<PAGE>

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 FORM 10-QSB/A
                                AMENDMENT NO. 1

(Mark One)

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the quarterly period ended June 30, 1998


[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934
         For the transition period from ______ to ______


                       Commission File Number: 333-22895

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

                               PIVOT RULES, INC.
       (Exact name of small business issuer as specified in its charter)

               New York                                 13-3612110
   (State or other jurisdiction of         (I.R.S. Employer Identification No.)
    incorporation or organization)

   42 West 39th Street, New York, NY                       10018
(Address of principal executive offices)                 (Zip Code)

                   Issuer's telephone number: (212) 944-8000

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

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

As of September 30, 1998, the issuer had outstanding 2,717,788 of shares of
Common Stock, $.01 par value.


Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

<PAGE>

                               PIVOT RULES, INC.
                               TABLE OF CONTENTS

                                                                           PAGE
                                                                           ----
Part I.  Financial Information

Item 1.  Financial Statements

         Condensed Balance Sheets as of June 30, 1998 (unaudited) and
         December 31, 1997                                                   3

         Condensed Statements of Operations for the six months ended
         June 30, 1998 and 1997 (unaudited)                                  4

         Condensed Statements of Operations for the three months ended
         June 30, 1998 and 1997 (unaudited)                                  5

         Condensed Statements of Cash Flows for the six months ended
         June 30, 1998 and 1997 (unaudited)                                  6

         Notes to Condensed Financial Statements                             8


Item 2.  Management's Discussion and Analysis or Plan of Operation          13

Part II. Other Information

Item 2.  Changes in Securities and Use of Proceeds                          17
Item 6.  Exhibits and Reports on Form 8-K                                   18


         Signatures                                                         19

                                       2
<PAGE>

ITEM 1. - FINANCIAL STATEMENTS

                               PIVOT RULES, INC.
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     JUNE 30,      DECEMBER 31,
                                                                                       1998            1997
                                                                                    -----------    -----------
                                                                                    (Unaudited)   (As restated)
                                                                                                     (Note D)

<S>                                                                                 <C>            <C>        
                                     ASSETS
Current assets
     Cash                                                                           $    67,000    $    55,000
     Funds deposited with factor                                                      2,449,000      1,857,000
     Inventories                                                                        236,000           --
     Prepaid expenses and other current assets                                          105,000        128,000
     Current assets of discontinued operations                                        2,058,000      4,182,000
                                                                                    -----------    -----------
              Total current assets                                                    4,915,000      6,222,000

Property and equipment, net                                                             529,000        500,000

Deferred costs and other assets                                                          15,000         15,000

Assets of discontinued operations                                                          --          414,000
                                                                                    -----------    -----------

                                                                                    $ 5,459,000    $ 7,151,000
                                                                                    ===========    ===========


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
     Accounts payable, accrued expenses and other current liabilities               $ 1,194,000    $ 1,092,000

Deferred income taxes                                                                     9,000          9,000
                                                                                    -----------    -----------

                                                                                      1,203,000      1,101,000
                                                                                    -----------    -----------

Commitments and contingencies

Shareholders' equity
     Preferred stock -$.01 par value; 2,000,000 authorized and no shares issued            --             --
     Common stock -$.01 par value; 15,000,000 authorized and 2,700,000 issued and        27,000         27,000
        outstanding
     Additional paid-in capital                                                       6,404,000      6,404,000
     Accumulated deficit                                                             (2,175,000)      (381,000)
                                                                                    -----------    -----------
                                                                                      4,256,000      6,050,000
                                                                                    -----------    -----------

                                                                                    $ 5,459,000    $ 7,151,000
                                                                                    ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       3
<PAGE>

                               PIVOT RULES, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                               SIX MONTHS ENDED
                                                                                   JUNE 30,
                                                                          --------------------------
                                                                             1998           1997
                                                                             ----           ----
                                                                                        (As restated)
                                                                                           (Note D)
<S>                                                                       <C>            <C>        
General and administrative expenses                                       $   446,000    $   365,000

Internet business start up costs                                              103,000           --

Research and development                                                      126,000           --
                                                                          -----------    -----------

Operating loss from continuing operations                                    (675,000)      (365,000)

Interest income                                                                81,000         36,000
                                                                          -----------    -----------

Loss from continuing operations before income taxes                          (594,000)      (329,000)

Income tax benefit                                                               --           45,000
                                                                          -----------    -----------

Loss from continuing operations                                              (594,000)      (284,000)
                                                                          -----------    -----------

Discontinued operations - Note D
   Loss from operations, net of income tax benefit of $25,000 in 1997        (934,000)      (226,000)
   Estimated loss on disposal, including provision for operating losses
        through disposal date, less applicable income tax benefit of $0      (266,000)          --
                                                                          -----------    -----------
Loss from discontinued operations                                          (1,200,000)      (226,000)
                                                                          -----------    -----------

         Net loss                                                         $(1,794,000)   $  (510,000)
                                                                          ===========    ===========

Basic and diluted loss per share
   Continuing operations                                                        $(.22)         $(.18)
   Discontinued operations
         Loss from operations                                                    (.34)          (.14)
         Estimated loss on disposal                                              (.10)          --
                                                                                -----          -----

   Net loss                                                                     $(.66)         $(.32)
                                                                                =====          ===== 

Weighted average shares outstanding                                         2,700,000      1,589,503
                                                                          ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       4
<PAGE>

                               PIVOT RULES, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              THREE MONTHS ENDED
                                                                                   JUNE 30,
                                                                          --------------------------
                                                                             1998           1997
                                                                             ----           ----
                                                                                        (As restated)
                                                                                           (Note D)
<S>                                                                       <C>            <C>        
General and administrative expenses                                       $   207,000    $   203,000

Internet business start up costs                                              103,000           --

Research and development                                                      126,000           --
                                                                          -----------    -----------

Operating loss from continuing operations                                    (436,000)      (203,000)

Interest income                                                                39,000         36,000
                                                                          -----------    -----------

Loss from continuing operations before income taxes                          (397,000)      (167,000)

Income tax benefit                                                               --           25,000
                                                                          -----------    -----------

Loss from continuing operations                                              (397,000)      (142,000)
                                                                          -----------    -----------

Discontinued operations - Note D
   Loss from operations, net of income tax benefit of $55,000 in 1997        (853,000)      (387,000)
   Estimated loss on disposal, including provision for operating losses
        through disposal date, less applicable income tax benefit of $0      (266,000)          --
                                                                          -----------    -----------
Loss from discontinued operations                                          (1,119,000)      (387,000)
                                                                          -----------    -----------

         Net loss                                                         $(1,516,000)   $  (529,000)
                                                                          ===========    ===========

Basic and diluted loss per share
   Continuing operations                                                        $(.15)         $(.07)
   Discontinued operations
      Loss from operations                                                       (.31)          (.20)
      Estimated loss on disposal                                                 (.10)          --
                                                                                -----          -----

         Net loss                                                               $(.56)         $(.27)
                                                                                =====          ===== 

Weighted average shares outstanding                                         2,700,000      1,974,725
                                                                          ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       5
<PAGE>

                               PIVOT RULES, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          SIX MONTHS ENDED
                                                                                               JUNE 30,
                                                                                     --------------------------
                                                                                        1998            1997
                                                                                        ----            ----
                                                                                                   (As restated)
                                                                                                       (Note D)
<S>                                                                                  <C>            <C>         
Cash flows from operating activities

   Loss from Continuing Operations                                                   $  (594,000)   $  (284,000)
   Adjustments to reconcile loss from continuing operations to net cash (used in)
     provided by operating activities:
      Depreciation and amortization                                                       40,000          6,000
      Changes in operating assets and liabilities
      (Increase) decrease in
         Inventories                                                                    (236,000)          --
         Prepaid expenses and other current assets                                        23,000       (165,000)
         Other assets                                                                       --          (15,000)
      Increase (decrease) in
         Accounts payable, accrued expenses and other current liabilities                102,000        498,000
                                                                                     -----------    -----------
Net cash (used in) provided by operating activities - Continuing Operations             (665,000)        40,000
                                                                                     -----------    -----------


   Loss from Discontinued Operations                                                  (1,200,000)      (226,000)
   Adjustments to reconcile loss from discontinued operation to net cash used in
     operating activities:
      Write-down of property and equipment                                               245,000           --
      Write-down of prepaid expenses and other current assets                             90,000           --
      Write-down of other assets                                                         119,000           --
      Amortization of deferred costs for bridge financing                                   --          286,000
      Amortization of debt discount                                                         --          104,000
      Depreciation and amortization                                                       44,000         20,000
      Changes in operating assets and liabilities                         
         (Increase) decrease in                                           
           Inventories                                                                   331,000         16,000
           Non-factored receivables                                                       14,000         12,000
           Prepaid expenses and other current assets                                    (112,000)      (166,000)
         Increase (decrease) in 
           Income taxes receivable/payable                                                (1,000)      (196,000)
                                                                                     -----------    -----------
Net cash used in operating activities - Discontinued Operations                         (470,000)      (150,000)
                                                                                     -----------    -----------

Net cash used in operating activities                                                 (1,135,000)      (110,000)
                                                                                     -----------    -----------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       6
<PAGE>

                               PIVOT RULES, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                   SIX MONTHS ENDED
                                                                                        JUNE 30,
                                                                              --------------------------
                                                                                 1998            1997
                                                                                 ----            ----
                                                                                             (As restated)
                                                                                                (Note D)
<S>                                                                               <C>            <C>     
Cash flows from investing activities - Continuing Operations
   Purchase of property and equipment                                             (69,000)       (22,000)
   Funds deposited with factor from initial public offering                          --       (4,920,000)
   (Decrease) increase in funds deposited with factor                            (592,000)       884,000
                                                                              -----------    -----------

Net cash used in investing activities - Continuing Operations                    (661,000)    (4,058,000)
                                                                              -----------    -----------

Cash flows from investing activities - Discontinued Operations
   Purchase of property and equipment                                             (22,000)       (96,000)
   Trademark costs                                                                 (1,000)        (6,000)
                                                                              -----------    -----------
Net cash used in investing activities - Discontinued Operations                   (23,000)      (102,000)
                                                                              -----------    -----------

Net cash used in investing activities                                            (684,000)    (4,160,000)
                                                                              -----------    -----------

Cash flows from financing activities - Continuing Operations
   Net proceeds from initial public offering                                         --        5,939,000
   Deferred costs associated with initial public offering                            --           53,000
                                                                              -----------    -----------
Net cash provided by (used in) financing activities - Continuing Operations          --        5,992,000
                                                                              -----------    -----------

Cash flows from financing activities - Discontinued Operations
   Deferred costs associated with bridge financing                                   --           75,000
   Net proceeds from bridge financing                                                --        1,215,000
   Repayments of notes payable and short-term loan                                   --         (644,000)
   Repayments of bridge financing                                                    --       (1,500,000)
   Net change in due to/from factor                                             1,831,000       (892,000)
                                                                              -----------    -----------
Net cash provided by financing activities - Discontinued Operations             1,831,000     (1,746,000)
                                                                              -----------    -----------

Net cash provided by financing activities                                       1,831,000      4,246,000
                                                                              -----------    -----------

Net increase (decrease) in cash                                                    12,000        (24,000)
Cash balance - December 31                                                         55,000         33,000
                                                                              -----------    -----------
Cash balance - June 30                                                        $    67,000    $     9,000
                                                                              ===========    ===========

Supplemental disclosure of cash flow information: Cash paid during the
      period for:
            Interest                                                          $    28,000    $    93,000
                                                                              ===========    ===========
            Income taxes                                                      $     1,000    $    99,000
                                                                              ===========    ===========
      Non-cash financing activities:
            Issuance of warrants in connection with bridge financing          $      --      $   138,000
                                                                              ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       7
<PAGE>

                                PIVOT RULES, INC
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30 1998 AND 1997


NOTE A - BASIS OF PRESENTATION

The condensed financial statements included herein have been prepared by Pivot
Rules, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management of the
Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed financial statements should be read
in conjunction with the condensed notes thereto. In the opinion of management
of the Company, the accompanying unaudited condensed financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary to fairly present the results for the interim periods to which these
financial statements relate.

These financial statements should be read in conjunction with the Registration
Statement filed with the Securities and Exchange Commission on Form 8-A and
Form 8-A/A and the Annual Report filed with the Securities and Exchange
Commission on Form 10-KSB. Subsequent to the filing of documents incorporated
by reference herein, the Company discontinued the operations of its golf
sportswear division. Accordingly, financial statements, management's discussion
and analysis or plan of operation contained therein do not reflect the effect
of the discontinued operations.

On June 25, 1998, the Company's Board of Directors adopted a plan to
discontinue operations of the golf sportswear division. The Company intends to
complete its existing sales commitments and liquidate its remaining inventory.
The condensed statements of operations for the three and six month periods
ended June 30, 1997 and for the condensed balance sheet as of December 31, 1997
have been restated. The financial statements have been prepared in accordance
with accounting standards for the presentation of discontinued operations.

The results of operations of the Company for the three and six months ended
June 30, 1998 are not necessarily indicative of the results to be expected for
the full year.


NOTE B - THE COMPANY

The Company is building and intends to market and promote a Web site (the "Web
site") that will offer men's, women's and children's apparel and accessories at
significant discounts as well as provide information on current trends and
other fashion related content.

In June 1998, the Company determined to discontinue the operations of its golf
sportswear division and to devote all of the Company's energy and resources to
building the Web site.


NOTE C - SIGNIFICANT ACCOUNTING POLICIES

1.  USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

                                       8
<PAGE>

                                PIVOT RULES, INC
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30 1998 AND 1997


2.  INVENTORIES

Inventories, which consist of finished goods, are valued at the lower of cost
or market. Cost is determined by the first-in, first-out ("FIFO") method.

3.  EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share excludes dilution and is computed by dividing
earnings (loss) available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings (loss) per share
is computed by dividing earnings (loss) available to common shareholders by the
weighted average number of common shares outstanding for the period, adjusted
to reflect potentially dilutive securities. Options and warrants were not
included in the computation of diluted earnings per share because the exercise
price was greater than the market price of the stock.

4.  RESEARCH AND DEVELOPMENT

Research and development costs are expensed when incurred. During the three and
six month periods ending June 30, 1998, amounts charged to research and
development were $126,000.

5.  START UP COSTS

During the three-month period ending June 30, 1998, the Company adopted
Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-Up
Activities". Start-up activities include (i) one-time activities relating to
the introduction of a new product or service, conducting business in a new
territory, conducting business with a new class of customer or commencing a new
operation and (ii) organization costs. Start-up activities are expensed as
incurred. During the three and six month periods ending June 30, 1998, $103,000
of start-up costs relating to the formation of the Internet business were
incurred and charged to operations. The Company believes that there is no
cumulative effect on the amount of retained earnings at December 31, 1997
resulting from the adoption of SOP 98-5.

6.  RECLASSIFICATION

The 1997 financial statements have been reclassified in order to conform with
the 1998 presentation. See Note D relating to the restatement of the financial
statements in connection with the discontinuance of the golf sportswear
division.

NOTE D - DISCONTINUED OPERATIONS

The operating loss from discontinued operations of $934,000 includes a $454,000
loss relating to the write down of the assets of the golf sportswear division.
The estimated future loss on the disposal of the discontinued operations of
$266,000 represents the provision for expected operating losses during the
phase-out period.

During the phase-out period the Company will not place any future orders with
its suppliers for additional merchandise related to the golf sportswear
division. The Company anticipates that it will ship all open customer purchase
orders for the current season's merchandise early in the fourth quarter of
1998. In addition the Company will retain the services of several staff members
during the phase-out period in an effort to liquidate any remaining inventory.
The Company anticipates that a substantial portion of these efforts will be
completed by year-end. Management believes that it has established adequate
reserves for any unrecoverable inventory costs.

During the phase-out period, the Company will continue to aggressively pursue
the collection of account receivables related to prior and future sales.
Management has historically factored a majority of its account receivables and
intends to continue this practice during the phase-out period. Management
believes that it has established adequate reserves for uncollectable account
receivables.

                                       9
<PAGE>

                                PIVOT RULES, INC
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30 1998 AND 1997


The Company intends to actively pursue the sale of all fixed assets and
trademarks related to the golf sportswear division (See Note G - Subsequent
Events). The sale of these assets could take several months to accomplish.

The disposal of the golf sportswear division has been accounted for as a
discontinued operation and, accordingly, the Company's net assets have been
segregated from continuing operations in the accompanying condensed balance
sheets, and its operating results are segregated and reported as discontinued
operations in the accompanying condensed statements of operations and cash
flows.

Information relating to the discontinued operations of the golf sportswear
division for the six months ended June 30, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                       JUNE 30,       JUNE 30,
                                                         1998           1997
                                                         ----           ----
                                                     (Unaudited)    (Unaudited)
<S>                                                  <C>            <C>        
Net sales                                            $ 2,387,000    $ 4,406,000
Cost of sales                                          2,208,000      3,229,000
                                                     -----------    -----------
      Gross profit                                       179,000      1,177,000
Selling, marketing, design and administrative            769,000        899,000
Write down of property and equipment                     364,000           --
                                                     -----------    -----------
      Operating (loss) income                           (954,000)       278,000

Other income (expense)                                    20,000       (243,000)
Amortization and write-off of deferred costs for
  bridge financing                                          --         (286,000)
                                                     -----------    -----------
     Loss before provision for income taxes             (934,000)      (251,000)

Benefit for income taxes                                    --           25,000
                                                     -----------    -----------

     Net loss                                        $  (934,000)   $  (226,000)
                                                     ===========    ===========
</TABLE>

The net assets of the golf sportswear division included in the accompanying
condensed balance sheets as of June 30, 1998 and December 31, 1997 are as
follows:

<TABLE>
<CAPTION>
                                                         JUNE 30,   DECEMBER 31, 
                                                           1998        1997
                                                           ----        ----
                                                       (Unaudited) (As restated)
<S>                                                    <C>          <C>       
Due from factor                                        $  433,000   $2,264,000
Non-factored receivables                                   37,000       51,000
Inventories                                             1,082,000    1,413,000
Prepaid expenses and other current assets                 193,000      157,000
Income taxes receivable                                   204,000      203,000
Property and equipment, net                                15,000         --
Deferred income taxes                                      94,000       94,000
                                                       ----------   ----------
     Total current assets of discontinued operations   $2,058,000   $4,182,000
                                                       ==========   ==========

Property and equipment, net                            $     --     $  274,000
Deferred costs and other assets                              --        140,000
                                                       ----------   ----------
     Total assets of discontinued operations           $     --     $  414,000
                                                       ==========   ==========
</TABLE>

                                      10
<PAGE>
                                PIVOT RULES, INC
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30 1998 AND 1997

The Company's liabilities will not be assumed by others, therefore, in
accordance with the accounting standards for the presentation of discontinued
operations all liabilities are recorded as continuing operations.

NOTE E - LONG LIVED ASSETS

The Company's policy is to evaluate long-lived assets and certain identifiable
intangibles for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. This
evaluation is based on a number of factors, including expectations for
operating income and undiscounted cash flows that will result from the use of
such assets.

The Company has identified certain long-lived assets specifically relating to
the golf sportswear division that have no future value. Accordingly, as of June
30, 1998 the Company has written-off the net book amount of these assets,
aggregating $364,000, and such amount is included in Discontinued
Operations-Loss from operations. The net book amount on the measurement date
(June 25, 1998) was:

<TABLE>
<CAPTION>
             PROPERTY AND EQUIPMENT
             ----------------------
             <S>                                      <C>      
             Leasehold improvements                   $  20,000
             Concept area fixtures                      270,000
             Office equipment                            65,000
             Computer software                           20,000
                                                      ---------
                                                        375,000
             Less accumulated depreciation              130,000
                                                      ---------
                                                      $ 245,000
                                                      =========

             DEFERRED COSTS AND OTHER ASSETS
             -------------------------------
             Trademarks                               $ 174,000
             Less accumulated amortization               55,000
                                                      ---------
                                                      $ 119,000
                                                      =========
</TABLE>

Certain assets for the discontinued operations relating to the warehouse
operations will remain in use until approximately October 31, 1998. As of June
30, 1998, the net book amount of these assets is as follows:

<TABLE>
<CAPTION>
             PROPERTY AND EQUIPMENT
             ----------------------
             <S>                                      <C>      
             Leasehold improvements                   $  12,000
             Computer equipment                          34,000
                                                      ---------
                                                         46,000
             Less accumulated depreciation               31,000
                                                      ---------
                                                      $  15,000
                                                      =========
</TABLE>

NOTE F -COMMITMENTS AND CONTINGENCIES

In July 1998, the Company entered into an employment agreement, effective June
15, 1998, with its Executive Vice President. The employment agreement expires
on July 31, 2002 and provides for a base salary and discretionary annual
bonuses. In addition, the employment agreement provides for two option grants,
one upon commencement of employment and the second on July 31, 1998.

                                      11
<PAGE>

                                PIVOT RULES, INC
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                             JUNE 30 1998 AND 1997


NOTE G -SUBSEQUENT EVENTS

In July 1998, the Company entered into an employment agreement with its
Executive Vice President of Operations, who will be subsequently appointed on
August 31, 1998 to serve as Chief Financial Officer. The employment agreement
expires on July 13, 2002 and provides for a base salary and discretionary
annual bonuses. In addition, the employment agreement provides for an option
grant upon commencement of employment.

In May 1998, the Company entered into an agreement ("Agreement") with a web
development agency ("Agency"), which was subsequently amended on August 17,
1998, to create and design its Web site. The Agreement requires total
compensation of a combination of cash and Common Stock of the Company valued at
the market price on the date of the Agreement. The Company has agreed to pay
additional cash compensation if certain performance objectives are met. On 
July 1, 1998, the Company issued 17,788 shares of Common Stock valued at $2.00
per share. The remaining shares of Common Stock will vest upon the satisfaction
of certain performance objectives.

                                      12

<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The Company is building and intends to market and promote the Web site that
will offer men's, women's and children's apparel and accessories at significant
discounts as well as provide information on current trends and other fashion
related content.

The Company began the research of the Web site in March 1998, and in May 1998
the Company's Board of Directors approved the formation of the Internet
division. The Company is using its experience and relationships in the fashion
industry, knowledge of fashion trends and its marketing skills to build and
promote its Web site. The Company believes that the projected growth in the
number of Internet users (and, in particular the number of female users), the
high disposable income of today's Internet shopper, and the absence of a
dominant online apparel and fashion accessory retailer, combine to create a
highly favorable climate in which to launch the Web site.

The Company is designing its online store to combine the best traditional
retailing practices with innovative and convenient features made possible by
the Internet. As an online commerce and content provider, the Company intends
to provide a compelling and enjoyable online shopping experience that includes
a broad selection of name brand products at significant discounts to retail
prices, an intuitive store layout, friendly customer service, a visually
pleasing environment, a liberal return policy, the convenience of shopping from
home in a store that never closes, and sophisticated search technology features
which will allow customers to locate quickly the items which interest them.

In June 1998, the Company determined to discontinue the operations of its golf
sportswear division and to devote all of the Company's energy and resources to
building the Web site. The golf sportswear division had been operating at a
loss, and despite efforts to promote the brand, orders for the sportswear
collection had been significantly below the Company's business plan and even
further below the prior year's levels. As a result, the Company discontinued
the operations of this division in June 1998. The Company has accrued $266,000
for future anticipated losses relating to the discontinuation of such division.

YEAR 2000 ISSUES

The Company will be interacting with certain computer programs in connection
with credit card transactions, fulfillment operations, and programs used by the
Company's vendors and suppliers. These programs may refer to annual dates only
by the last two digits (e.g., "97" for "1997"), and could lose functionality in
the year 2000. While the Company believes that all of its internal programs are
year 2000 compliant ("Compliant"), the Company cannot guarantee that all of the
other companies with which the Company interacts has taken the year 2000
problem into account or has otherwise updated their programs. The Company does
not believe it will incur any material expenditures in connection with respect
to making its own programs Compliant but cannot predict what, if any,
expenditures will be required in the event that one or more of the companies
with which it interacts is not Compliant. Such problem could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1998 ("FIRST HALF OF 1998") COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1997 ("FIRST HALF OF 1997")

RESULTS FOR CONTINUING OPERATIONS

General and administrative expenses increased by $81,000, or 22.2% in the First
Half of 1998 to $446,000 from $365,000 in the First Half of 1997. This increase
was primarily a result of the additional costs in operations relating to public
company filings, registration fees, and other related expenses and as a result
of an increase in depreciation expense of $32,000 and insurance expense of
$20,000 resulting from the Company's Director's and Officer's liability policy.

The Company has incurred start up costs of $103,000 in the First Half of 1998.
These costs relate to the start up of its Internet business. The Company
anticipates that such costs will continue until the Web site reaches productive
capacity.

The Company has incurred research and development costs of $126,000 in the
First Half of 1998 primarily relating to the design and development of the
Company's Web site. The Company anticipates that it will incur additional
research and development costs in the future.

                                      13
<PAGE>

The Company earned interest of $81,000 and $36,000 on the proceeds from the
Company's 1997 initial public offering ("IPO") in the First Half of 1998 and
1997, respectively.

The Company's loss from continuing operations increased by $310,000 to a net
loss of $594,000 in the First Half of 1998 from a loss of $284,000 in the First
Half of 1997. The loss in the First Half of 1997 was offset by an income tax
benefit of $45,000.

RESULTS FOR DISCONTINUED OPERATIONS

In June 1998, the Company discontinued the operations of its golf sportswear
division. The Company's condensed financial statements present the operating
loss, estimated loss on disposal, and net assets of the discontinued operations
separately from continuing operations. Prior periods have been restated to
conform with this presentation. Discontinued operations for the First Half of
1998 reflect a loss from operations of $934,000 net of tax. The loss from
operations includes a loss of $454,000 relating to the disposal of the assets
of the golf sportswear division. The net sales of this division decreased by
$2,019,000, or 45.8%, to $2,387,000 in the First Half of 1998 from $4,406,000
in the First Half of 1997. Gross profit decreased by $998,000, or 84.8%, to
$179,000 in the First Half of 1998 from $1,177,000 in the First Half of 1997.
This decrease is a result of the decrease in sales volume as well as due to
approximately $250,000 in inventory markdowns that were recorded in the First
Half of 1998. The additional markdowns were recorded due to the level of
inventory on hand that the Company will have to sell in the close-out market
resulting from the discontinued operations.


THREE MONTHS ENDED JUNE 30, 1998 ("SECOND QUARTER OF 1998") COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1997 ("SECOND QUARTER OF 1997")

RESULTS FOR CONTINUING OPERATIONS

General and administrative expenses increased by 4,000, or 2.0% in the Second
Quarter of 1998 to $207,000 from $203,000 in the Second Quarter of 1997. This
increase is a result of the additional costs in operations relating to the
Company completing the IPO in May 1997 and due to the increase in depreciation
expense due to the property and equipment purchased in the fourth quarter of
1997. This increase is offset by a decrease in employee's salaries from the
allocation of $52,000 to the start up costs of the Internet business.

The Company has incurred start up costs of $103,000 in the Second Quarter of
1998. These costs relate to the start up of its Internet business. The Company
anticipates that such costs will continue until the Internet business is
operational.

The Company has incurred research and development costs of $126,000 in the
Second Quarter of 1998 primarily relating to the design and development of the
Company's Web site. The Company anticipates that it will incur additional
research and development costs in the future.

The Company earned interest of $39,000 and $36,000 on the proceeds from the IPO
in the Second Quarter of 1998 and 1997, respectively.

The Company's loss from continuing operations increased by $255,000 to a net
loss of $397,000 in the Second Quarter of 1998 from a loss of $142,000 in the
Second Quarter of 1997. The loss in the Second Quarter of 1997 was offset by an
income tax benefit of $25,000.


RESULTS FOR DISCONTINUED OPERATIONS

In June 1998, the Company discontinued the operations of its golf sportswear
division. The Company's condensed financial statements present the operating
loss, estimated loss on disposal, and net assets of the discontinued operations
separately from continuing operations. Prior periods have been restated to
conform with this presentation. Discontinued operations for the Second Quarter
of 1998 reflect a loss from operations of $853,000 net of tax. The loss from
operations includes a loss of $454,000 relating to the disposal of the assets
of the golf sportswear division. The net sales of this division decreased by
$1,138,000, or 56.6%, to $872,000 in the Second Quarter of 1998 from $2,010,000
in the Second Quarter of 1997. Gross profit decreased by

                                      14
<PAGE>

$383,000, or 67.8%, to $182,000 in the Second Quarter of 1998 from $565,000 in
the Second Quarter of 1997. This decrease is a result of a decrease in sales
volume as well as the lower gross margins associated with sales in the closeout
market. In the Second Quarter of 1998, approximately 48.2% of the Company's
sales were to the closeout market as compared to less than 1% in the Second
Quarter of 1997. The decrease was also attributable to approximately $150,000
in inventory markdowns that were recorded in the Second Quarter of 1998. The
additional markdowns were recorded due to the level of inventory on hand that
the Company will have to sell in the closeout market resulting from the
discontinued operations.


LIQUIDITY AND CAPITAL RESOURCES

The Company's primary funding requirements are to finance working capital and
the launch and marketing of the Web site. These requirements will increase as a
result of the start up costs and working capital needed for the Web site. Based
upon its current business plan, the Company believes it has sufficient
resources to finance its working capital needs for at least the next twelve
months.

The discontinued golf sportswear division has assets of $2,058,000, of which
$1,082,000 represents inventory. The Company intends to honor the sales order
commitments of its discontinued operations for its Fall 98 collection and is
liquidating all remaining inventories to the closeout market.

CASH FLOW - CONTINUING OPERATIONS

During the First Half of 1998, net cash used by operating activities was
$665,000 compared to cash provided by operating activities of $40,000 in the
First Half of 1997. The increase in cash used by operations was primarily the
result of increases in the Company's loss from continuing operations as well as
$236,000 in purchases of inventory of the Web site.

During the First Half of 1998, net cash used in investing activities was
$661,000, compared to $4,058,000 in the First Half of 1997. The cash used in
the First Half of 1998 was the result of deposits made with the Company's
factor ("Factor"). In the First Half of 1997, the Company completed the IPO.
Such funds were deposited with the Factor and invested at a rate of 1.75% below
prime. Funds are transferred into the Company's operating account as needed.

During the First Half of 1997, the Company completed the IPO and received net
proceeds of $5,939,000. The funds, net of debt repayments of approximately
$2,144,000 and deferred costs relating to the IPO were deposited with the
Factor.

Factoring Agreement: The Company is party to a Retail Collection Factoring
Agreement ("Factoring Agreement") pursuant to which the Company sells all of
its eligible accounts receivable to the Factor. The Company renegotiated such
agreement in November 1997. The Company is eligible for advances, at the
Factor's discretion, of up to 90% of the net balance due on eligible accounts
receivable. As a result of the discontinuation of the golf sportswear division,
the Company anticipates that it will have factored receivables only through
October 1998. Borrowings thereafter would require a renegotiation of the
Agreement. There can be no assurance that such agreement can be attained. At
June 30, 1998, there was approximately $2,449,000 in funds invested with the
Factor under the Factoring Agreement and approximately $433,000 in factored
receivables, net of returns and allowances. Interest on the net amount due is
payable monthly in arrears at the rate of 1% above the Chase Manhattan Bank, NA
prime rate ("Prime"). Interest on the net receivable is received monthly in
arrears at the rate of 1.75% below Prime


SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain written and oral statements made or incorporated by reference from time
to time by the Company or its representatives in this report, other reports,
filings with the Securities and Exchange Commission, press releases,
conferences, or otherwise, are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 (the "Act").
Forward-looking statements include, without limitation, any statement that may
predict, forecast, indicate, or imply future results, performance, or
achievements, and may contain the words "believe," "anticipate," "expect,"
"estimate," "project," "will be," "will continue," "will likely result," or
words or phrases of similar meaning. Forward-looking statements involve risks
and uncertainties that may cause actual results to differ materially from the
forward-looking statements. The risks and uncertainties are detailed from time
to time in reports filed by the Company with the Securities and Exchange
Commission, including Forms 8-A, 8-K, 10-QSB, and 10-KSB, and include, among
others, the following: lack of operating history of Internet business; risks

                                      15
<PAGE>

associated with the start-up of the Internet business; limited working capital
(possible need for additional financing); recent losses and anticipated future
losses; competition; the potential for competitors with greater resources to
enter such business and the Company's lack of experience in such business; risk
of litigation for sale of unauthentic or damaged goods; dependence on third
parties and certain relationships; availability of merchandise; uncertain
acceptance of the Company's brand; risk of capacity constraints; reliance on
internally developed systems; system development risks; consumer acceptance of
the Internet as a medium for purchasing apparel; the capital intensive nature
of such business taking into account the need for advertising to promote a Web
site; seasonality and quarterly fluctuations and the Company's ability to
retain qualified personnel for the Internet business. The risks included herein
are not exhaustive. Other sections of this report may include additional
factors that could adversely impact the Company's business and financial
performance. Moreover, the Company operates in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for management to predict all such risk factors, nor can it assess the
impact of all such risk factors in the Company's business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.

                                      16
<PAGE>

PART II
-------

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

Effective May 15,1997, the Company completed the IPO (Commission File No.
333-22895). The representative of the underwriters of the IPO was Southeast
Research Partners, Inc. (formerly known as GKN Securities Corp). The following
table shows the title of each class of securities registered and the title of
any class of securities into which such securities may be converted, if any:

              (1)  Units
              (2)  Common Stock
              (3)  Warrants
              (4)  Representative's Unit Purchase Option
              (5)  Bridge Warrants

    UNITS: Each Unit consists of one share of Common Stock and one Warrant.

    WARRANTS: Each Warrant is exercisable into one share of Common Stock at
    $5.00 per share, subject to adjustment, at any time until the close of
    business on May 15, 2002.

    REPRESENTATIVE'S UNIT PURCHASE OPTION: Representative's right to purchase
    up to 150,000 Units for an aggregate price of $100.

    BRIDGE WARRANTS: Warrants issued to certain persons in connection with the
    Company's January 1997 bridge financing which were converted in May 1997
    (on a one-for-one basis) into the Warrants.

The following table represents the amount and aggregate offering price of
securities registered and sold:

<TABLE>
<CAPTION>
                                            Aggregate offering
                                              Price of Amount                    Aggregate Offering
 Title of Security     Amount Registered        Registered       Amount Sold    Price of Amount Sold
 -----------------     -----------------        ----------       -----------    --------------------
<S>                        <C>                  <C>               <C>                 <C>       
         Unit              1,725,000            $8,625,000        1,500,000           $7,500,000

Representative's Unit
   Purchase Option             1                    $100              1                  $100
</TABLE>

The net offering proceeds totaled $5,939,343 after deducting total expenses
listed below. The following amounts represent total expenses in connection with
issuance and distribution of the securities registered for each category listed
below:

    Underwriting discounts and commissions                             $750,000
    Expenses paid to or for underwriters                                243,335
    Other expenses                                                      567,321

    The amounts shown above represent direct or indirect payments to others.

                                      17
<PAGE>

Based upon the Company's decision to discontinue the operations of the golf
sportswear division and build and promote its Web site, the Company has
reallocated its use of proceeds accordingly by adding to the description of
Working Capital and general corporate purposes to include costs related to the
Web site. As of June 30, 1998, the net offering proceeds of $5,939,343 were
used for the following cash expenditures:

    Repayment of indebtedness and other obligations
      (with interest)                                              $2,031,580 *
    Marketing and advertising                                         908,115
    Installation of concept shops and/or concept areas                232,964
    Construction of plant, building, and facilities                   276,489
    Working capital and general corporate purposes
      including fixed assets - computer hardware and software
      and costs relating to the Web site                            1,785,000

* Includes $181,866 repaid to Northstar Investment Group, Ltd., a company in
which Mr. Joseph Boughton, Jr., a 16.3% shareholder prior to the IPO, served as
President. Giving effect to the sale of Common Stock in the IPO, Mr. Boughton's
percentage of ownership in the Company was reduced to 7.5%.

The balance of the proceeds have been deposited with the Company's factor and
invested at a rate of 1.75% below Prime. The amounts shown above represent
direct or indirect payments to others.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) The following is a list of exhibits filed as part of this Report:

    EXHIBIT NO.    DESCRIPTION
    -----------    -----------

      10.24*       Employment Agreement dated as of July 13, 1998 by and 
                   between Pivot Rules, Inc. and Patrick Barry.

      10.25*       Agreement dated as of June 15, 1998 by and between Pivot 
                   Rules, Inc. and Jonathan Morris.

      10.27        Agreement dated as of May 13, 1998 by and between Pivot
                   Rules, Inc. and Kaufman Patricof Enterprises ("KPE").

      10.28        Amendment to Agreement dated August 17, 1998 between Pivot
                   Rules, Inc. and KPE.

      27           Financial Data Schedule.

----------
 *  Exhibits to the Company's Quarterly Report on Form 10-QSB for the fiscal 
    quarter ended June 30, 1998, filed with the Securities and Exchange 
    Commission on August 10, 1998.

(b) Reports on Form 8-K.

There were no reports on form 8-K filed by the registrant during the three
months ended June 30, 1998.

                                      18
<PAGE>

                                   SIGNATURES


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


                                            PIVOT RULES, INC.

                                            By: /s/ E. Kenneth Seiff
                                               ---------------------------
                                               E. Kenneth Seiff
                                               President


                                            By: /s/ Patrick C. Barry
                                               ---------------------------
                                               Patrick C. Barry
                                               Chief Financial Officer

October 19, 1998