Executive Compensation

         The table below contains information on the fiscal 1999, 2000 and 2001
compensation for services to us and G&G Shops by the individuals who served as
our chief executive officer and our four next most highly compensated executive
officers at the end of fiscal 2000. Fiscal 1999 compensation includes
compensation from February 1, 1998 to August 28, 1998 from G&G Shops. In
connection with the acquisition, each of these executive officers terminated his
employment with G&G Shops and became our officer.


                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                    Annual Compensation                  Long-Term Compensation
                                           ---------------------------------------      -------------------------
                                                                                          Shares
                                                                      Other Annual      Underlying    All Other
Name and Principal Position        Year    Salary(1)      Bonus       Compensation       Options(#)  Compensation
---------------------------        ----    ---------      -----       ------------      -----------  ------------
<S>                                <C>    <C>          <C>             <C>                 <C>      <C>

Jay Galin
   Chairman of the Board of        2001   $1,085,417   $   65,125            --              --     $   25,800
   Directors and Chief Executive   2000    1,060,417      212,083            --             2,500       23,246
   Officer                         1999    1,116,666         --         $140,655(2)          --      1,665,460(3)

Scott Galin                        2001   $  835,417   $   38,125            --              --     $   25,800
   President, Chief Operating      2000      535,417      107,083            --             2,500       23,246
   Officer and Director            1999      502,884         --         $142,948(2)          --      1,665,460(3)

Michael Kaplan
   Sr. Vice President, Chief       2001   $  281,004   $   17,529            --              --     $   20,600
   Financial Officer, Treasurer    2000      268,006       53,600            --               200       19,182
   and Secretary                   1999      259,325       26,500(4)         --              --         11,401

Jeffrey Galin                      2001   $  220,385   $   13,749            --              --     $   17,100
   Sr. Vice President              2000      208,462       41,692            --               150       16,499
   Merchandise Manager             1999      194,326       20,500(4)         --              --          8,718

James Dodd                         2001   $  211,442   $   13,200            --              --     $   20,600
   Sr. Vice President              2000      200,000       40,000            --               150       19,182
   Store Operations                1999      128,402       20,000(4)         --              --          3,044
</TABLE>
----------

(1)  For fiscal 1999, $679,166 of Jay Galin's salary, $274,519 of Scott Galin's
     salary, $143,654 of Mr. Kaplan's salary, $109,615 of Jeffrey Galin's salary
     and $62,633 of Mr. Dodd's salary was paid by G&G Shops prior to the
     acquisition.

(2)  Represents personal legal fees and disbursements reimbursed in connection
     with the acquisition.

(3)  Includes a success fee equal to $1,378,000 in cash and a note payable by us
     in the amount of $272,000 for each of Jay and Scott Galin's assistance in
     the sale of the junior apparel retail business of G&G Shops before the
     acquisition. See "Item 13. Certain Relationships and Related
     Transactions--Purchase of Stock in Holdings; Success Fees; Loans from
     Holdings."

(4)  Reflects a retention bonus earned during fiscal 1999 and prior fiscal years
     during which the companies from which we acquired our business operated
     under the protection of Chapter 11 of the United States Bankruptcy Code.
     These bonuses were paid on or about March 15, 1999.


         The figures in the column "All Other Compensation" include premiums
paid under our executive medical reimbursement plan. The plan, which is
available to full-time employees at or above the assistant director level,
reimburses covered employees for medical, dental, vision and deductible expenses
not covered by our primary healthcare plan, which is available to all of our
full-time employees. The premiums paid under the plan for the following officers
in 2001, 2000 and 1999, respectively, were: Jay Galin $10,500, $8,123 and
$8,118; Scott Galin $10,500, $8,123 and $8,118; Mr. Kaplan $5,300, $4,059 and
$4,059; Jeffrey Galin $1,800, $1,376 and $1,376; and Mr. Dodd $5,300, $4,059 and
$3,044. Also includes contributions to the G+G Retirement Plan and Trust made
for the benefit of the following officers in 2001, 2000 and 1999, respectively,
as follows: Jay Galin $15,300, $15,123 and

                                       23




<PAGE>


$7,342; Scott Galin $15,300, $15,123 and $7,342; Mr. Kaplan $15,300, $15,123 and
$7,342; Jeffrey Galin $15,300, $15,123 and $7,342; and Mr. Dodd $15,300 $15,123
and $ 0.

         The following table sets forth certain information about the exercise
of options to purchase the class A common stock of Holdings and the number and
value of outstanding options owned by persons named in the Summary Compensation
Table.

                 Aggregate Option Exercises in Last Fiscal Year
                        and Fiscal-year-end Option Values

<TABLE>
<CAPTION>
                                                                                            Value of
                                                                Shares Underlying         Unexercised
                                                                   Unexercised            In-the-Money
                                                                    Options at             Options at
                                                                   02/03/01(#)             02/03/01($)
                     Shares Acquired on          Value              Exercisable/          Exercisable/
Name                    Exercise(#)           Realized($)         Unexercisable          Unexercisable
----------------     -----------------        -----------         --------------        ---------------
<S>                        <C>                   <C>              <C>                         <C>
Jay Galin                    0                     0               1,875/625                   0/0
Scott Galin                  0                     0               1,875/625                   0/0
Michael Kaplan               0                     0                  66/134                   0/0
Jeffrey Galin                0                     0                  50/100                   0/0
James Dodd                   0                     0                  50/100                   0/0

</TABLE>

Stock Option Plan of Holdings

         Effective as of March 15, 1999, Holdings adopted a stock option plan
providing for the granting of options to purchase up to 7,000 shares of its
class A common stock to its employees and employees of its subsidiaries. This
option plan is administered by the Board of Directors of Holdings, which is
authorized under the plan to grant incentive stock options and non-qualified
stock options.

         Effective as of March 15, 1999, Holdings granted non-qualified options
under the plan to each of Jay Galin and Scott Galin to purchase 2,500 shares of
its class A common stock, of which 3,750 are currently exercisable. Effective as
of October 19, 1999, Holdings granted an aggregate of 2,000 non-qualified
options under its option plan to various employees, of which 667 are currently
exercisable. The exercise price of each of the options is $300 per share, and
each option has a term of 10 years. The exercise price of the options exceeded
the fair market value of Holdings stock on the date of grant. The stock options
are non-transferable other than by a will or the laws of descent and
distribution, unless the Board of Directors of Holdings permits transfer and the
transfer is described in the option instrument.

         This option plan automatically terminates on March 14, 2009, unless the
Board of Directors of Holdings terminates it earlier. Termination of the option
plan will not terminate any option that was granted before termination.

Employment Contracts and Severance Agreements

         We employ Jay Galin as the Chairman of our Board and our Chief
Executive Officer under an employment agreement, as amended, that expires on
August 28, 2003. Under his employment agreement, Mr. Galin is currently
receiving a base salary of $1,100,000 per year, which increases by $25,000
annually. Mr. Galin is also entitled to receive a bonus under our bonus plan for
senior management employees. See "--Our Bonus Plan." At any time during the term
of his employment agreement, Mr. Galin may, upon three

                                       24




<PAGE>


months' prior written notice to us, terminate his employment agreement and enter
into a three-year consulting agreement with us. The consulting agreement would
require Mr. Galin to provide consulting services to us for up to half normal
working time, in exchange for annual consulting fees equal to one-half of his
annual salary at the time of termination of his employment agreement.

         We employ Scott Galin as our President and Chief Operating Officer
under an employment agreement, as amended, that expires on August 28, 2003.
Under his employment agreement, Mr. Galin is currently receiving a base salary
of $850,000 per year, which increases by $25,000 annually. Scott Galin is also
entitled to receive a bonus under our bonus plan for senior management
employees. See "--Our Bonus Plan." In addition, in the event that Jay Galin's
employment is terminated for any reason, including the exercise of his
consulting option described above, Scott Galin will serve as our chief executive
officer for the remaining term of his employment agreement.

         If we terminate the employment of Jay Galin or Scott Galin without
cause or either executive terminates his employment for good reason, as those
terms are defined in the employment agreements, each of these executives will be
entitled to receive the salary, bonus and benefits to which they would have been
entitled for the remainder of the employment term. If the employment of Jay
Galin or Scott Galin terminates upon disability, as defined in the employment
agreements, each of these executives will be entitled to receive his full salary
and benefits for one year and 50% of his salary and full benefits for an
additional six months. Upon the death of Scott Galin, we are required to pay his
designated beneficiary his salary and bonus for one year following his death. If
Jay Galin exercises his consulting option described above, his consulting
agreement will contain termination provisions similar to those contained in his
employment agreement.

         Each employment agreement also contains covenants precluding the
executive from, among other things, competing with us or soliciting our
customers or employees until the earlier of the expiration of the initial term
of the employment agreement or the date which is 18 months after the termination
of his employment with us. If Jay Galin exercises his consulting option, his
consulting agreement will contain similar covenants not to compete or solicit.

         We have also entered into separate agreements with Michael Kaplan, our
Senior Vice President and Chief Financial Officer, and Jeffrey Galin, our Senior
Vice President/Merchandise Manager, that provide for severance payments in the
event that we terminate their employment without cause, as that term is defined
in the severance agreements. These severance payments consist of the executive's
base salary for one year and, if the executive elects to continue coverage under
our medical insurance, the payment of a portion of the premiums for such
insurance equal to the portion which would have been paid had he remained in our
employ for up to one year.

Our Bonus Plan

         Our Board of Directors adopted a bonus plan for senior management
employees that became effective on February 2, 1999. Participants in the bonus
plan include Jay Galin, Scott Galin and other selected members of our senior
management. Under the bonus plan, participants are eligible to receive annual
cash bonuses in addition to their base salaries.

         The payment of bonus awards for each fiscal year is based upon our
financial performance for the fiscal year measured by our earnings before
interest, taxes, depreciation and amortization for that fiscal year. The bonus
plan provides for several performance levels, each based on:

         o    a percentage of our projected earnings before interest, taxes,
              depreciation and amortization for the relevant fiscal year
              established by our Board of Directors; and

                                       25




<PAGE>


         o    the dollar amount of bonuses payable to participants in the bonus
              plan for the relevant fiscal year at the performance level.

         The dollar amount of bonus awards is based on a percentage of each
participant's base salary based on the performance level that we achieve. The
bonus plan is administered by our Board of Directors. The bonus plan may be
amended or terminated at any time upon the recommendation of the Chairman of our
Board and Chief Executive Officer and our President and Chief Operating Officer.

Compensation of Our Directors

         As of the date of this report, our directors do not receive any
compensation for their services as directors.

Compensation Committee Interlocks and Insider Participation

         Our Board of Directors does not have a compensation committee.
Executive officer compensation is determined by the full Board of Directors
which includes Jay Galin our Chairman and Chief Executive Officer and Scott
Galin, our President and Chief Operating Officer.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Holdings owns all of our outstanding capital stock. Holdings has four
authorized classes of common stock: class A, class B, class C and class D. We
and Holdings are prohibited from taking certain actions without the affirmative
vote or written consent of holders of a majority of the issued and outstanding
shares of class B common stock. Restricted actions include, among others:

         o    issuance or redemption of securities;

         o    incurrence of indebtedness in excess of specified amounts;

         o    effecting a liquidation or sale of the business of G+G Retail or
              Holdings; or

         o    initiating a public offering, subject to limited exceptions.

         Except as required by the Delaware General Corporation Law, holders of
class C and class D common stock do not have any voting rights. After the
completion of a public offering, if at least 20% of the common stock of Holdings
is listed or admitted for trading on a national securities exchange or quoted on
the Nasdaq National Market, each share of class B, class C and class D common
stock then issued and outstanding will automatically convert into one share of
class A common stock.

         Holdings has two series of preferred stock outstanding. Holders of
series A preferred stock are entitled to receive dividends at an annual rate of
15%, increasing to 17% if the triggering events specified in the certificate of
incorporation of Holdings occur. Holdings is prohibited from taking specified
actions without the affirmative vote or written consent of a majority of the
holders of series A preferred stock. Otherwise, except as required by the
Delaware General Corporation Law, holders of series A preferred stock do not
have any voting rights. Series A preferred stock is exchangeable at the option
of Holdings for notes containing similar terms. Holders of series B preferred
stock are entitled to receive dividends at an annual rate of 17%. Except as
required by the Delaware General Corporation Law, holders of series B preferred
stock do not have any voting rights. The shares of series B preferred stock are
exchangeable at the option of Holdings for notes containing similar terms.

         The following table contains information about the beneficial ownership
of Holdings capital stock as of May 1, 2001, including ownership by:

                                       26



<PAGE>


         o    each person known to us to beneficially own more than 5% of the
              outstanding voting securities of Holdings;

         o    each of our directors;

         o    each of our five most highly compensated executive officers; and

         o    all of our directors and executive officers as a group.


<TABLE>
<CAPTION>
                                                                Percent
                                                   Percentage   of Vote
                                                   Ownership    of all       Number of   Percentage   Number of   Percentage
                                       Number of     of all     Classes      Shares of  Ownership of  Shares of    Ownership
                                       Shares of   Classes of  of Voting     Series A     Series A    Series B    of Series B
                                        Common       Common      Common      Preferred   Preferred   Preferred     Preferred
Name of Beneficial Owner                 Stock        Stock       Stock        Stock       Stock       Stock         Stock
------------------------                --------    --------    ---------    ---------    ----------  --------     -------
<S>                                     <C>            <C>         <C>         <C>         <C>         <C>           <C>
Pegasus Related Partners, L.P.          26,723(1)      39.4%       25.2%        --           --         20,913        49.4%
Paul Gunther, as Liquidating Trustee
  under Liquidating Trust Agreement
  dated as of December 18, 1998         15,000(2)      30.0%          --        --           --             --           --
Cerberus G&G Company, L.L.C.            14,000(3)      21.9%          --      25,323        100%            --           --
Pegasus G&G Retail, L.P.                11,924(4)      20.6%       11.4%        --           --          9,460        22.3%
Pegasus Partners, L.P.                  10,276(5)      18.1%        9.7%        --           --          8,041        19.0%
Jay Galin                                8,715(6)      16.8%       23.6%        --           --             --           --
Scott Galin                              8,715(6)      16.8%       23.6%        --           --             --           --
Pegasus G&G Retail II, L.P.              4,977(7)       9.3%        4.8%        --           --          3,950         9.3%
Donald D. Shack                             20(8)       *           *           --           --             --           --
Craig Cogut                             53,900(9)      62.7%       51.1%        --           --         42,364         100%
Lenard Tessler                              --            --          --        --           --             --           --
Michael Kaplan                             741(10)      1.5%        2.1%        --           --             --           --
Jeffrey Galin                            1,470(11)      2.9%        4.2%        --           --             --           --
Robert Tinbergen                           175(12)      *           *           --           --             --           --
James R. Dodd                              200(13)      *           *           --           --             --           --
All directors and executives
  officers as a group (9 individuals)   73,436(14)     70.8%       96.2%        --           --         42,364         100%
</TABLE>

------------------------
         *    Less than 1%.

         (1)  Includes 8,837 class B shares, representing 49.4% of the
              outstanding class B shares and warrants to purchase 17,886.14
              class D shares. The address of this stockholder is 99 River Road,
              Cos Cob, Connecticut 06807.

         (2)  100% of the outstanding class C shares. These were issued to G&G
              Shops in connection with the acquisition and transferred to the
              liquidating trustee in the bankruptcy proceedings for Petrie
              Retail and its subsidiaries. The address of this stockholder is
              Franklin 145 Corp., c/o Paul Gunther.

         (3)  Warrants to purchase class D shares. The address of this
              stockholder is c/o Cerberus Partners, 450 Park Avenue, 28th Floor,
              New York, New York 10022.

         (4)  Includes 3,997 class B shares, representing 22.3% of the
              outstanding class B shares, and warrants to purchase 7,927 class D
              shares. The address of this stockholder is c/o Pegasus Investors,
              L.P., 99 River Road, Cos Cob, Connecticut 06807.

         (5)  Includes 3,398 class B shares, representing 19.0% of the
              outstanding class B shares, and warrants to purchase 6,878 class D
              shares. The address of this stockholder is c/o Pegasus Investors,
              L.P., 99 River Road, Cos Cob, Connecticut 06807.

         (6)  45.9% beneficial interest in the class A shares. Includes vested
              options to purchase 1,875 class A shares. The address of this
              stockholder is c/o G+G Retail, Inc., 520 Eighth Avenue, New York,
              New York 10018.

                                       27




<PAGE>



         (7)  Includes 1,668 class B shares, representing 9.3% of the
              outstanding class B shares, and warrants to purchase 3,309 shares
              of class D common stock. The address of this stockholder is c/o
              Pegasus Investors, L.P., 99 River Road, Cos Cob, Connecticut
              06807.

         (8)  Class A common stock.

         (9)  Mr. Cogut may be deemed to own beneficially 17,900 (100%) of the
              class B shares, warrants to purchase 36,000 (72.0%) class D shares
              and 42,364 (100%) shares of series B preferred stock through his
              indirect ownership interest in Pegasus Partners, L.P., Pegasus
              Related Partners, L.P., Pegasus G&G Retail, L.P. and Pegasus G&G
              Retail II, L.P. Mr. Cogut beneficially owns 100% of the issued and
              outstanding capital stock of Pegasus Investors GP, Inc., a
              Delaware corporation that is the general partner of Pegasus
              Investors. Pegasus Investors is the general partner of each of
              Pegasus Partners and Pegasus Related Partners. Pegasus Partners
              and Pegasus Related Partners collectively own 100% of the issued
              and outstanding capital stock of Pegasus G&G Retail GP, Inc., a
              Delaware corporation that is the general partner of each of
              Pegasus G&G Retail and Pegasus G&G Retail II. The address of this
              stockholder is c/o Pegasus Investors, L.P., 99 River Road, Cos
              Cob, Connecticut 06807.

         (10) Represents 4.3% of the outstanding class A shares.

         (11) Represents 8.6% of the outstanding class A shares.

         (12) Represents 1.0% of the outstanding class A shares.

         (13) Represents 1.0% of the outstanding class A shares.

         (14) Includes the shares beneficially owned by Mr. Cogut, as described
              in note (9) above, an aggregate of 36,000 warrants to purchase
              class D shares and 3,941 vested options to purchase class A
              shares.

Item 13.  Certain Relationships and Related Transactions

         Donald D. Shack, a member of our Board of Directors, is a shareholder
and a director of the law firm of Shack Siegel Katz Flaherty & Goodman, P.C., to
which our company paid $748,570 in legal fees in calendar year 2000.

         From January 30, 2000 to May 1, 2001, Pegasus Related Partners, L.P.,
Pegasus G+G Retail, L.P., Pegasus Partners L.P., and Pegasus G+G Retail, II,
L.P., each affiliates of Pegasus Investors, have received in the aggregate an
additional 7,543,602 shares of series B preferred stock of Holdings as dividends
on series B preferred stock that they hold. The class B common stock of Holdings
owned by the affiliates of Pegasus Investors represents approximately 51.1% of
the voting common equity of Holdings outstanding on May 1, 2001, or 45.4%,
assuming the exercise of stock options that were exercisable as of May 1, 2001.
As a result of their ownership of Holdings, the affiliates of Pegasus Investors
have the ability to determine the outcome of most corporate actions that are
required to be submitted to Holdings stockholders, other than, currently, the
election of a majority of the Board of Directors of Holdings. In addition, as
holders of class B common stock of Holdings, the affiliates of Pegasus Investors
have special veto rights, which allow them to control the timing and occurrence
of a number of major corporate transactions by us and Holdings. Craig Cogut, a
director of our company and of Holdings, has a 100% indirect ownership interest
in each of the affiliates of Pegasus Investors. Lenard Tessler, a director of
G+G Retail and Holdings, is a principal of TGV Partners. TGV Partners and its
affiliates hold limited partnership interests in Pegasus G&G Retail and Pegasus
G&G Retail II. Pegasus G&G Retail and Pegasus G&G Retail II own 31.6% and 31.2%,
respectively, of the shares and warrants to purchase shares of Holdings held by
the affiliates of Pegasus Investors described above. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management." Under the limited
partnership agreement of Pegasus G&G Retail, in the event that Holdings has not
consummated an initial public offering of its common stock on or prior to August
28, 2003, TGV Partners may require Pegasus G&G Retail to exercise its demand
registration rights that are described below.

                                       28




<PAGE>


         In connection with the acquisition, some of our executive officers
purchased class A common stock including Michael Kaplan who purchased 600 shares
for a purchase price of $70,813, Jeffrey Galin who purchased 840 shares for a
purchase price of $99,138 and James Dodd who purchased 150 shares for a purchase
price of $17,703. During fiscal 2000, Mr. Kaplan purchased 75 additional shares
of class A common stock for a purchase price of $8,852. To fund their purchases
of stock, each of these officers borrowed from Holdings, on a full recourse
basis, the total purchase price of the stock purchased, less the $0.001 par
value of the stock that was paid in cash. The total principal amount of each
officer's loan is due on the earlier of the fifth anniversary of the date of the
loan or 30 days following the date on which the officer is no longer an officer
of Holdings or any of its subsidiaries. The outstanding principal amount of each
loan bears interest at the prime rate announced in New York City by Citibank,
N.A. from time to time, payable on a quarterly basis. Each of these loans is
secured by a pledge of the purchased stock.

Stockholder Agreements

         Affiliates of Pegasus Investors are parties to a stockholders agreement
with a number of management stockholders of Holdings, including Jay and Scott
Galin. Under the stockholders agreement, each management stockholder is
prohibited from transferring class A common stock of Holdings on or before
August 28, 2002 without the consent of holders of a majority of the outstanding
class A and class B common stock, except in limited circumstances. After August
28, 2002, all transfers of class A common stock by management stockholders are
subject to a right of first refusal in favor of Holdings and the affiliates of
Pegasus Investors. In addition, if the affiliates of Pegasus Investors propose
to sell at least 80% of the common equity of Holdings that they hold, the
management stockholders may be required by the affiliates of Pegasus Investors
to sell shares of class A common stock in the same sale to the same purchaser on
the same terms. Furthermore, if one or more of the affiliates of Pegasus
Investors proposes to sell at least 5% of the common equity of Holdings, the
management stockholders will be entitled to sell the same percentage of their
shares of class A common stock in the same sale and on the same terms.

         Holdings has granted to the affiliates of Pegasus Investors preemptive
rights in connection with equity issuances by Holdings, with limited exceptions.
Holdings has also granted to the affiliates of Pegasus Investors and the
management stockholders demand and piggyback registration rights. Affiliates of
Pegasus Investors or our management stockholders who hold at least 33% of
outstanding class B common stock of Holdings are entitled to demand registration
of their shares after the consummation of a qualified public offering, which
means a public offering of a class of common stock of which at least 20% of the
then outstanding shares are publicly held and which is listed or admitted for
trading on a national securities exchange or quoted on the Nasdaq National
Market. The affiliates of Pegasus Investors who hold at least 33% of the
outstanding class B common stock of Holdings are also entitled to demand
registration of their shares beginning on August 28, 2002. Any demand
registration must be reasonably expected to yield aggregate gross proceeds of at
least $20,000,000 to the stockholders exercising their registration rights. The
affiliates of Pegasus Investors as a group are entitled to two demand
registrations, and the management stockholders as a group are entitled to one
demand registration. The affiliates of Pegasus Investors and the management
stockholders are each entitled to piggyback registration rights in connection
with any registration statement filed by Holdings, with limited exceptions.

         In addition to their rights to elect directors, under the stockholders
agreement, the affiliates of Pegasus Investors may have the right to appoint an
observer for meetings of the Board of Directors of Holdings. See "Item 10.
Directors and Executive Officers of the Registrant--Board of Directors."

         Under the stockholders agreement, if we terminate certain management
stockholder's employment for cause or if certain management stockholders
terminate their employment without good reason, each of Holdings and the
affiliates of Pegasus Investors has the right to purchase the relevant
management stockholder's shares of class A common stock of Holdings at the lower
of the management stockholder's

                                       29




<PAGE>


initial purchase price per share or the fair market value per share on the
effective date of termination. Such right to purchase Scott Galin's shares
terminates upon the earlier of the consummation of a qualified public offering
or August 28, 2003. The right to purchase shares of other management
stockholders terminates upon the consummation of a qualified public offering.

         The affiliates of Pegasus Investors and Holdings are also parties to a
stockholders agreement with us that requires us and our permitted assigns to
first offer to sell to Holdings and the affiliates of Pegasus Investors, on
specified terms, any class C common stock of Holdings that we and our permitted
assigns, as class C holders, desire to sell. If Holdings and the affiliates of
Pegasus Investors do not elect to purchase the shares, the class C holders may
sell them to a third party on terms no more favorable than the terms proposed to
Holdings and the affiliates of Pegasus Investors. If the proposed third party
purchaser is primarily in the retail apparel business but not primarily in the
girls' and/or women's retail apparel business, the class C holders must again
offer to sell the shares to Holdings and the affiliates of Pegasus Investors. If
Holdings and the affiliates of Pegasus Investors again elect not to purchase the
shares, the class C holders may sell them to the proposed third party on terms
no more favorable than the proposed terms.

         If the affiliates of Pegasus Investors propose to sell at least 50% of
the common equity of Holdings that they hold, they may require the class C
holders to sell Holdings class C common stock in the same sale to the same
purchaser on the same terms. In addition, if one or more of the affiliates of
Pegasus Investors proposes to sell at least 15% of the common equity of
Holdings, class C holders are entitled to sell the same percentage of their
class C common stock in the same sale and on the same terms.

         Class C holders are also entitled to certain demand and piggyback
registration rights. Subject to specified limitations, holders of at least 50%
of outstanding class C common stock are entitled to demand registration of their
shares following the earlier to occur of a qualified public offering or August
28, 2003. The class C holders as a group are entitled to one demand registration
and piggyback registration right in connection with any registration statement
that is filed by Holdings, with limited exceptions.

         In connection with any initial public offering by Holdings, class C
holders are entitled to include on a priority basis in the registration up to
one-third of the registrable shares that they hold, with some limitations. In
addition, Holdings may not, without the consent of holders of a majority of its
class C common stock, grant any demand or piggyback registration rights that
have priority over or are inconsistent with the registration rights granted to
class C holders.

                                       30




<PAGE>



                                     PART IV

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

         (a) (1) Financial Statements. See "Index to Financial Statements" on
page F-1.

             (2) Financial Statement Schedule. No financial statement schedules
are required under applicable SEC rules, or the required information is included
in the financial statements or notes thereto and, therefore, have been omitted.

             (3) Exhibits.

Exhibit No.      Description

2.01             Asset Purchase Agreement, dated as of July 6, 1998, among G&G
                 Shops, Inc., the subsidiaries of G&G Shops named therein, the
                 subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc.
                 and G+G Retail, Inc. (the "Acquisition Agreement"). (1)

2.02             Amendment No. 1 to the Acquisition Agreement, dated as of July
                 27, 1998. (1)

2.03             Amendment to the Acquisition Agreement, dated August 24, 1998.
                 (1)

3.01             Certificate of Incorporation of G+G Retail. (1)

3.02             Amended and Restated By-Laws of G+G Retail. (1)

4.01             Indenture, dated as of May 17, 1999, by and between G+G Retail,
                 as issuer, and U.S. Bank Trust National Association, as
                 trustee. (1)

4.02             Form of 11% Senior Note due 2006 of G+G Retail. (1)

4.03             A/B Exchange Registration Rights Agreement, dated as of May 17,
                 1999, by and between G+G Retail and U.S. Bancorp Libra. (1)

10.01            Agreement of Lease, dated November 28, 1988, between Hartz 83rd
                 Street Associates and G&G Shops of Woodbridge, Inc. (the "1988
                 Lease"). (1)

10.02            Lease Addendum, dated April 10, 1990, to the 1988 Lease. (1)

10.03            Second Lease Modification Agreement, dated February 24, 1994,
                 to the 1988 Lease(1)

10.04            Notification Letter, dated November 20, 1995, re: assignment of
                 landlord's interest under the 1988 Lease. (1)

10.05            Assignment and Assumption Agreement, dated as of August 28,
                 1998, by and among G&G Shops, the subsidiaries of G&G Shops
                 named therein, the subsidiaries of Petrie Retail named therein,
                 PSL and G+G Retail. (1)

                                       31




<PAGE>


10.06            Employment Agreement, dated as of August 28, 1998, by and
                 between G+G Retail and Jay Galin. (1)

10.07            Employment Agreement, dated as of August 28, 1998, by and
                 between G+G Retail and Scott Galin. (1)

10.08            Letter Agreement, dated October 12, 1998, by and between G+G
                 Retail and Michael Kaplan. (1)

10.09            Letter Agreement, dated October 12, 1998, by and between G+G
                 Retail and Jeffrey Galin. (1)

10.10            Amendment No. 1 to Employment Agreement, dated as of November
                 30, 1998, by and between G+G Retail and Jay Galin. (1)

10.11            Amendment No. 1 to Employment Agreement, dated as of November
                 30, 1998, by and between G+G Retail and Scott Galin. (1)

10.12            Bonus Plan for Senior Management Employees of G+G Retail,
                 effective February 2, 1999. (1)

10.13            NCR Corporation Master Agreement, effective as of February 9,
                 1999, between NCR Corporation and G+G Retail. (1)

10.14            Discount Addendum, effective as of February 26, 1999, between
                 NCR Corporation and G+G Retail. Portions of this exhibit have
                 been omitted pursuant to an order of confidential treatment
                 granted by the Securities and Exchange Commission. (1)

10.15            G&G Retail Holdings, Inc. 1999 Stock Option Plan, effective as
                 of March 15, 1999. (1)

10.16            Option Agreement, dated as of March 15, 1999, by and between
                 G&G Retail Holdings and Jay Galin. (1)

10.17            Option Agreement, dated as of March 15, 1999, by and between
                 G&G Retail Holdings and Scott Galin. (1)

10.18            Service Agreement, dated April 1, 1999, between G+G Retail and
                 G&G Retail of Puerto Rico, Inc. (1)

10.19            Master Lease Purchase Agreement, dated as of May 4, 1999, by
                 and between Chase Equipment Leasing, Inc. and G+G Retail. (1)

10.20            Addendum to Master Lease Purchase Agreement, effective as of
                 May 4, 1999, by and between Chase Equipment Leasing and G+G
                 Retail. (1)

10.21            Form of Exchange Agent Agreement between U.S. Bank Trust
                 National Association, as exchange agent, and G+G Retail. (1)

10.22            Letter agreement, dated January 18, 2000, amending Employment
                 Agreement between G+G Retail and Scott Galin. (2)


                                       32




<PAGE>



10.23            Amendment No. 2 to Employment Agreement, dated as of August 8,
                 2000, by and between Jay Galin and G+G Retail, Inc. (3)

10.24            Amendment No. 3 to Employment Agreement, dated as of January
                 22, 2001, by and between G+G Retail, Inc. and Jay Galin.

10.25            Amendment No. 3 to Employment Agreement, dated as of January
                 22, 2001, by and between G+G Retail, Inc. and Scott Galin.

21.01            Subsidiaries of G+G Retail, Inc. (1)

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

(1)  Incorporated by reference to the registration statement on Form S-4 (File
     no. 333-81307) filed by G+G Retail, Inc. on October 4, 1999.

(2)  Incorporated by reference to the annual report on Form 10-K filed by G+G
     Retail, Inc. on April 21, 2000.

(3)  Incorporated by reference to the quarterly report on Form 10-Q filed by
     G+G Retail, Inc. on September 12, 2000.

         (b) Reports on Form 8-K.

         We did not file any Reports on Form 8-K during the quarter ended
February 3, 2001.

                                       33




<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
G+G RETAIL, INC.                                                                                     Page
                                                                                                     ----
<S>                                                                                                  <C>
Report of Independent Auditors.......................................................................F-2

Consolidated Balance Sheets as of February 3, 2001 and January 29, 2000..............................F-3

Consolidated Statements of Operations for the Year ended February 3, 2001, January 29,
2000 and for the Five Months ended January 30, 1999..................................................F-4

Consolidated Statements of Stockholder's Equity for the Year ended February 3, 2001,
January 29, 2000 and for the Five Months ended January 30, 1999......................................F-5

Consolidated Statements of Cash Flows for the Year ended February 3, 2001, January 29,
2000 and for the Five Months ended January 30, 1999..................................................F-6

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


<CAPTION>
<S>                                                                                                  <C>
G&G SHOPS, INC.

Report of Independent Auditors......................................................................F-23

Combined Statement of Income for the Seven Months ended August 28, 1998.............................F-24

Combined Statement of Shareholder's Deficit for the Seven Months ended August 28, 1998..............F-25

Combined Statement of Cash Flows for the Seven Months ended August 28, 1998.........................F-26

Notes to Combined Financial Statements..............................................................F-27
</TABLE>


                                      F-1








<PAGE>


                         Report of Independent Auditors

The Board of Directors
G+G Retail, Inc.

We have audited the accompanying consolidated balance sheets of G+G Retail, Inc.
and its subsidiary (collectively, the "Company") as of February 3, 2001 and
January 29, 2000 and the related consolidated statements of operations,
stockholder's equity and cash flows for the years ended February 3, 2001 and
January 29, 2000, and the five months ended January 30, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at February 3, 2001 and January 29, 2000 and the consolidated results of
its operations and its cash flows for the years ended February 3, 2001 and
January 29, 2000, and the five months ended January 30, 1999, in conformity with
accounting principles generally accepted in the United States.

                                         /s/ Ernst & Young LLP


March 13, 2001


                                      F-2






<PAGE>


                                G+G Retail, Inc.

                           Consolidated Balance Sheets
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                           February          January
                                                                            3, 2001          29, 2000
                                                                       ------------------------------------
<S>                                                                        <C>              <C>
Assets
Current assets:
   Cash and short-term investments                                            $ 14,568        $ 19,093
   Accounts receivable                                                             866             723
   Merchandise inventories                                                      15,329          12,868
   Prepaid taxes and other expenses                                              1,771             712
   Deferred tax assets                                                             465             504
                                                                       ------------------------------------
Total current assets                                                            32,999          33,900
Property and equipment, net                                                     51,796          34,938
Intangible assets, net                                                         112,083         116,816
Deferred tax assets                                                                  -             863
Other assets                                                                       291             225
                                                                       ------------------------------------
Total assets                                                                  $197,169        $186,742
                                                                       ====================================
Liabilities and stockholder's equity
Current liabilities:
   Accounts payable                                                           $ 14,643        $  9,721
   Accrued expenses                                                             16,937          12,915
   Accrued interest                                                              2,515           2,517
   Income taxes payable                                                              -           3,250
   Current portion of capital lease                                              1,269             385
                                                                       ------------------------------------
Total current liabilities                                                       35,364          28,788
Deferred tax liability                                                           2,168               -
Capital lease                                                                    3,894           1,747
Long-term debt                                                                 100,571          99,733
                                                                       ------------------------------------
Total liabilities                                                              141,997         130,268
Commitments and contingencies
Stockholder's equity:
  Class B common stock, par value $.01 per share, 1,000 shares
    authorized, 10 shares issued and outstanding                                     -               -
   Additional paid-in capital                                                   50,298          50,298
   Retained earnings                                                             4,874           6,176
                                                                       ------------------------------------
Total stockholder's equity                                                      55,172          56,474
                                                                       ------------------------------------
Total liabilities and stockholder's equity                                    $197,169        $186,742
                                                                       ====================================
</TABLE>


See accompanying notes.


                                      F-3






<PAGE>


                                G+G Retail, Inc.

                      Consolidated Statements of Operations
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                      Year ended           Five months
                                                              ---------------------------     ended
                                                                February      January        January
                                                                 3, 2001     29, 2000        30, 1999
                                                              --------------------------- ---------------
<S>                                                               <C>          <C>             <C>
Net sales                                                         $350,040     $318,506        $131,567
Cost of sales (including occupancy costs)                          217,032      196,330          79,267
Selling, general, administrative and buying                        107,928       89,352          36,170
Depreciation and amortization                                       13,178       11,800           5,141
                                                              --------------------------- ---------------
Operating income                                                    11,902       21,024          10,989
Interest expense                                                    14,343       13,513           7,520
Interest income                                                        331          530             125
                                                              --------------------------- ---------------
(Loss) income before (benefit) provision for
  income taxes and extraordinary loss                               (2,110)       8,041           3,594
(Benefit) provision for income taxes                                  (808)       3,428           1,581
                                                              --------------------------- ---------------
(Loss) income before extraordinary loss                             (1,302)       4,613           2,013
Extraordinary loss, net of $354,000 of income taxes                      -         (450)              -
                                                              --------------------------- ---------------
Net (loss) income                                                 $ (1,302)    $  4,163        $  2,013
                                                              =========================== ===============
</TABLE>


See accompanying notes.


                                      F-4






<PAGE>


                                G+G Retail, Inc.

                 Consolidated Statements of Stockholder's Equity
               Years ended February 3, 2001 and January 29, 2000,
                     and five months ended January 30, 1999
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                         Additional                           Total
                                         Common           Paid-In           Retained       Stockholder's
                                          Stock           Capital           Earnings          Equity
                                    -----------------------------------------------------------------------
<S>                                   <C>              <C>                <C>            <C>
Balance - August 28, 1998              $        -           $     -          $     -          $     -
  Capital contribution, net                                  49,828                            49,828
  Net income                                                                   2,013            2,013
                                    -----------------------------------------------------------------------
Balance - January 30, 1999                      -            49,828            2,013           51,841
  Value of warrants                                             470                               470
  Net income                                                                   4,163            4,163
                                    -----------------------------------------------------------------------
Balance - January 29, 2000                      -            50,298            6,176           56,474
  Net loss                                                                    (1,302)          (1,302)
                                    -----------------------------------------------------------------------
Balance - February 3, 2001             $        -           $50,298          $ 4,874          $55,172
                                    =======================================================================
</TABLE>


See accompanying notes.


                                      F-5






<PAGE>


                                G+G Retail, Inc.

                      Consolidated Statements of Cash Flows
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                              Year ended              Five months
                                                                      ----------------------------       ended
                                                                         February      January          January
                                                                         3, 2001      29, 2000         30, 1999
                                                                      ---------------------------- ------------------
<S>                                                                      <C>          <C>            <C>
Operating activities
Net (loss) income                                                         $ (1,302)     $  4,163       $   2,013
Adjustments to reconcile net (loss) income to net cash provided by
   operating activities:
    Depreciation and amortization                                           13,178        11,800           5,141
    Amortization of debt issue costs                                         1,844         1,790           1,104
    Write-off of closed store fixed assets                                     155             -               -
    Write-off of deferred financing costs                                        -             -             390
    Extraordinary loss, net of income tax                                        -           450               -
    Deferred income taxes                                                    3,070          (312)           (340)
    Changes in assets and liabilities:
     Accounts receivable, prepaid expenses and other assets                 (1,268)           57          (1,231)
     Merchandise inventories                                                (2,461)         (290)          6,124
     Accounts payable, accrued expenses and accrued interest                 8,942           660          (2,588)
     Income taxes payable                                                   (3,250)        2,274           1,330
                                                                      ---------------------------- ------------------
Net cash provided by operating activities                                   18,908        20,592          11,943

Investing activities
Capital expenditures, net                                                  (26,295)      (20,625)         (2,779)
Acquisition of business, net of cash acquired                                    -             -        (132,000)
Payments of acquisition costs                                                    -             -          (2,879)
                                                                      ---------------------------- ------------------
Net cash used in investing activities                                      (26,295)      (20,625)       (137,658)

Financing activities
Proceeds from issuance of senior notes                                           -       107,000               -
Proceeds from senior bridge note                                                 -             -          90,000
Proceeds from short-term borrowings                                         18,400             -           5,000
Proceeds from initial capital contribution                                       -             -          50,528
Proceeds from capital lease                                                  3,826         2,186               -
Payment of senior bridge note                                                    -       (90,000)              -
Payment of short-term borrowings                                           (18,400)            -          (5,000)
Original issue discount on senior notes                                          -        (7,340)              -
Payment of debt issuance costs                                                (169)       (5,795)         (2,759)
Payment on behalf of Holdings                                                    -             -            (700)
Payment of capital lease                                                      (795)          (54)              -
                                                                      ---------------------------- ------------------
Net cash provided by financing activities                                    2,862         5,997         137,069
                                                                      ---------------------------- ------------------
Net (decrease) increase in cash and short-term investments                  (4,525)        5,964          11,354
Cash and short-term investments, beginning of period                        19,093        13,129           1,775
                                                                      ---------------------------- ------------------
Cash and short-term investments, end of period                            $ 14,568      $ 19,093       $  13,129
                                                                      ============================ ==================
Supplemental cash flow disclosures
 Cash paid during the period for:
   Interest                                                               $ 12,436      $  9,806       $   5,381
                                                                      ============================ ==================
   Income taxes, net of cash refunds of $1,171 for the year ended
    February 3, 2001                                                      $    230      $  1,508       $     570
                                                                      ============================ ==================
</TABLE>


See accompanying notes.


                                      F-6





<PAGE>


                                G+G Retail, Inc.

                   Notes to Consolidated Financial Statements

                                February 3, 2001

1.  Organization and Business

G+G Retail, Inc. ("G+G" or the "Company") was incorporated on June 26, 1998. On
August 28, 1998, G&G Retail Holdings, Inc. ("Holdings" or the "Parent") made a
capital contribution to the Company in the amount of $50.5 million in exchange
for 100% of G+G's outstanding common stock. Concurrently with such contribution
to capital, the Company made a payment on behalf of the Parent in the amount of
$700,000. Simultaneous with the initial capital contribution, the Company
acquired (the "Acquisition") substantially all of the assets and certain
liabilities of G & G Shops, Inc. ("G & G Shops" or the "Predecessor") and
certain other subsidiaries of Petrie Retail, Inc. ("Petrie") from Petrie. The
Acquisition was accounted for as a purchase; accordingly, the accompanying
consolidated balance sheets reflect the allocation of the purchase price to
tangible and intangible assets acquired and liabilities assumed (Note 3). The
purchase price totaled $133.1 million, consisting of net cash of $132.0 million
and the issuance of 15,000 shares of Class C non-voting common stock of Holdings
valued at $1.1 million. The Company also assumed liabilities of $23.3 million in
the Acquisition. In addition, the Company incurred Acquisition-related costs of
approximately $2.8 million. Holdings has no operations other than owning all of
the capital stock of the Company and is dependent on the cash flows from the
Company to meet its obligations, including with respect to the mandatory
redeemable preferred stock due 2008.

Prior to August 28, 1998, G+G's business was conducted by G & G Shops, a
wholly-owned subsidiary of Petrie, and certain other subsidiaries of Petrie. As
part of the Acquisition, 15,000 shares of Class C, non-voting common stock of
Holdings were issued to the Predecessor. These shares, which represent
approximately 14% of Holdings common stock on a fully-diluted basis, were
transferred to the liquidating trustee who oversees the bankruptcy proceedings
for Petrie and its subsidiaries in connection with the confirmation of Petrie's
plan of reorganization.

2.  Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying financial statements include the consolidated operations of G+G
and its wholly-owned subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.

                                      F-7




<PAGE>




                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)

2.  Summary of Significant Accounting Policies (continued)

Nature of Business

The Company owns and operates a chain of young women's and pre-teen's specialty
apparel stores in the United States, Puerto Rico and the U.S. Virgin Islands.

Short-Term Investments

Short-term investments of $10.3 million and $17.8 million at February 3, 2001
and January 29, 2000, respectively, consist of time deposits, U.S. treasury
money market funds, and commercial paper of less than ninety days maturity.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions related to certain accounts, such as inventory, accounts
receivable, income taxes and various other reserves, that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.

Concentration of Risk

The Company operates a distribution center that depends on employees under a
collective bargaining agreement with a union. Historically, the Company has not
experienced labor disruptions as a result of disputes with its union workers.

The Company has significant merchandise purchases from vendors who utilize
factors. Approximately 25% of the Company's merchandise purchases are from three
vendors. In addition, approximately 19% of the stores are leased from a single
landlord.

Fiscal Year

The Company's fiscal year ends on the Saturday nearest January 31 and consists
of fifty-two or fifty-three weeks. The fiscal year ended February 3, 2001
consisted of fifty-three weeks, the fiscal year ended January 29, 2000 consisted
of fifty-two weeks, and the fiscal period ended January 30, 1999 began on August
29, 1998 and consisted of twenty-two weeks.


                                      F-8




<PAGE>


                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)

2.  Summary of Significant Accounting Policies (continued)

Inventories

Merchandise inventories, which consist of finished goods, are valued at the
lower of cost as determined by the retail inventory method (average cost basis)
or market.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization of
property and equipment are computed by the straight-line method based on the
estimated useful lives of the assets as follows:

<TABLE>
<S>                                   <C>
Leasehold costs, interests and        Term of lease or 10 years, whichever is less,
  improvements                        straight-line

Store fixtures and equipment          1 to 10 years, straight-line
</TABLE>

Deferred Financing Costs

The Company capitalizes debt issuance costs. Such costs are amortized over the
lives of the related debt.

Intangible Assets

Excess of cost over net assets acquired (i.e., goodwill and trademarks) is being
amortized on the straight-line method over thirty years. The Company assesses
the recoverability of these intangible assets at each balance sheet date by
determining whether the amortization of the balance of the intangibles over
their remaining useful life can be recovered through projected undiscounted
future operating cash flows.

Long-Lived Assets

In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company
reviews the recoverability of intangibles and other long-lived assets whenever
events and circumstances indicate that the carrying amount may not be
recoverable. The carrying amount of long-lived assets is reduced by the
difference between the carrying amount and estimated fair value. No impairment
losses on long-lived assets were required for the years ended February 3, 2001
or January 29, 2000, or the five-months ended January 30, 1999.


                                      F-9




<PAGE>


                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)

2.  Summary of Significant Accounting Policies (continued)

Rental Expense

Rental escalations are averaged over the term of the related lease in order to
provide level recognition of rental expense. Rent concessions received from
landlords are recognized on a straight-line basis over the remaining term of the
respective lease agreements.

Income Taxes

Income taxes are accounted for by the liability method. Under this method,
deferred tax assets and liabilities are determined based on the difference
between financial reporting and tax basis of assets and liabilities and are
measured using the current enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

Revenue Recognition

Retail merchandise sales are recognized at the point of sale. A reserve is
provided for projected returns based on prior experience. Income from layaway
sales is recognized after final payment from the customer has been received.

Preopening Costs

Store opening costs are charged to operations as incurred.

Advertising and Marketing

All costs associated with advertising and marketing are expensed as incurred.
Advertising and marketing expense was $2.5 million and $2.0 million for the
years ended February 3, 2001 and January 29, 2000, respectively, and $928,000
for the five months ended January 30, 1999.

Vendor Allowances

Vendor allowances are recognized when the Company receives an executed allowance
agreement from its vendors. These allowances are recorded as a reduction of cost
of sales.


                                      F-10




<PAGE>


                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)

2.  Summary of Significant Accounting Policies (continued)

Segments Reporting

In 1998, the Company adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 superseded SFAS 14,
Financial Reporting for Segments of a Business Enterprise. The adoption of SFAS
131 did not affect the results of the Company's operation or financial position.

The Company operates a chain of 511 young women's and pre-teen's specialty
apparel stores in the United States, Puerto Rico and the U.S. Virgin Islands.
Primarily all of the 511 stores are mall based and the customers served are
young women principally between the ages of thirteen and nineteen years old and
pre-teens between the ages of six and twelve years old. All of the Company's
merchandise is distributed to its stores from the same distribution center.

The Company conducts business in one operating segment. The chief operating
decision maker evaluates individual stores for purposes of assessing performance
and making operating decisions. These individual operations have been aggregated
into one segment because the Company believes it helps the users to understand
the Company's performance. The combined operations have similar economic
characteristics and each operation has similar products, services, customers and
distribution network.

Recently Issued Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133 ("Statement 133"), Accounting for
Derivative Instruments and Hedging Activities. This Statement requires that all
derivatives be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. The Company will be required to adopt Statement 133, as amended by
Statement No. 137, which defers the effective date, as of January 1, 2001. The
provisions of this statement shall not be applied retroactively to financial
statements of prior periods. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.

                                      F-11




<PAGE>


                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)

3.  Acquisition

On August 28, 1998, senior management of the Predecessor, in conjunction with an
investor group, acquired from Petrie substantially all of the assets and certain
of the liabilities of G & G Shops and certain other subsidiaries of Petrie. The
Company accounted for the Acquisition as a purchase. Accordingly, the acquired
assets and assumed liabilities have been recorded at their estimated fair values
at the date of acquisition as follows (in thousands):

<TABLE>
<S>                                                              <C>
      Fair value of assets acquired:
         Current assets, excluding cash                                $  19,323
         Property, plant and equipment                                    23,280
         Purchase price in excess of net assets acquired                 116,633
      Less liabilities assumed:
         Accounts payable and accrued expenses                           (23,257)
      Less common stock paid to the seller:
         Class C common stock of Holdings                                 (1,100)
                                                                  ------------------
      Net cash paid (including acquisition costs of $2,879)             $134,879
                                                                  ==================
</TABLE>

The unaudited pro forma results, which assumed that the consummation of the
Acquisition and the $107.0 million debt offering (Note 6) had occurred on
February 1, 1998, is as follows (in thousands):

<TABLE>
<CAPTION>
                                                Year ended
                                                  January
                                                  30, 1999
                                            -------------------
      <S>                                <C>
        Net sales                                 $294,390
        Net income                                   1,652
</TABLE>

The pro forma results are not necessarily indicative of the results of
operations that would have occurred had the acquisitions taken place at the
beginning of the periods presented nor are they intended to be indicative of
results that may occur in the future.

                                      F-12




<PAGE>


                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)

4.  Property and Equipment

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

<TABLE>
<CAPTION>
                                                      February          January
                                                       3, 2001          29, 2000
                                                  ------------------------------------
<S>                                                  <C>               <C>
Leasehold costs, improvements, interests and
  store fixtures and equipment                       $    72,415       $   46,348
Less accumulated depreciation and amortization
                                                         (20,619)         (11,410)
                                                  ------------------------------------
                                                     $    51,796       $   34,938
                                                  ====================================
</TABLE>

5.  Intangible Assets

Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                      February          January
                                                       3, 2001          29, 2000
                                                  ------------------------------------
<S>                                                   <C>              <C>
Goodwill                                              $    65,138      $    65,138
Trademarks                                                 51,800           51,800
Deferred financing                                          5,984            6,144
Less accumulated amortization                             (10,839)          (6,266)
                                                  ------------------------------------
                                                         $112,083         $116,816
                                                  ====================================
</TABLE>

Included in deferred financing is $5.8 million of fees associated with the
$107.0 million Senior Notes which is being amortized over seven years.
Additionally, amortization of the original issue discount and the warrants
associated with the Senior Notes totaled approximately $840,000 and $540,000 for
the years ended February 3, 2001 and January 29, 2000, respectively, and are
included in interest expense in the accompanying consolidated statements of
operations.

Amortization of deferred financing costs, which is included in interest expense
in the consolidated statements of operations, totaled approximately $940,000 and
$1.2 million for the years ended February 3, 2001 and January 29, 2000,
respectively, and $1.1 million for the five months ended January 30, 1999. Also
included in interest expense for the five months ended January 30, 1999 was the
$390,000 write-off of deferred financing costs associated with the termination
of the Loan and Security Agreement (see Note 6).

                                      F-13




<PAGE>

                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)



6.  Debt

Long-Term Borrowings

On August 28, 1998, in connection with the Acquisition, the Company entered into
a Loan Agreement (the "Loan Agreement") which, subject to the terms and
conditions thereof, provided the Company with $90 million of financing (the
"Loan").

Outstanding borrowings under the Loan Agreement had interest per annum at LIBOR,
plus 600 basis points, and were guaranteed by Holdings.

Interest, which was payable monthly, totaled approximately $3.0 million and $4.4
million for the years ended January 29, 2000 and January 30, 1999, respectively.
An additional fee equal to 1% of the aggregate unpaid principal amount of the
Loan was payable on a quarterly basis and totaled approximately $300,000 and
$1.5 million for the years ended January 29, 2000 and January 30, 1999,
respectively. The carrying amount of the Loan approximated fair value at January
30, 1999.

On May 17, 1999, the Company and Holdings completed a private placement of
107,000 units consisting in the aggregate of $107.0 million face amount of 11%
Senior Notes due May 15, 2006 of the Company with interest payable semi-annually
and warrants to purchase 8,209 shares of non-voting Class D Common Stock of
Holdings at an exercise price of $.01 per share. The warrants were valued at
$470,000, using the Black-Scholes Option Valuation Model, which assumed a
risk-free interest rate of 4.6% and a volatility factor of 15%. The net proceeds
from the placement were $93.9 million after deducting the original issue
discount of $7.3 million and $5.8 million of fees. The net proceeds were used to
repay the Loan and the balance of the net proceeds were used for general
corporate purposes. The unamortized finance fees of $450,000 (net of income
taxes of $354,000) related to the Loan were written-off as an extraordinary loss
in the accompanying consolidated statement of operations for the year ended
January 29, 2000. The carrying amount of the Senior Notes approximated fair
value at February 3, 2001 and January 29, 2000.

On November 2, 1999, the private placement units were exchanged for notes that
are freely tradeable.

Before May 15, 2002, the Company may redeem up to 35% of the aggregate principal
amount of the Senior Notes with the cash proceeds of a public offering by the
Company or Holdings at a redemption price of 111% of the principal amount of the
notes, plus


                                      F-14




<PAGE>

                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)


6.  Debt (continued)

accrued and unpaid interest and any liquidated damages. On or after May 15,
2003, the Company may redeem all or a part of the Senior Notes as follows: from
May 15, 2003 through May 14, 2004 at 105.50% of their principal amount; from May
15, 2004 through May 14, 2005 at 102.75% of their principal amount and on and
after May 15, 2005 at 100.00% of their principal amount, in each case in
addition to accrued and unpaid interest and any liquidated damages.

Each of the Company's domestic subsidiaries (other than subsidiaries which the
Company may designate as unrestricted) is required to guarantee, on a senior but
unsecured basis, the Company's obligations under the Senior Notes. Currently,
the Company has only one subsidiary, G & G Retail of Puerto Rico, Inc., which is
an inactive foreign subsidiary and is not a guarantor. Each subsidiary
guarantor's obligations under its guarantee will be limited to the extent
necessary to prevent that guarantee from being a fraudulent conveyance under
applicable law. All subsidiary guarantors will be limited in their ability to
sell or otherwise dispose of all or substantially all of their assets to, or
consolidate with or merge with or into, a person other than the Company or
another subsidiary guarantor. Subsidiary guarantees may be released under
limited circumstances.

Any Class D Common Stock of Holdings outstanding will be automatically converted
into one class of voting common stock upon the consummation of an initial public
offering which results in at least 20% of Holdings' common stock becoming
publicly traded ("IPO"). The warrants will expire upon the earlier of the
consummation of an IPO (as defined) or ten years from the date of issuance.

Short-Term Borrowings

On August 28, 1998, the Company entered into a Loan and Security Agreement which
provided for the extension of credit up to $10.0 million, plus 50% of the
aggregate cost or market of inventory, not to exceed $5.0 million of additional
borrowings, as defined therein. Interest on this agreement accrued at a per
annum rate at LIBOR, plus 500 basis points which approximated the
weighted-average rate on the outstanding borrowings for the period. This
agreement was replaced on October 30, 1998 with the Loan and Security Agreement
(the "Facility") at which time the Company recognized a $390,000 write-off on
early extinguishments of debt, which is included in interest expense in the
accompanying consolidated statement of operations for the five months ended
January 30, 1999.



                                      F-15




<PAGE>

                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)


6.  Debt (continued)

The three-year Facility provides, subject to the terms and conditions thereof,
for the extension of credit subject to eligible inventory (as defined therein)
not to exceed $20.0 million, of which $10.0 million can be used for letters of
credit. The Facility renews in the third year and every year thereafter unless
written notice is made by the Company or the lender. There were no borrowings
outstanding under the Facility at February 3, 2001 and January 29, 2000.

Interest on amounts advanced under the Facility accrues at a rate equal to
specified margins over the adjusted Eurodollar Rate or at the Prime Rate (9.0%
at February 3, 2001). Outstanding letters of credit under the Facility totaled
approximately $412,500 and $840,000 at February 3, 2001 and January 29, 2000,
respectively.

The Facility contains a minimum tangible net worth covenant and other customary
covenants including limitations on change of ownership, transactions with
affiliates, dividends, additional indebtedness, creation of liens, asset sales,
acquisitions, conduct of business and capital expenditures. The Facility also
contains customary events of default including defaults on the Company's other
indebtedness.

The Company's obligations under the Facility are secured by a lien on all or
substantially all of the Company's assets.

7.  Stock Option Plan

Effective March 15, 1999, Holdings adopted its 1999 Stock Option Plan (the
"Option Plan") which provides for the granting of options to purchase shares of
its Class A Common Stock to its employees and employees of its subsidiaries
including the Company. The Option Plan is administered by the Board of Directors
of Holdings which is authorized to grant incentive stock options and/or
non-qualified stock options to purchase up to 7,000 shares of Class A Common
Stock. On March 15, 1999, Holdings


                                      F-16




<PAGE>

                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)


7.  Stock Option Plan (continued)

granted under the Option Plan, ten year options to purchase 5,000 shares of its
Class A Common Stock at an exercise price of $300 per share of which 1,250
shares became immediately exercisable and the remaining 3,750 shares vest
equally over the three years following the date of grant.

On October 19, 1999, Holdings granted under the Option Plan, ten year options to
purchase 2,000 shares of its Class A Common Stock at an exercise price of $300
per share, which vest equally over the three years following the date of grant.
The option prices exceeded the fair market value of Holdings common stock on the
date of grant.

8.  Related Party Transactions

In connection with the closing of the Acquisition, an indirect investor in
Holdings earned a closing fee in the amount of $1,250,000 ($1,000,000 of this
fee was paid at closing and $160,000 and $90,000 were paid during the years
ended January 29, 2000 and January 30, 1999, respectively). The closing fee
constituted consideration for financial advisory services in connection with the
Acquisition and is included in the calculation of goodwill. Additional fees
totaling approximately $2.1 million were paid to U.S. Bancorp Libra ("Libra"),
investment banking advisors who have an indirect ownership interest in Holdings.
Of this amount, $1.4 million was paid to Libra in connection with the $90.0
million loan obtained on August 28, 1998 and included in deferred financing
costs which are amortized over the twelve month life of the loan. The remaining
$700,000 was paid to Libra by the Company on behalf of Holdings in connection
with the issuance of preferred stock by Holdings (Note 1).

In connection with the private placement of the units on May 17, 1999, the
Company paid Pegasus Investors L.P., affiliates of which are stockholders of
Holdings and directors of Holdings and the Company, a $1.0 million fee in
consideration for financial advisory services provided by Pegasus Investors L.P.
to the Company. In addition, an aggregate underwriting fee of $3.0 million was
paid to Libra and the joint underwriter in connection with the private placement
of the Senior Notes (see Note 6).

Two directors ("Directors") of the Company and Holdings, who are also officers
of the Company and Holdings and shareholders of Holdings, were paid a success
fee (the "Success Fee") aggregating approximately $3.3 million from G & G Shops
in connection with their assistance in the sale of G & G Shops' business. The
obligation to pay the


                                      F-17




<PAGE>

                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)


8.  Related Party Transactions (continued)

Success Fee was assumed by the Company and paid prior to January 30, 1999. In
addition, the Company paid approximately $286,000 of legal fees for these
Directors in conjunction with the Success Fee.

A director ("Director") of the Company and shareholder of Holdings is also a
member of the law firm which is principal legal counsel to the Company.
Professional fees paid and expenses reimbursed to the Director's firm totaled
approximately $802,000 and $694,000 for the years ended February 3, 2001 and
January 29, 2000, respectively, and $337,000 for the five months ended January
30, 1999.

9.  Obligations Under Capital Leases

Maturities of obligations under capital leases for equipment are as follows (in
thousands):

<TABLE>
<S>                                                      <C>
Fiscal year ending in:
   2002                                                  $  1,799
   2003                                                     1,799
   2004                                                     1,799
   2005                                                       900
   2006                                                         -
   Thereafter                                                   -
                                                     -----------------
Total minimum lease payments                                6,297
Less amount representing interest                          (1,134)
                                                     -----------------
Present value of net minimum lease payments              $  5,163
                                                     =================
</TABLE>

At February 3, 2001 and January 29, 2000, the gross amount of assets under
capital leases is $6.0 million and $2.2 million, respectively, and the related
accumulated amortization is $865,000 and $182,000, respectively. The
amortization of assets under capital leases are included in depreciation
expense.

10.  Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.



                                      F-18




<PAGE>

                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)

10.  Income Taxes (continued)

The following is a summary of the provision (benefit) for income taxes (in
thousands):

<TABLE>
<CAPTION>
                                                             Year ended               Five months
                                                    -------------------------            ended
                                                       February       January           January
                                                       3, 2001       29, 2000          30, 1999
                                                    ------------   -------------     ------------
<S>                                                      <C>            <C>              <C>
Current income taxes:
   Federal                                               $    -         $2,427           $1,170
   State and Puerto Rico                                      -          1,313              751
Deferred income taxes:
   Federal                                                 (814)          (101)            (134)
   State and Puerto Rico                                      6           (211)            (206)
                                                    ----------------------------     ------------
Total (benefit) provision for income taxes                $(808)        $3,428           $1,581
                                                    ============================     ============
</TABLE>

A reconciliation of the income tax (benefit) provision to the amount of the
(benefit) provision that would result from applying the federal statutory rate
(34%) to income before taxes is as follows:

<TABLE>
<CAPTION>
                                                            Year ended                Five months
                                                  ------------------------------         ended
                                                     February        January            January
                                                      3, 2001        29, 2000          30, 1999
                                                  -------------   --------------     ------------
<S>                                                     <C>            <C>                <C>
Provision for income taxes at federal statutory
   rate                                                 34.0%          34.0%              34.0%
State income taxes, net of federal tax benefit           5.7            4.8                4.6
Effect of higher Puerto Rico tax rates                   -              3.2                4.7
Other                                                   (1.4)            .6                 .6
                                                  ------------------------------     ------------
Effective tax rate                                      38.3%          42.6%              43.9%
                                                  ==============================     ============
</TABLE>

Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's net deferred tax asset are as follows (in thousands):




                                      F-19




<PAGE>

                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)



10.  Income Taxes (continued)

<TABLE>
<CAPTION>
                                                                   February        January
                                                                   3, 2001        29, 2000
                                                              ----------------------------------
<S>                                                               <C>              <C>
Current deferred tax asset:
   Accrued expenses                                               $     24        $    133
   Inventory cost capitalization                                       441             371
                                                              --------------------------------
                                                                  $    465        $    504
                                                              ================================

Long-term deferred tax (liability) asset:
   Difference between book and tax basis of
     fixed assets                                                 $  1,250        $  3,080
   Intangible asset                                                 (4,382)         (2,217)
   Net operating loss carryforward                                   2,037               -
   Other                                                            (1,073)              -
                                                              --------------------------------
                                                                  $ (2,168)       $    863
                                                              ================================
</TABLE>

The Company has net operating loss carryforwards at February 3, 2001 of
approximately $5 million for federal income tax purposes, which expire in 2021.

11.  Employee Benefit Plans

G+G maintains a defined contribution plan for all eligible employees that is
funded on a current basis through discretionary contributions. Contribution
expense was $686,000 and $600,000 for the years ended February 3, 2001 and
January 29, 2000, respectively, and $250,000 for the five months ended January
30, 1999.

G+G also maintains 401(k) plans covering certain of its employees. The Company
at its discretion can make contributions to the plans; however, no contributions
were made for the years ended February 3, 2001 or January 29, 2000, or the five
months ended January 30, 1999.

G+G also maintains a defined contribution plan covering certain of its union
employees at its distribution center. Contribution expense was approximately
$53,000 and $51,000 for the years ended February 3, 2001 and January 29, 2000,
respectively, and approximately $20,000 for the five months ended January 30,
1999.


                                      F-20




<PAGE>

                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)


12.  Commitments and Contingencies

The Company has employment agreements with certain key employees, providing for
minimum aggregate annual compensation of approximately $1.9 million per annum
with contract terms up to three years. Additionally, such employment agreements
provide for various incentive compensation payments as determined by the
Company's Board of Directors.

The Company is committed under operating leases for its stores and warehouse
facility, and equipment leases having initial terms of one year or more expiring
on various dates to 2012. Certain leases provide for additional rentals based on
a percentage of sales and for additional payments covering real estate taxes,
common area charges and other occupancy costs. Rent concessions recognized in
the years ended February 3, 2001 and January 29, 2000 approximated $157,000 and
$607,000, respectively, and $400,000 for the five months ended January 30, 1999.

A summary of rental expense under all leases is as follows (in thousands):

<TABLE>
<CAPTION>
                                                 Year ended               Five months
                                       ---------------------------------     ended
                                         February          January          January
                                         3, 2001           29, 2000        30, 1999
                                       ------------------------------------------------
<S>                                        <C>               <C>            <C>
Fixed minimum                              $26,992           $22,739        $  9,058
Percentage rentals                           1,592             2,009           1,020
Equipment rentals                              660               566             273
                                       ------------------------------------------------
                                           $29,244           $25,314         $10,351
                                       ================================================
</TABLE>

Minimum annual lease commitments (excluding percentage rents and early
termination provisions) under noncancelable operating leases for subsequent
periods are as follows (in thousands):

<TABLE>
<S>                                               <C>
Fiscal year ending in:
   2002                                           $   25,985
   2003                                               23,090
   2004                                               18,401
   2005                                               16,015
   2006                                               13,400
   Thereafter                                         31,882
                                                 -------------
                                                    $128,773
                                                 =============
</TABLE>



                                      F-21




<PAGE>

                                G+G Retail, Inc.

             Notes to Consolidated Financial Statements (continued)


12.  Commitments and Contingencies (continued)

Litigation

The Company is a defendant in various lawsuits arising in the ordinary course of
its business. While the ultimate liability, if any, arising from these claims
cannot be predicted with certainty, the Company is of the opinion that the
resolution of the lawsuits will not likely have a material adverse effect on the
Company's consolidated financial statements.

13.  Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                             February          January
                                                             3, 2001          29, 2000
                                                        ----------------------------------
<S>                                                        <C>               <C>
Salaries and employee benefit costs                        $   4,672         $   3,585
Rent/occupancy costs                                           3,873             3,077
Corporate and store operating costs                            8,392             6,253
                                                        ----------------------------------
                                                             $16,937           $12,915
                                                        ==================================
</TABLE>

14.  Subsequent Event (unaudited)

On May 2, 2001, the Company replaced its revolving credit facility with a new
three-year facility that provides for a line of credit in an amount of up to
$30.0 million (including a sublimit of $10.0 million for letters of credit). The
Company may use the revolving credit facility for general operating, working
capital and other proper corporate purposes. Amounts available under the
revolving credit facility are subject to the value of eligible inventory and
credit card receivables subject to certain conditions. The borrowing base
provides for seasonal fluctuations in inventory with peak borrowing availability
during the months July through November. Interest on outstanding borrowing can
range either from prime to prime plus .25% or from 1.50% over the Eurodollar
Rate to a maximum 2.25% over the Eurodollar rate, based on the profitability and
amount of indebtedness of the Company. The revolving credit facility subjects
the Company to a minimum net worth covenant (as defined) of $40.0 million and
contains other customary restrictive covenants. The Company's obligations under
the revolving credit facility are secured by a lien on all or substantially all
of its assets, excluding leasehold interests.




                                      F-22







                         Report of Independent Auditors

The Board of Directors
G&G Shops, Inc.

We have audited the accompanying combined statements of income, shareholder's
deficit, and cash flows of G&G Shops, Inc. and its subsidiaries (collectively
the "Company") for the seven months ended August 28, 1998. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of the Company's
operations and its cash flows for the seven months ended August 28, 1998, in
conformity with accounting principles generally accepted in the United States.


                                      /s/ Ernst & Young LLP


April 14, 1999

                                       F-23



<PAGE>


                                 G&G Shops, Inc.

                          Combined Statement of Income
                       Seven months ended August 28, 1998
                                 (In Thousands)


<TABLE>
<S>                                                     <C>
Net sales                                                  $162,823
Cost of sales (including occupancy costs)                   106,056
Selling, general, administrative and buying                  48,231
Depreciation and amortization                                 2,845
Royalty expense                                               1,012
Store closing expenses                                           87
                                                           --------
Income before income taxes                                    4,592

Income taxes                                                  1,892
                                                           --------
Net income                                                 $  2,700
                                                           ========
</TABLE>


See accompanying notes.


                                      F-24




<PAGE>


                                 G&G Shops, Inc.

                   Combined Statement of Shareholder's Deficit
                         Seven months ended August 28, 1998
                                 (In Thousands)


<TABLE>
<CAPTION>

                                                                         Net             Total
                                          Paid-In      Retained     Distributions     Shareholder's
                                          Capital      Earnings       to Parent         Deficit
                                          ---------------------------------------------------------
<S>                                     <C>          <C>           <C>                <C>
Balance - January 31, 1998                 $5,637       $28,922      $(51,145)          $(16,586)
  Net distributions                                                   (14,140)           (14,140)
  Net income                                              2,700                            2,700
                                          ---------------------------------------------------------
Balance - August 28, 1998                  $5,637       $31,622      $(65,285)          $(28,026)
                                          =========================================================
</TABLE>



See accompanying notes.


                                      F-25




<PAGE>



                                 G&G Shops, Inc.

                        Combined Statement of Cash Flows
                       Seven months ended August 28, 1998
                                 (In Thousands)


<TABLE>
<S>                                                          <C>
Operating activities
Net income                                                          $   2,700
Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization                                        2,845
   Store closing expenses                                                   -
   Loss on disposal of equipment                                           16
   Changes in assets and liabilities
     Accounts receivable                                                  177
     Merchandise inventories                                           (8,611)
     Prepaid expenses and other assets                                    144
     Accounts payable and accrued expenses                             18,363
     Liabilities subject to compromise                                    159
                                                                    ---------
Net cash provided by operating activities                              15,793

Investing activities
Capital expenditures, net                                              (3,400)
                                                                    ---------
Net cash used in investing activities                                  (3,400)

Financing activities
Cash transferred to Parent                                           (166,359)
Cash received from Parent                                             152,219
                                                                    ---------
Net cash used in financing activities                                 (14,140)
                                                                    ---------

Net decrease in cash                                                   (1,747)
Cash, beginning of period                                                   -
                                                                    ---------

Bank overdraft, end of period                                       $  (1,747)
                                                                    =========
</TABLE>


                                      F-26


See accompanying notes.




<PAGE>



                                 G&G Shops, Inc.

                     Notes to Combined Financial Statements

                                 August 28, 1998

1. Organization and Basis of Presentation

Organization and Business

The accompanying combined financial statements include the accounts of G & G
Shops, Inc. ("G & G" or "Company"), a subsidiary of Petrie Retail, Inc. ("Petrie
Retail" or "Parent") and certain store assets owned by Petrie Retail.

On December 9, 1994, PS Stores Acquisition Corp. acquired (the "Acquisition")
all of the issued and outstanding shares of Petrie Retail from Petrie Stores
Corporation pursuant to the terms of a Stock Purchase Agreement (the
"Agreement"). In accordance with the Agreement, for accounting purposes the
transaction was accounted for as of November 26, 1994.

The acquisition was accounted for as a purchase. The bargain purchase element
associated with the transaction was pushed down to the Company based on the fair
value of the Company's property and equipment at the date of acquisition
relative to the consolidated property and equipment. The estimated portion of
the purchase accounting liabilities deemed to be attributable to the Company
have been reflected in these combined financial statements.

On October 12, 1995 (the "Petition Date"), Petrie Retail filed petitions under
Chapter 11 (Chapter 11) of the Bankruptcy Code (the "Bankruptcy Code") in the
United States Bankruptcy Court for the Southern District of New York, on behalf
of itself and its subsidiaries, including G & G (collectively, the "Debtors"),
seeking relief to reorganize under Chapter 11. The Debtors managed the affairs
and operated the business of G & G under Chapter 11 as debtor-in-possession
until August 28, 1998 when substantially all of the Company's assets and certain
liabilities were sold to an investor group including the management of G & G
("Sale") (see Note 9).

2. Summary of Significant Accounting Policies

Nature of Business

The Company owns and operates a chain of young women's specialty apparel stores
in the United States, Puerto Rico and the U.S. Virgin Islands.

Fiscal Year

The Company's fiscal year ends on the Saturday nearest January 31. The fiscal
period ended August 28, 1998 began on February 1, 1998 and consisted of thirty
weeks.


                                      F-27




<PAGE>



                                 G&G Shops, Inc.

               Notes to Combined Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Principles of Combination

The accompanying combined financial statements include the accounts of the
Company and certain store assets owned by subsidiaries of Petrie Retail but
operated as stores of the Company. All significant intercompany activity between
the various entities included in these financial statements has been eliminated
in combination.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions related to certain accounts, such as inventory, accounts
receivable, income taxes and various other reserves, as well as liabilities
subject to compromise, that affect the amounts reported in the combined
financial statements and accompanying notes. Actual results could materially
differ from those estimates.

Concentration of Credit Risk

The Company operates a distribution center that depends on employees under a
collective bargaining agreement with a union. Historically, the Company has not
experienced labor disruptions as a result of disputes with its union workers.

The Company has significant merchandise purchases from vendors who utilize
factors. Approximately 36% of the Company's merchandise purchases are from three
vendors. In addition, approximately 16% of the stores are leased from a single
landlord.

Inventories

Merchandise inventories, which consist of finished goods, are valued at the
lower of cost as determined by the retail inventory method (average cost basis)
or market.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization of
property and equipment are computed principally by the straight-line method
based on the estimated useful lives of the assets as follows:

<TABLE>
<S>                                           <C>
Leasehold costs and improvements               Term of lease or 10 years, whichever is less,
                                               straight-line

Store fixtures and equipment                   1 to 10 years, straight-line
</TABLE>


                                      F-28




<PAGE>



                                 G&G Shops, Inc.

               Notes to Combined Financial Statements (continued)


2. Summary of Significant Accounting Policies (continued)

Preopening Costs

Store opening costs are charged to operations as incurred.

Income Taxes

Income taxes are accounted for by the liability method. Under this method,
deferred tax assets and liabilities are determined based on the difference
between financial reporting and tax basis of assets and liabilities and are
measured using the current enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

Revenue Recognition

Retail merchandise sales are recognized at the point of sale. A reserve is
provided for projected returns based on prior experience. Income from layaway
sales is recognized after final payment from the customer has been received.

Net Distributions to Parent

Net distributions to Parent consists of the intercompany activity between the
Company and its Parent principally resulting from the Company transferring
substantially all operating cash flow to the Parent, net of certain expenditures
made by the Parent on behalf of the Company. No interest has been imputed on
transactions with the Parent.

Long-Lived Assets

In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company
reviews its long-lived assets used in operations for events and circumstances
which might indicate that the assets are impaired and the undiscounted cash
flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No impairment losses on long-lived assets were required
for the period ended August 28, 1998.

Rental Expense

Rental escalations are averaged over the term of the related lease in order to
provide level recognition of rental expense. Rent concessions received from
landlords are recognized on a straight-line basis over the remaining term of the
respective lease agreements.


                                      F-29




<PAGE>


                                 G&G Shops, Inc.

               Notes to Combined Financial Statements (continued)


2. Summary of Significant Accounting Policies (continued)

Advertising and Promotion

All costs associated with advertising and promotion are expensed in the year
incurred. Advertising and promotion expense was $794,000 for the seven months
ended August 28, 1998.

Vendor Allowances

Vendor allowances are recognized when the Company receives an executed allowance
agreement from its vendors. These allowances are recorded as a reduction of cost
of sales.

3. Income Taxes

PS Stores Acquisition Corp. and its subsidiaries, including the Company, file a
consolidated federal income tax return and, where applicable, combined state and
local income tax returns. As a result, the Company is jointly and severally
liable for all tax claims arising from the consolidated and combined returns to
which it is a party. However, after the Sale, Petrie Retail retained all of the
income tax liabilities (Note 9).

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

In accordance with a tax sharing agreement, the provision for income taxes
recorded by the Company represents the amount calculated on a separate return
basis. All taxes are paid by the Parent with the applicable expenses related to
the Company allocated through the intercompany account.

At August 28, 1998 approximately $5 million of income tax reserves are
classified as liabilities subject to compromise.


                                      F-30




<PAGE>


                                 G&G Shops, Inc.

               Notes to Combined Financial Statements (continued)


3.  Income Taxes (continued)

The following is a summary of the components of the Company's income tax
provision (in thousands):



<TABLE>
<CAPTION>
                                                         Seven
                                                     months ended
                                                    August 28, 1998
                                                    ---------------
<S>                                                <C>
Current taxes:
   Federal                                               $1,342
   State and Puerto Rico                                    822
Deferred taxes:
   Federal                                                 (212)
   State and Puerto Rico                                    (60)
                                                         ------
Total provision for income taxes                         $1,892
                                                         ======
</TABLE>


The deferred income tax provision is principally due to the differences in the
depreciation methods used for financial statement and tax purposes, and to
various accrual and reserve accounts.

A reconciliation of the income tax provision to the provision that would result
from applying the federal statutory rate (34%) to income before taxes is as
follows:


<TABLE>
<CAPTION>
                                                                               Seven
                                                                           months ended
                                                                          August 28, 1998
                                                                          ---------------
<S>                                                                             <C>
Provision for income taxes at federal statutory rate                            34.0%
State income taxes, net of federal tax benefit                                   4.6
Other                                                                             .1
Effect of higher Puerto Rico tax rates                                           2.5
                                                                                ----
Effective tax rate                                                              41.2%
                                                                                ====
</TABLE>


                                      F-31




<PAGE>


                                 G&G Shops, Inc.

               Notes to Combined Financial Statements (continued)


4. Store Closing Expense

Store closing expense was as follows (in thousands):


<TABLE>
<CAPTION>
                                                               Seven
                                                           months ended
                                                          August 28, 1998
                                                          ---------------
<S>                                                 <C>
Store closing costs                                              $87
                                                                 ===
Results of operations of closed stores                           $67
                                                                 ===
Number of stores closed                                            2
                                                                 ===
</TABLE>


There were no stores pending closure at the end of this period.

The store closing expense for the seven months ended August 28, 1998 principally
consists of losses on disposal of property and equipment and inventory.

5.  Liabilities Subject to Compromise

Petrie Retail and its subsidiaries each filed a voluntary petition on October
12, 1995 with the United States Bankruptcy Court for relief under Chapter 11. As
a result, the Debtor's obligations with respect to its prepetition liabilities
were stayed with certain exceptions concerning the Debtor's prepetition secured
bank debt. In addition, the Debtors received authority to pay certain
prepetition liabilities for payroll, employee benefits and certain other
expenses. Certain prepetition obligations are collateralized by both real and
personal property of the Debtors; however, these obligations are recorded as
liabilities subject to compromise, as the ultimate adequacy of security for any
secured prepetition debt will be determined in the claim allowance or plan
confirmation process. Additional claims will arise by reason of current and
future terminations of various contractual obligations and as certain contingent
and/or disputed claims are asserted or settled. Those claims and liabilities
could materially exceed the amounts recorded.

In Chapter 11 cases, substantially all liabilities as of the Petition Date are
subject to compromise or other treatment under a plan or plans of
reorganization. For financial reporting purposes, these liabilities and
obligations whose disposition is dependent on the outcome of the Chapter 11
cases have been segregated and classified as liabilities subject to compromise
under reorganization proceedings in the combined balance sheet. Generally,
actions to enforce or otherwise effect repayment of all pre-Chapter 11
liabilities as well as all litigation pending as of the Petition Date against
the Debtors are stayed while the Debtors continue their business operations as
debtors-in-possession.


                                      F-32




<PAGE>



                                 G&G Shops, Inc.

               Notes to Combined Financial Statements (continued)

5.  Liabilities Subject to Compromise (continued)

Schedules have been filed by the Debtors with the Bankruptcy Court setting forth
the assets and liabilities of the Debtors as of the Petition Date as reflected
in the Debtors' accounting records. Differences between amounts reflected in
such schedules and claims filed by creditors will be investigated and either
amicably resolved or adjudicated. The ultimate amount of and settlement terms
for such liabilities are subject to the claims allowance process and the terms
of a plan or plans of reorganization and, accordingly, are not presently
determinable. Additional liabilities subject to compromise may become fixed or
liquidated subsequent to the Petition Date as a result of claims filed by
parties affected by the Debtor's rejection of executory contracts, including
leases, and from the Bankruptcy Court's resolution of asserted claims, including
contingent claims and other disputed accounts. The date by which certain
prepetition creditors of the Debtor were required to file proof of their
prepetition claims was December 29, 1997.

Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts, and
other prepetition executory contracts or leases, subject to Bankruptcy Court
approval. The liabilities subject to compromise include a provision for the
estimated amount that may be claimed by lessors and allowed by the Bankruptcy
Court in connection with rejected real estate leases. Executory contracts
assumed by the Company may create additional administrative expenses.
Accordingly, such liabilities may be subject to material changes (see Note 9).

In connection with the Sale (Note 9), only certain current liabilities were
acquired and all liabilities subject to compromise were retained by Petrie
Retail.

6. Employee Benefit Plans

G & G maintains a profit sharing plan for all eligible employees that is funded
on a current basis by discretionary contributions. Profit sharing expense was
$348,000 for the seven months ended August 28, 1998.

The Company also maintains a 401(k) plan covering certain employees. The Company
does not match employee contributions to the Plan.

Certain of the Company's employees are also covered by a union sponsored,
collectively bargained, multi-employer defined benefit pension plan (the
"Plan"). Effective January 31, 1995 the Company withdrew from the Plan. In
addition, other employers


                                      F-33




<PAGE>



                                 G&G Shops, Inc.

               Notes to Combined Financial Statements (continued)

6.  Employee Benefit Plans (continued)

withdrew from the Plan. The combination of these events resulted in the
imposition of a mass withdrawal liability on the Company. An estimate of the
ultimate withdrawal liability for the Plan has been recorded by the Company as a
liability subject to compromise in the accompanying combined balance sheet. In
connection with the Sale, the estimated ultimate withdrawal liability was
retained by Petrie Retail.

7.  Transactions with Related Parties

The Company performs many of the functions of a stand-alone company; however,
Petrie Retail performed certain administrative, treasury, legal, management
information systems for payroll processing and general ledger support, and tax
services on behalf of the Company. The Company's financial statements reflect an
estimate of the costs for which there was no allocation by Petrie Retail. The
estimated costs reflected in the combined financial statements for these
additional services is $300,000 for the seven month period ended August 28,
1998. Management's estimate is based on the actual costs for outside services of
employee costs to perform these services. Management believes the amount
allocated and the method of allocation is reasonable.

The following is a summary of the intercompany activity reflected in the net
distribution to the Parent account (in thousands):


<TABLE>
<CAPTION>
                                                                          Seven
                                                                      months ended
                                                                     August 28, 1998
                                                                     ---------------
<S>                                                               <C>
Payroll and related taxes                                               $ 11,410
Health insurance                                                           1,325
Income taxes                                                               1,892
Other                                                                      1,052
                                                                        --------
Total expenditures paid by Parent on behalf of the Company                15,679

Unallocated costs                                                            300
Net cash transferred to the Parent                                       (30,119)
                                                                        --------
Net activity                                                            $(14,140)
                                                                        ========
</TABLE>

All of the Company's excess cash was transferred to the Parent. The average
amount due to the Company from Petrie Retail as of August 28, 1998 was $44.1
million.


                                      F-34




<PAGE>



                                 G&G Shops, Inc.

               Notes to Combined Financial Statements (continued)


7. Transactions with Related Parties (continued)

Included in the combined statement of income is royalty expense, which
represents an amount charged by the Parent for the use of trademarks owned by
the Parent.

Two officers of the Company were entitled to receive a success fee aggregating
approximately $3.3 million from the Company in connection with their assistance
in the sale of the Company's business (Note 9). This fee has been included in
selling, general, administrative and buying expenses in the combined statement
of income for the seven months ended August 28, 1998.

8.  Commitments and Contingencies

The Company and its subsidiaries are committed under operating leases for their
stores and warehouse facility, and equipment leases having initial terms of one
year or more expiring on various dates to 2008. Certain leases provide for
additional rentals based on a percentage of sales and for additional payments
covering real estate taxes, common area charges and other occupancy costs.

A summary of rental expense under all leases was as follows (in thousands):

<TABLE>
<CAPTION>
                                                Seven
                                            Months ended
                                           August28, 1998
                                           --------------
<S>                                     <C>
Fixed minimum                                  $11,214
Percentage rentals                               1,618
Equipment rentals                                  314
                                              --------
                                               $13,146
                                              ========
</TABLE>


Rent concessions recognized for the seven month period ended August 28, 1998
totaled approximately $600,000.


                                      F-35




<PAGE>



                                 G&G Shops, Inc.

               Notes to Combined Financial Statements (continued)


8. Commitments and Contingencies (continued)

Minimum annual lease commitments (excluding percentage rents) under
noncancelable operating leases for subsequent periods are as follows (in
thousands):

<TABLE>
<S>                                      <C>
Fiscal year ending in:
   2000                                        $17,468
   2001                                         12,893
   2002                                         10,468
   2003                                          8,033
   2004                                          4,851
   Thereafter                                    7,580
                                              --------
                                               $61,293
                                              ========
</TABLE>

The Debtors filed a voluntary petition on October 12, 1995 with the Bankruptcy
Court for relief under Chapter 11. As a debtor-in-possession, the Debtors have
the right, subject to Bankruptcy Court approval and certain other limitations,
to assume or reject executory contracts, including unexpired leases.

The Company is involved in litigation associated with the bankruptcy proceedings
and its reorganization efforts, as well as matters related to its ordinary
conduct of business. If such litigation resulted in unfavorable outcomes to the
Company, they could have a material impact on its combined financial statements.
Management believes it has meritorious defenses associated with the litigation.
In conjunction with the sale, Petrie retained all liabilities associated with
this litigation.

9.  Subsequent Event

On August 28, 1998, substantially all of the assets ("Purchased Assets") of the
junior women's apparel retail business (the "Business") conducted under the
trade names "G+G" and "Rave" and certain liabilities were sold by Petrie Retail
to an investment group including the management of the Company ("Acquirer"). The
acquisition was effectuated pursuant to an asset purchase agreement dated as of
July 6, 1998, as amended, between Petrie Retail and the Acquirer, which was
approved by the Bankruptcy Court on August 24, 1998. On October 12, 1995, the
Debtors filed petitions under Chapter 11 in the Bankruptcy Court, seeking relief
to reorganize under Chapter 11. On August 28, 1998, substantially all of the
Company's assets and certain liabilities were sold in the Sale.


                                      F-36




<PAGE>


                                 G&G Shops, Inc.

               Notes to Combined Financial Statements (continued)


9.  Subsequent Event (continued)

The purchase price paid for the Purchased Assets was $133.1 million, consisting
of $132.0 million in cash and the issuance of 15,000 shares of Class C nonvoting
common stock with a fair value of approximately $1.1 million. In addition, $23.3
million of liabilities were assumed by the Acquirer. The Purchased Assets
included, among other things: (a) all right, title and interest in over 400
store leases, as well as leases for the Business' headquarters and distribution
center, and other contracts related to the Business, (b) inventories and other
tangible personal property related to the Business, (c) equipment and fixtures
related to the Business, (d) accounts receivable, notes receivable and other
claims for money or obligations due to Petrie Retail in connection with the
business, and (e) intellectual property and goodwill associated with the
Business.

Liabilities and contingencies not assumed by the Acquirer were retained by
Petrie Retail and are managed by the trustee who oversees the bankruptcy
proceedings for Petrie Retail and its subsidiaries. Petrie Retail retained all
liabilities subject to compromise (Note 5), pension liabilities (Note 6), tax
liabilities (Note 3) and assumed all pending and threatened litigation as of
August 28, 1998.



                                      F-37




<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
3rd day of May, 2001.

                          G + G RETAIL, INC.

                          By: /s/ Jay Galin
                              -------------------------------------------------
                              Jay Galin
                              Chairman of the Board and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been duly signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
               Signature                               Title                                            Date
               ---------                               -----                                            ----
<S>                                        <C>                                                       <C>
/s/ Jay Galin                              Chairman of the Board,                                    May 3, 2001
---------------------------------          Chief Executive Officer and Director
Jay Galin                                  (Principal Executive Officer)

/s/ Scott Galin                            President, Chief Operating Officer                        May 3, 2001
---------------------------------          and Director
Scott Galin

/s/ Michael Kaplan                         Senior Vice President, Chief Financial Officer,           May 3, 2001
---------------------------------          Treasurer and Secretary (Principal Financial and
Michael Kaplan                             Principal Accounting Officer)

/s/ Donald D. Shack                        Director                                                  May 3, 2001
---------------------------------
Donald D. Shack

/s/ Craig Cogut                            Director                                                  May 3, 2001
---------------------------------
Craig Cogut

/s/ Lenard Tessler                         Director                                                  May 3, 2001
---------------------------------
Lenard Tessler
</TABLE>






<PAGE>



                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.    Description
----------     -----------
<S>            <C>
2.01           Asset Purchase Agreement, dated as of July 6, 1998, among G&G Shops, Inc.,
               the subsidiaries of G&G Shops named therein, the subsidiaries of Petrie
               Retail, Inc. named therein, PSL, Inc. and G+G Retail, Inc. (the
               "Acquisition Agreement").(1)

2.02           Amendment No. 1 to the Acquisition Agreement, dated as of July 27, 1998.(1)

2.03           Amendment to the Acquisition Agreement, dated August 24, 1998.(1)

3.01           Certificate of Incorporation of G+G Retail.(1)

3.02           Amended and Restated By-Laws of G+G Retail.(1)

4.01           Indenture, dated as of May 17, 1999, by and between G+G Retail, as issuer,
               and U.S. Bank Trust National Association, as trustee.(1)

4.02           Form of 11% Senior Note due 2006 of G+G Retail.(1)

4.03           A/B Exchange Registration Rights Agreement, dated as of May 17, 1999, by
               and between G+G Retail and U.S. Bancorp Libra.(1)

10.01          Agreement of Lease, dated November 28, 1988, between Hartz 83rd Street
               Associates and G&G Shops of Woodbridge, Inc. (the "1988 Lease").(1)

10.02          Lease Addendum, dated April 10, 1990, to the 1988 Lease.(1)

10.03          Second Lease Modification Agreement, dated February 24, 1994, to the 1988
               Lease(1)

10.04          Notification Letter, dated November 20, 1995, re: assignment of landlord's
               interest under the 1988 Lease.(1)

10.05          Assignment and Assumption Agreement, dated as of August 28, 1998, by and
               among G&G Shops, the subsidiaries of G&G Shops named therein, the
               subsidiaries of Petrie Retail named therein, PSL and G+G Retail.(1)

10.06          Employment Agreement, dated as of August 28, 1998, by and between G+G
               Retail and Jay Galin.(1)

10.07          Employment Agreement, dated as of August 28, 1998, by and between G+G
               Retail and Scott Galin.(1)

10.08          Letter Agreement, dated October 12, 1998, by and between G+G Retail and
               Michael Kaplan.(1)

10.09          Letter Agreement, dated October 12, 1998, by and between G+G Retail and
               Jeffrey Galin.(1)
</TABLE>






<PAGE>



<TABLE>
<CAPTION>
Exhibit No.    Description
----------     -----------
<S>            <C>
10.10          Amendment No. 1 to Employment Agreement, dated as of November 30, 1998, by
               and between G+G Retail and Jay Galin.(1)

10.11          Amendment No. 1 to Employment Agreement, dated as of November 30, 1998, by
               and between G+G Retail and Scott Galin.(1)

10.12          Bonus Plan for Senior Management Employees of G+G Retail, effective
               February 2, 1999.(1)

10.13          NCR Corporation Master Agreement, effective as of February 9, 1999, between
               NCR Corporation and G+G Retail.(1)

10.14          Discount Addendum, effective as of February 26, 1999, between NCR
               Corporation and G+G Retail. Portions of this exhibit have been omitted
               pursuant to an order of confidential treatment granted by the Securities
               and Exchange Commission.(1)

10.15          G&G Retail Holdings, Inc. 1999 Stock Option Plan, effective as of March 15,
               1999.(1)

10.16          Option Agreement, dated as of March 15, 1999, by and between G&G Retail
               Holdings and Jay Galin.(1)

10.17          Option Agreement, dated as of March 15, 1999, by and between G&G Retail
               Holdings and Scott Galin.(1)

10.18          Service Agreement, dated April 1, 1999, between G+G Retail and
               G&G Retail of Puerto Rico, Inc.(1)

10.19          Master Lease Purchase Agreement, dated as of May 4, 1999, by and between
               Chase Equipment Leasing, Inc. and G+G Retail.(1)

10.20          Addendum to Master Lease Purchase Agreement, effective as of May 4, 1999,
               by and between Chase Equipment Leasing and G+G Retail.(1)

10.21          Form of Exchange Agent Agreement between U.S. Bank Trust National
               Association, as exchange agent, and G+G Retail.(1)

10.22          Letter agreement, dated January 18, 2000, amending Employment
               Agreement between G+G Retail and Scott Galin.(2)

10.23          Amendment No. 2 to Employment Agreement, dated as of August 8,
               2000, by and between Jay Galin and G+G Retail, Inc.(3)

10.24          Amendment No. 3 to Employment Agreement, dated as of January 22, 2001, by
               and between G+G Retail, Inc. and Jay Galin.

10.25          Amendment No. 3 to Employment Agreement, dated as of January 22, 2001, by
               and between G+G Retail, Inc. and Scott Galin.

21.01          Subsidiaries of G+G Retail, Inc.(1)
</TABLE>

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





<PAGE>


(1)  Incorporated by reference to the registration statement on Form S-4 (File
     no. 333-81307) filed by G+G Retail, Inc. on October 4, 1999.

(2)  Incorporated by reference to the annual report on Form 10-K filed by G+G
     Retail, Inc. on April 21, 2000.

(3)  Incorporated by reference to the quarterly report on Form 10-Q filed by G+G
     Retail, Inc. on September 12, 2000.