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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: March 31, 2010

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

For the transition period from ____________ to _____________

Commission File Number: 000-28543

SUNSET SUITS HOLDINGS, INC.(Exact name of registrant as specified in its charter)

|Nevada                          | 26-1516905               
|------------------------------- | -------------------------
|(State or other jurisdiction of | (I.R.S. Empl. Ident. No.)
|incorporation or organization)  |                          

ul. Starołęcka 18 61-361 Poznań, Poland 
(Address of principal executive offices, Zip Code)

+48 (61) 642 40 04 (Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has 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 [     ]

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).

Yes [     ]            
No [     ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

|Large Accelerated Filer [     ]               | Accelerated Filer [     ]      
|--------------------------------------------- | -------------------------------
|                                              |                                
|Non-Accelerated Filer [     ]                 | Smaller reporting company
[ X ]
|(Do not check if a smaller reporting company) |                                

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

Yes [     ]            
No [ X ]

The number of shares outstanding of each of the issuers classes of common equity, as of May 20, 2010 is as follows: 12,499,645

|Class of Securities            | Shares Outstanding
|------------------------------ | ------------------
|Common Stock, $0.001 par value | 12,499,645        

Transitional Small Business Disclosure Format (check one):

Yes [     ]            
No [ X ]

1

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ITEM 1.     FINANCIAL STATEMENTS

SUNSET SUITS HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 AND 2009

TABLE OF CONTENTS

|                                                                                                |  | Page | 
|----------------------------------------------------------------------------------------------- |  | ---- | 
|Condensed Consolidated Balance
      Sheets                                                     |  | 2    | 
|Unaudited Condensed Consolidated Statements of
      Operations and Comprehensive Income (Loss) |  | 3    | 
|Unaudited Condensed Consolidated
      Statements of Cash Flows                                 |  | 4    | 
|Unaudited Condensed Consolidated Statement of
      Changes in Stockholders Equity             |  | 5    | 
|Notes to Unaudited Condensed
      Consolidated Financial Statements                            |  | 6    | 

1

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Sunset Suits Holdings, Inc.

Condensed Consolidated Balance Sheets

|Balance Sheet as of                                                          |   | March 31, |  |   | December 31, | 
|---------------------------------------------------------------------------- | - | --------- |  | - | ------------ | 
|                                                                             |   | 2010      |  |   | 2009         | 
|                                                                             |   | unaudited |  |   |              | 
|ASSETS                                                                       |   |           |  |   |              | 
|Current assets:                                                              |   |           |  |   |              | 
|Cash and cash equivalents                                                    | $ | 169       |  | $ | 379          | 
|Accounts receivable                                                          |   | 2,154     |  |   | 1,261        | 
|Receivables from
      related parties                                       |   | 1,874     |  |   | 815          | 
|Other trade receivables                                                      |   | 280       |  |   | 446          | 
|Inventories                                                                  |   | 2,495     |  |   | 3,220        | 
|Deferred taxes                                                               |   | 726       |  |   | 734          | 
|Prepaid expenses and other current
      assets                              |   | 776       |  |   | 235          | 
|Assets held for sale                                                         |   | 0         |  |   | 3,653        | 
|Total current assets                                                         |   | 6,320     |  |   | 9,482        | 
|                                                                             |   |           |  |   |              | 
|Non-current assets                                                           |   |           |  |   |              | 
|Property and equipment, less accumulated
      depreciation and amortization |   | 3,718     |  |   | 3,767        | 
|Other intangible assets, net                                                 |   | 2,124     |  |   | 2,140        | 
|Deferred taxes                                                               |   | 24        |  |   | 24           | 
|Long term investments                                                        |   | 2,282     |  |   | 2,538        | 
|Assets held for sale                                                         |   | 0         |  |   | 7,694        | 
|Total non-current assets                                                     |   | 8,148     |  |   | 16,164       | 
|                                                                             |   |           |  |   |              | 
|Total assets                                                                 | $ | 14,468    |  | $ | 25,646       | 
|                                                                             |   |           |  |   |              | 

The accompanying notes are an integral part of these
condensed consolidated financial statements

2

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Sunset Suits Holdings, Inc. 
Condensed Consolidated Balance Sheets

|Balance Sheet as of                                                                          |   | March 31, |   |   | December 31, |  
|-------------------------------------------------------------------------------------------- | - | --------- | - | - | ------------ | -
|                                                                                             |   | 2010      |   |   | 2009         |  
|                                                                                             |   | unaudited |   |   |              |  
|                                                                                             |   |           |   |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                          |   |           |   |   |              |  
|Current liabilities:                                                                         |   |           |   |   |              |  
|Short-term borrowings                                                                        | $ | 38        |   | $ | 41           |  
|Current portion of finance lease payable                                                     |   | 5         |   |   | 3            |  
|Current portion of long-term debt                                                            |   | 2,024     |   |   | 1,823        |  
|Accounts payable                                                                             |   | 4,408     |   |   | 3,335        |  
|Income and other taxes payable                                                               |   | 3,489     |   |   | 3,300        |  
|Accrued employee compensation and benefits                                                   |   | 554       |   |   | 414          |  
|Accrued liabilities and other                                                                |   | 251       |   |   | 296          |  
|Liabilities associated with assets held for sale                                             |   | 0         |   |   | 9,808        |  
|Total current liabilities                                                                    |   | 10,768    |   |   | 19,020       |  
|                                                                                             |   |           |   |   |              |  
|Non-current liabilities:                                                                     |   |           |   |   |              |  
|Provisions                                                                                   |   | 211       |   |   | 138          |  
|Long-term debt                                                                               |   | 4,754     |   |   | 4,942        |  
|Liabilities associated with assets held for sale                                             |   | 0         |   |   | 7,753        |  
|Total non-current liabilities                                                                |   | 4,965     |   |   | 12,832       |  
|                                                                                             |   |           |   |   |              |  
|Stockholders equity:                                                                         |   |           |   |   |              |  
|Preferred stock $0.001 par value, shares authorized
      and issued: none                   |   | 0         |   |   | 0            |  
|Common stock, $0.001 par value, shares
      authorized: 12,499,645 shares issued 12,499,645 |   | 12        |   |   | 12           |  
|Additional paid-in capital                                                                   |   | 11,883    |   |   | 11,883       |  
|Net income (loss)                                                                            |   | 4,960     |   |   | (5,034       | )
|Retained earnings (deficit)                                                                  |   | (9,976    | ) |   | (4,942       | )
|Accumulated other comprehensive
      income (loss)                                          |   | (8,143    | ) |   | (8,125       | )
|Total stockholders equity                                                                    |   | (1,265    | ) |   | (6,207       | )
|                                                                                             |   |           |   |   |              |  
|Total liabilities and stockholders' equity                                                   | $ | 14,468    |   | $ | 25,646       |  
|                                                                                             |   |           |   |   |              |  

The accompanying notes are an integral part of these
condensed consolidated financial statements

3

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Sunset Suits Holdings, Inc. 
Condensed Consolidated Statement of Operations

|Statement of Operations for the period of                                |   | Three Months Ended |   |   | Three Months Ended |   |   | Twelve Months Ended |  
|------------------------------------------------------------------------ | - | ------------------ | - | - | ------------------ | - | - | ------------------- | -
|                                                                         |   | March 31,          |   |   | March 31,          |   |   | December 31,        |  
|                                                                         |   | 2010               |   |   | 2009               |   |   | 2009                |  
|                                                                         |   | unaudited          |   |   | unaudited          |   |   |                     |  
|Net sales, retail shops                                                  | $ | 4,414              |   | $ | 5,695              |   | $ | 26,586              |  
|Net sales                                                                |   | 4,414              |   |   | 5,695              |   |   | 26,586              |  
|Cost of goods sold                                                       |   | 2,100              |   |   | 2,157              |   |   | 11,319              |  
|Gross profit                                                             |   | 2,314              |   |   | 3,538              |   |   | 15,267              |  
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|Operating expenses:                                                      |   |                    |   |   |                    |   |   |                     |  
|Sales and marketing, including:                                          |   | 3,464              |   |   | 3,573              |   |   | 16,463              |  
|expenses from related parties                                            |   | 345                |   |   | 620                |   |   | 1,871               |  
|expenses from unrelated
      parties                                    |   | 3,119              |   |   | 2,953              |   |   | 14,592              |  
|General and administrative, including:                                   |   | 410                |   |   | 381                |   |   | 2,075               |  
|Total operating expenses                                                 |   | 3,874              |   |   | 3,954              |   |   | 18,538              |  
|Operating income (loss)                                                  |   | (1,561             | ) |   | (416               | ) |   | (3,271              | )
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|Gain (loss) on disposal of fixed assets, net                             |   | (60                | ) |   | (4                 | ) |   | (647                | )
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|Interest income                                                          |   | 1                  |   |   | 19                 |   |   | 4                   |  
|Interest expense                                                         |   | 274                |   |   | 177                |   |   | 554                 |  
|Gain (loss) on transaction in foreign currency                           |   | (37                | ) |   | (21                | ) |   | (74                 | )
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|Income (loss) before income taxes                                        |   | (1,931             | ) |   | (599               | ) |   | (4,542              | )
|Income tax expense (benefit)                                             |   | 570                |   |   | 126                |   |   | 468                 |  
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|Income (loss) from Continuing
      Operations                           | $ | (1,361             | ) | $ | (473               | ) | $ | (4,073              | )
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|Discontinued Operations:                                                 |   |                    |   |   |                    |   |   |                     |  
|Income (loss) from discontinued operations, net of tax of $ 87 (benefit) |   | (509               | ) |   | (1,062             | ) |   | (961                | )
|Gain on disposal of production facility held for sale, net
      of tax  |   | 6,831              |   |   | 0                  |   |   | 0                   |  
|Income (loss) from Discontinued
      Operations                         | $ | 6,321              |   | $ | (1,062             | ) | $ | (961                | )
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|Net Income (Loss)                                                        | $ | 4,960              |   |   | (1,534             | ) |   | (5,034              | )
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|Earnings (loss) per share                                                |   |                    |   |   |                    |   |   |                     |  
|Continuing operations                                                    | $ | (0.11              | ) | $ | (0.04              | ) | $ | (0.33               | )
|Discontinued operations                                                  | $ | 0.51               |   | $ | (0.08              | ) | $ | (0.08               | )
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|Earnings (loss) per share (basic and diluted)                            | $ | 0.40               |   | $ | (0.12              | ) | $ | (0.40               | )
|                                                                         |   |                    |   |   |                    |   |   |                     |  
|Shares used in computing per share amounts:                              |   |                    |   |   |                    |   |   |                     |  
|Weighted average common shares
      outstanding                         |   | 12,499,645         |   |   | 12,499,645         |   |   | 12,499,645          |  
|                                                                         |   |                    |   |   |                    |   |   |                     |  

The accompanying notes are an integral part of these
condensed consolidated financial statements

4

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Sunset Suits Holdings, Inc. 
Condensed Consolidated Statement of Cash Flows

|                                                                                                     |   | Three Months |   |   | Three Months |   |   | Twelve Months |  
|---------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------- | -
|Cash Flow for the period of                                                                          |   | Ended        |   |   | Ended        |   |   | Ended         |  
|                                                                                                     |   | March 31,    |   |   | March 31,    |   |   | December 31,  |  
|                                                                                                     |   | 2010         |   |   | 2009         |   |   | 2009          |  
|                                                                                                     |   | unaudited    |   |   | unaudited    |   |   |               |  
|Cash flows from operating activities:                                                                |   |              |   |   |              |   |   |               |  
|Net income (loss)                                                                                    | $ | 4,960        |   | $ | (1,534       | ) | $ | (5,034        | )
|Adjustments to reconcile net income (loss) to cash provided
      by (used in) operating activities: |   |              |   |   |              |   |   |               |  
|Depreciation and amortization                                                                        |   | 265          |   |   | 191          |   |   | 1,017         |  
|Loss (gain) on property and equipment disposals                                                      |   | 0            |   |   | 0            |   |   | 589           |  
|Gain on  sale of production
      facility held for sale                                             |   | (6,831       | ) |   | 0            |   |   | 0             |  
|Deferred income taxes                                                                                |   | (101         | ) |   | (112         | ) |   | (766          | )
|Changes in assets and liabilities:                                                                   |   |              |   |   |              |   |   |               |  
|Accounts receivable                                                                                  |   | (556         | ) |   | 772          |   |   | 2,858         |  
|Inventories                                                                                          |   | 409          |   |   | (355         | ) |   | 351           |  
|Prepaid expenses and other current assets                                                            |   | (280         | ) |   | (969         | ) |   | (1,629        | )
|Accounts payable                                                                                     |   | 1,011        |   |   | 1,015        |   |   | 1,636         |  
|Other liabilities                                                                                    |   | 1,267        |   |   | 797          |   |   | 2,835         |  
|                                                                                                     |   |              |   |   |              |   |   |               |  
|Net cash provided by (used in) operating activities                                                  |   | 144          |   |   | (193         | ) |   | 1,857         |  
|                                                                                                     |   |              |   |   |              |   |   |               |  
|Cash flows from investing activities:                                                                |   |              |   |   |              |   |   |               |  
|Purchases of investments                                                                             |   | (68          | ) |   | 0            |   |   | (01           | )
|Proceeds from the sale of production facility held
      for sale                                    |   | 16           |   |   | 0            |   |   | 0             |  
|Purchases of property and equipment                                                                  |   | (128         | ) |   | (385         | ) |   | (1,372        | )
|                                                                                                     |   |              |   |   |              |   |   |               |  
|Net cash provided by (used in)
      investing activities                                            |   | (180         | ) |   | (385         | ) |   | (1,373        | )
|                                                                                                     |   |              |   |   |              |   |   |               |  
|Cash flows from financing
      activities:                                                          |   |              |   |   |              |   |   |               |  
|Principal payments under capital lease                                                               |   | (154         | ) |   | (26          | ) |   | (142          | )
|Proceeds from long term debt                                                                         |   | 0            |   |   | 5            |   |   | 26            |  
|Repayments of borrowings                                                                             |   | (26          | ) |   | (194         | ) |   | (1,001        | )
|                                                                                                     |   |              |   |   |              |   |   |               |  
|Net cash provided by (used in) financing activities                                                  |   | (180         | ) |   | (216         | ) | $ | (1,117        | )
|                                                                                                     |   |              |   |   |              |   |   |               |  
|Effect of exchange rate changes on cash and
      equivalents                                        |   | 6            |   |   | (13          | ) |   | (80           | )
|                                                                                                     |   |              |   |   |              |   |   |               |  
|Net change in cash and equivalents during period                                                     |   | (210         | ) |   | (807         | ) |   | (713          | )
|                                                                                                     |   |              |   |   |              |   |   |               |  
|Cash and equivalents, beginning of period                                                            |   | 379          |   |   | 1,081        |   |   | 1,102         |  
|                                                                                                     |   |              |   |   |              |   |   |               |  
|Cash and equivalents, end of period                                                                  | $ | 169          |   | $ | 274          |   | $ | 388           |  
|Less asset held for sale
      (discontinued operation)                                              | $ | 0            |   |   | 0            |   |   | 9             |  
|Cash and equivalents, end of period                                                                  | $ | 169          |   | $ | 274          |   | $ | 379           |  
|                                                                                                     |   |              |   |   |              |   |   |               |  

For the three months ended March 31, 2010 and March 31, 2009
total cash paid for interest amounted to $16 thousand and $39 thousand
respectively. 
For the three months ended March 31, 2010 and March 31, 2009
total cash paid for taxes amounted to $298 thousand and $781 thousand
respectively.

The accompanying notes are an integral part of these
condensed consolidated financial statements

5

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Sunset Suits Holdings, Inc.Notes to Unaudited Condensed Consolidated Financial Statements 
For the Three Months Ended March 31, 2010 and 2009

1.ORGANIZATION AND BASIS OF PREPARATION FINANCIAL STATEMENTS

Sunset Suits Holdings, Inc.

Sunset Suits Holdings, Inc.(Sunset Suits Holdings, The Company or The Group) is a corporation incorporated in accordance with the Laws of Nevada, United States of America. Its former
business name was SMSA III Acquisition Corp. Through the reverse merger transaction dated May 21, 2008, SMSA III Acquisition Corp. acquired all shares of Sunset Suits S.A., by which it took legal control over Sunset Suits S.A., and changed its
business name to Sunset Suits Holdings, Inc.

Sunset Suits SA.

Sunset Suits S.A. (Sunset Suits) is a company incorporated in Poland in July 2006 in accordance with the Laws of the Republic of Poland by a sole shareholder, Bartosz Kranik, through a money contribution. In February 2007
Mirosław Kranik contributed to Sunset Suits a part of its sole proprietorship consisting of assets of the retail segment of Mens Fashion. Currently Sunset Suits S.A. is wholly owned by  Sunset Suits Holdings, Inc., a corporation established
in accordance with the laws of Nevada. Sunset Suits S.A. is currently engaged in the sale and marketing of a broad range of men's collection suits, coats, trousers, shirts, ties and suit accessories. Sunset Suits S.A. sells products through a broad
array of distribution channels in Poland. It operates its own network of retail and factory outlet stores. The activities of Sunset Suits S.A. are principally conducted in Poland.

Fashion Service Sp. z o. o.

Fashion Service Sp. z o. o.(Fashion Service) was incorporated in Poland in November 2007 in accordance with the Laws of the Republic of Poland. Fashion Service Sp. z o. o. was created through an in-kind contribution
consisting of assets of the manufacturing and wholesale segments of Sunset Suits Mens Fashion Moda
Męska. On March 26, 2010, Sunset Suits S.A. completed the sale of its 100% equity interest in Fashion Service to Sp. z o. o. to XCRITO Ltd.,
headquartered in Limassol, Cyprus.

Bohemia s.r.o.

Bohemia s.r.o. (Bohemia) is a corporation incorporated in accordance with the Laws of the Czech Republic. On July 9, 2009 Bohemia was acquired by Sunset Suits Holdings, Inc., from Mr.
Mirosław Kranik, our major shareholder.
Currently, Bohemia is owned solely by Sunset Suits Holdings, Inc. Bohemia sells products through its own network of 8 retail stores in the Czech Republic.

UAB Sunset Suits Vilnius

UAB Sunset Suits Vilnius (Sunset Suits Vilnius) is a corporation incorporated in accordance with the Laws of the Republic of Lithuania. On August 25, 2009 Sunset Suits Vilnius was acquired by Sunset Suits Holdings, Inc., from Mr.
Mirosław Kranik, our major shareholder. Currently, Sunset Suits Vilnius is owned solely by Sunset Suits Holdings, Inc.. Sunset Suits Vilnius sells products through its own network of 4 retail stores in Lithuania.

SIA Sunset Riga

SIA Sunset Riga(Sunset Riga) is a corporation incorporated in accordance with the Laws of the Republic of Latvia. On January 29, 2009 Sunset Riga was acquired by Sunset Suits Holdings, Inc., from Mr.
Mirosław Kranik, our
major shareholder. Currently, Sunset Riga is owned solely by Sunset Suits Holdings, Inc.. Sunset Riga sells products through its own network of 3 retail stores in Latvia.

6

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Sunset Suits Holdings, Inc.Notes to Unaudited Condensed Consolidated Financial Statements 
For the Three Months Ended March 31, 2010 and 2009

OU Posnania

OU Posnania (Posnania) is a corporation incorporated in accordance with the Laws of the Republic of Estonia. Posnania was incorporated by
Mirosław Kranik in 2005, our major shareholder. On July 10, 2009 Posnania was acquired by
Sunset Suits Holdings, Inc., from Mr. Mirosław Kranik, our major shareholder. Currently, Posnania is owned solely by Sunset Suits Holdings, Inc..

Basis for preparation

The condensed consolidated financial statements of Sunset Suits Holdings, Inc. include the financial statements of Sunset Suits Holdings, Inc., and its wholly-owned subsidiaries Sunset Suits S.A., Fashion Service Sp. z o. o. (t the date of the
sale), Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA Sunset Riga and OU Posnania (the Group) for all periods presented and are presented in accordance with accounting principles generally accepted in the United States of America
(US GAAP).

Intercompany transactions and intercompany balances have been eliminated. All financial data in the condensed consolidated financial statements is expressed in thousands of US dollars, unless otherwise noted.

The accompanying unaudited condensed consolidated financial statements of the Group and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC) including
Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted from these
statements pursuant to such rules and regulation and, accordingly, they do not include all the information and notes necessary for comprehensive condensed consolidated financial statements and should be read in conjunction with our audited condensed
consolidated financial statements for the year ended December 31, 2009.

The Group classified the manufacturing operations of Fashion Service as discontinued. Management decided to cease production in Poland and sell its manufacturing segment to an unrelated party in the fourth quarter of 2009. The operations of Fashion
Service comprise all of the activities in the manufacturing segment. In accordance with FAS 144 (now ASC 360-10), Accounting for the Impairment or Disposal of Long-Lived Assets, the accompanying Consolidated Financial Statements and notes have been
reclassified to reflect the results of these operations as discontinued operations. See Note 20 Discontinued Operations of Notes to Consolidated Financial Statements for further discussion of these discontinued operations.

Going concern

As of the date these financial statements have been prepared, the Group has a negative working capital amounting to $4,448 thousand. Subsequent to March 31, 2009 the Group reported a decrease in total sales with relative lower decrease in
operating costs, which resulted in a net loss and a further decrease of total shareholders equity. Management is aware of this unfavorable financial situation of the Group and prepared a recovery plan. The plan assumes: i) improvement of
operating margin; ii) negotiations with suppliers to extend payments terms; iii) negotiations with fiscal authorities to extend payments of taxes; iv) negotiations with landlords to decrease operating lease costs; iv) issuance of debt to finance
current business activity. We have already accomplished several extensions of tax payment due dates and several lease payment due dates.

Subsequent steps to remedy the financial situation of the Group depend on raising funds. The achievement of Management plans is dependent on the final outcome of negotiations with suppliers and fiscal authorities. As of the date of these financial
statements, these negotiations are still undergoing and their final outcome is uncertain. Therefore as of the date these financial statements have been prepared, there is a substantial doubt about the Groups ability to continue as a going
concern. However, the March 31, 2010 condensed consolidated financial statements of the Group have been prepared on the going concern basis as Management believes the Group will be able to continue as a going concern for the next 12 months.

Principles of consolidation

These consolidated financial statements include Sunset Suits Holdings, Inc., and its wholly owned direct or indirect subsidiaries Sunset Suits Holdings, Inc. including, Sunset Suits Holdings, Inc., Sunset Suits S.A., Fashion Service Sp. z o.
o.(since January 1, 2010 to March 26, 2010), Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA Sunset Riga and OU Posnania. SIA Sunset Riga was not owned by Sunset Suits Holdings until January 22, 2009, Bohemia s.r.o.
was not owned by Sunset
Suits Holdings until July 2009, OU Posnania was not owned by Sunset Suits Holdings until July 10, 2009 and UAB Sunset Suits Vilnius was not owned by Sunset Suits Holdings until August 25, 2009. Prior to these dates all of these entities were solely
owned by Mr. Miroslaw Kranik and hence they were under common control with Sunset Suits Holdings, Inc. Consistent with the provisions of paragraphs D8D14 of Appendix D of FAS 141(R) (now within FASB ASC 805-50) the Company accounted for the
acquisitions of the aforementioned business entities as transfers of assets under common control. Since the transfer of net assets from Sunset Suits Mens Fashion - Moda
Męska to its successors  Sunset Suits S.A. and Fashion Service Sp.
z o. o. resulted in a change of reporting entity; in practice the accounting method used for consolidation is similar to the pooling of interest method. The accounts of all entities are included as if they had always been consolidated. This method
has been applied also to consolidation of Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA Sunset Riga and OU Posnania for the three months ended March 31, 2010 and comparative periods of three months ended March 31, 2009 and twelve months ended
December 31, 2009. The recorded assets and liabilities of separate entities are consolidated in the financial statements. The financial statements of the Group are therefore called consolidated financial statements.

7

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Sunset Suits Holdings, Inc.Notes to Unaudited Condensed Consolidated Financial Statements 
For the Three Months Ended March 31, 2010 and 2009

The condensed consolidated financial statements, prepared in accordance with US GAAP differ in certain material respects from financial statements of Sunset Suits S.A., Fashion Service Sp. z o. o., Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA
Sunset Riga and OU Posnania, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises incorporated in Poland (Polish GAAP), Czech Republic (Czech GAAP),
Lithuania (Lithuanian GAAP), Latvia (Latvian GAAP) and Estonia (Estonian GAAP). The accompanying condensed consolidated financial statements reflect adjustments not recorded in the books and records of Sunset
Suits S.A., Fashion Service Sp. z o. o., Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA Sunset Riga and OU Posnania to present them in conformity with US GAAP. All adjustments are applied retrospectively and financial statements of the subsidiaries
have been restated. All significant intercompany accounts, transactions and cash flows are eliminated on consolidation.

2.SUMMARY OF ACCOUNTING POLICIES

Property, Plant, Equipment and Depreciation and Amortization

Property, plant and equipment are recorded at cost. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the assets. Leasehold improvements recorded at the inception of a lease are amortized using
the straight-line method over the life of the lease or the useful life of the improvement, whichever is shorter; for improvements made during the lease term, the amortization period is the shorter of the useful life or the remaining lease term
(including any renewal periods that are deemed to be reasonably assured). Property under capital leases is amortized over the lives of the respective leases or the estimated useful lives of the assets, whichever is shorter.

The exact historical cost of buildings, machinery and equipment and leasehold improvements acquired prior to 2006, substantially all of which (except leasehold improvements, that were acquired in the 2000s) were acquired in the mid to late 1990s,
could not be reasonably determined due to a lack of accounting documentation. For buildings and machinery and equipment groups of tangible fixed assets, all of which were acquired in the mid to late 1990s, the historical cost was estimated using, as
a starting point, an engineers estimate of the historical cost of past investment. Management is of the opinion that this valuation is the reasonable estimation of historical cost for these groups of tangible fixed assets. For leasehold
improvements, all of which were acquired in the 2000s, historical cost was recreated by identifying all bills and invoices related to retail outlets fittings, even if, they were not properly recorded in the accounting system in the past.

Operating Leases

Total rent payments under operating leases that include scheduled payment increases and rent holidays are amortized on a straight-line basis over the term of the lease. Rent expense on our buildings and retail stores is classified as an SG&A
expense and, for certain stores, includes contingent rents that are based on a percentage of retail sales over stated levels. Landlord allowances are amortized by the straight-line method over the original term of the lease as a reduction of rent
expense.

Foreign Currency Translation

The Group uses the Polish zloty (PLN) as its functional currency. Transactions in currencies during the year in other than PLN are translated into PLN
at the exchange rates as of the specific transaction dates. Monetary assets and
liabilities denominated in currencies other than PLN as of the date of
the balance sheet are translated into PLN at the exchange rates prevailing as of
such date. All transaction differences are recorded in the income statement.

8

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Sunset Suits Holdings, Inc.Notes to Unaudited Condensed
Consolidated Financial Statements 
For the Three Months Ended March
31, 2010 and 2009

The Groups condensed consolidated financial statements are
presented in USD. Foreign currency translation is accounted for in accordance
with SFAS No. 52, Foreign Currency Translation (now ASC 830-10). Accordingly,
all assets and liabilities are translated from PLN to USD at the exchange rates
prevailing as of the date of the balance sheet and all income and expenditure
items are translated at the average rates for each of the years presented. Gains
and losses resulting from foreign currency translation are accumulated as a
separate component of stockholders' equity in accumulated other comprehensive
income. The exchange rates adopted for the foreign exchange transactions are the
rates of exchange quoted by the Polish National Bank.

Translation of amounts from PLN into United States dollars
(US$) has been made at the following exchange rates for the respective years:

|March 31, 2010                                     |                            
|-------------------------------------------------- | ---------------------------
|Balance sheet                                      | PLN
      2.8720 to US$1.00
|Statement of income and
      comprehensive income | PLN 2.8841
      to US$1.00
|                                                   |                            
|                                                   |                            
|March 31,
      2009                               |                            
|Balance sheet                                      | PLN 3.5416 to
      US$1.00
|Statement of income
      and comprehensive income | PLN
      3.4420 to US$1.00
|                                                   |                            
|                                                   |                            
|December 31, 2009                                  |                            
|Balance sheet                                      | PLN
      2.8503 to US$1.00
|Statement of income and
      comprehensive income | PLN 3.1162 to
      US$1.00

Income Taxes

The Group uses the asset and liability method of accounting for
income taxes. Current tax assets and liabilities are recognized for the
estimated corporate income taxes payable or refundable on the tax returns for
the current year. The taxes are paid in the country where an entity operates.
Tax liability estimation is made separately for each entity using a tax charge
applicable for the country the entity operators. Deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred income tax provisions are based on
the changes to the respective assets and liabilities from period to period.
Valuation allowances are recorded to reduce deferred tax assets when uncertainty
regarding their realizability exists.

Impairment of Long-lived Assets and Indefinite-lived
Intangible Assets

The Group evaluates the property and equipment and other
long-lived assets for impairment based on our classification as i) held for sale
or ii) to be held and used. Several criteria must be met before an asset is
classified as held for sale, including that management with the appropriate
authority commits to a plan to sell the asset at a reasonable price in relation
to its fair value and is actively seeking a buyer. For assets classified as held
for sale, we recognize the asset at the lower of carrying value or fair market
value less costs of disposal, as estimated based on comparable asset sales,
offers received, or a discounted cash flow model. We review assets to be held
and used for impairment whenever indicators of impairment exist. We then compare
the estimated future cash flows of the asset, on an undiscounted basis, to the
carrying value of the asset. If the undiscounted cash flows exceed the carrying
value, no impairment is indicated. If the undiscounted cash flows do not exceed
the carrying value, then an impairment is recorded based on the fair value of
the asset, typically measured using a discounted cash flow model. If an asset is
still under development, future cash flows include remaining construction costs.
All recognized impairment losses, whether for assets to be held for sale or
assets to be held and used, are recorded as operating expenses.

9

---

Sunset Suits Holdings, Inc.Notes to Unaudited Condensed Consolidated Financial Statements 
For the Three Months Ended March 31, 2010 and 2009

There are several estimates, assumptions and decisions in measuring impairments of long-lived assets. First, management must determine the usage of the asset. To the extent management decides that an asset will be sold, it is more likely that an
impairment may be recognized. Assets must be tested at the lowest level for which identifiable cash flows exist. This means that some assets must be grouped, and management has some discretion in the grouping of assets. Future cash flow estimates
are, by their nature, subjective and actual results may differ materially from our estimates.

We review indefinite-lived intangible assets at least annually and between annual test dates in certain circumstances. We perform our annual impairment test for indefinite-lived intangible assets in the fourth quarter of each fiscal year.
Indefinite-lived intangible asset for relevant reporting units is tested for impairment using a discounted cash flow analysis based on our budgeted future results discounted using a weighted average cost of capital, developed using a standard
capital asset pricing model based on guideline companies in our industry, and market indicators of terminal year capitalization rates. The indefinite-lived intangible assets consist of a trademark, which is tested for impairment using the
relief-from-royalty method.

There are several estimates inherent in evaluating these assets for impairment. In particular, future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. In addition, the determination of
capitalization rates and the discount rates used in the goodwill impairment test are highly judgmental and dependent in large part on expectations of future market conditions.

Use of estimates

The preparation of the Groups condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions
that affect 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. The financial statements include some amounts that are based on managements best estimates and judgments. The most significant estimates relate to allowance for uncollectible accounts receivable, inventory
obsolescence, depreciation, intangible asset valuations and useful lives, goodwill impairments, employee benefit plans, environmental accruals, taxes and contingencies. These estimates may be adjusted as more information becomes available, and any
adjustment could be significant.

3.CLASSIFICATION OF BUSINESS SEGMENTS IN CONTINUING AND DISCONTINUED OPERATIONS

The Group classifies the results from operations of our continuing and discontinued operations in our condensed consolidated statements of income based on the provisions of "Presentation of Financial Statements" in the Accounting Standards
Codification ("ASC"). Many of these provisions involve judgment in determining whether a franchise will be reported as continuing or discontinued operations. Such judgments include whether a part of our business will be sold or terminated, the
period required to complete the disposition and the likelihood of changes to a plan for sale. If in future periods we determine that a part of our business should be either reclassified from continuing operations to discontinued operations or from
discontinued operations to continuing operations, previously reported condensed consolidated statements of income will be reclassified in order to reflect that classification. During the year ended December 31, 2009, we designated our production
segment to be held for sale that was previously included in continuing operations. Therefore at December 31, 2009 the production segment was presented as held for sale and classified as discontinued operations. The details are presented in note 20
below.

10

---

Sunset Suits Holdings, Inc. |
Notes to Unaudited Condensed
Consolidated Financial StatementsFor the Three Months Ended March
31, 2010 and 2009

4.ACCOUNTS RECEIVABLE

Accounts receivable by major categories are summarized as
follows:

|                                |   | March 31, |  |   | December 31, | 
|------------------------------- | - | --------- |  | - | ------------ | 
|                                |   | 2010      |  |   | 2009         | 
|                                |   | unaudited |  |   |              | 
|Related party trade receivables | $ | 1,874     |  | $ | 815          | 
|Other trade receivables         |   | 280       |  |   | 446          | 
|                                |   |           |  |   |              | 
|                                | $ | 2,154     |  | $ | 1,261        | 
|                                |   |           |  |   |              | 

All amounts in the above table are presented net of bad debt
allowance. As of March 31, 2010 and as of December 31, 2009 there was no
allowance for doubtful debts recorded.

5.INVENTORIES

Inventories are summarized as follows:

|                                    |   | March 31, |   |   | December 31, |  
|----------------------------------- | - | --------- | - | - | ------------ | -
|                                    |   | 2010      |   |   | 2009         |  
|                                    |   | unaudited |   |   |              |  
|Merchandise Gross                   |   | 2,781     |   |   | 3,508        |  
|Allowance for slow moving inventory |   | ( 286     | ) |   | ( 288        | )
|                                    |   |           |   |   |              |  
|                                    | $ | 2,495     |   | $ | 3,220        |  
|                                    |   |           |   |   |              |  

Merchandise are manufactured products ready for sale stored in
retail stores.

Inventories pledged to banks - At March 31, 2010 and at
December 31, 2009, all inventories amounting to $2,085 thousand and $2,799
thousand, respectively, were pledged to banks pursuant to loan agreements.

6.PROPERTY, PLANT AND EQUIPMENT

|                                                |   | March 31, |  |   | December 31, |  |  | Useful lives | 
|----------------------------------------------- | - | --------- |  | - | ------------ |  |  | ------------ | 
|                                                |   | 2010      |  |   | 2009         |  |  | (years)      | 
|                                                |   | unaudited |  |   |              |  |  |              | 
|Leasehold improvements                          | $ | 4,439     |  | $ | 4,389        |  |  | 5 - 10       | 
|Machinery and equipment                         |   | 482       |  |   | 487          |  |  | 3 - 20       | 
|Vehicles                                        |   | 28        |  |   | 30           |  |  | 3 - 5        | 
|Furniture and fixtures                          |   | 66        |  |   | 68           |  |  | 3 - 8        | 
|Construction in progress                        |   | 352       |  |   | 335          |  |  | -            | 
|Gross                                           |   | 5,367     |  |   | 5,309        |  |  |              | 
|                                                |   |           |  |   |              |  |  |              | 
|Less: accumulated depreciation and amortization |   | 1,649     |  |   | 1,543        |  |  |              | 
|                                                |   |           |  |   |              |  |  |              | 
|Net                                             | $ | 3,718     |  | $ | 3,767        |  |  |              | 
|                                                |   |           |  |   |              |  |  |              | 

Included in the buildings, leasehold improvements and machinery
and equipment costs shown above are $2,328 thousand (PLN 6,687 thousand) and
$2,346 thousand (PLN 6,687 thousand) of historical costs at March 31, 2010 and
December 31, 2009, respectively, are presented at estimated historical cost as
described in Property, Plant, Equipment and Depreciation and Amortization policy note.

11

---

Sunset Suits Holdings, Inc.Notes to Unaudited Condensed
Consolidated Financial Statements 
For the Three Months Ended March
31, 2010 and 2009

Included in the group of vehicles and machinery and equipment
of property, plant and equipment are capitalized leases amounting to $94
thousand and $113 thousand (net book value) as of March 31, 2010 and December
31, 2009, respectively.

Depreciation and amortization expense relating to property,
plant and equipment (including capitalized leases) was $86 thousand and $191
thousand for the three months period ended March 31, 2010 and March 31, 2009,
respectively. At March 31, 2010 and December 31, 2009, we had no outstanding
commitments relating to the construction or remodeling of retail store
locations. At March 31, 2010, we had approximately $20 thousand in outstanding
commitments relating to the design and implementation of new computer software
systems. During the three months of the year 2010 and twelve months of the year
2009 we did not capitalize any interest as part of the cost of major capital
projects.

Property Plant and Equipment pledged to banks - At March 31,
2010 and at December 31, 2009, all property plant and equipment amounting to
$3,376 thousand and $ 3,013 thousand, respectively, were pledged to banks
pursuant to loan agreements.

7.OTHER INTANGIBLE ASSETS

Trademark is an indefinite lived intangible asset that
represents the cost of acquired brand registered for the name of Sunset Suits
S.A.. The trademark has been registered since 1994 by Mens Fashion. In 2007 the
legal right to the Sunset Suits trademark was transferred from Mens Fashion to
Sunset Suits S.A. according to a transfer agreement of an in-kind contribution,
including the trademark.

The Group also possesses intangible assets such as technology
and know-how created by the company that management believes have substantial
value but have no identified historical cost and consequently cannot be
recognized under United States generally accepted accounting principles which
limits amounts recognized to historical cost.

The carrying value of the trademark, which has no determinable
life, constitutes its historical cost of acquisition. Management believes that
its current fair value is well in excess of this amount. Management believes
that the Group has other intangibles assets such as technology and know-how that
have significant value although not recognized under US GAAP.

8.LONG TERM INVESTMENTS

Long term investments consist of the following:

|                      |   | March 31, |  |   | December 31, | 
|--------------------- | - | --------- |  | - | ------------ | 
|                      |   | 2010      |  |   | 2009         | 
|                      |   | unaudited |  |   |              | 
|Deposits              | $ | 1,354     |  | $ | 1,603        | 
|Long term investments |   | 927       |  |   | 935          | 
|                      |   |           |  |   |              | 
|                      | $ | 2,282     |  | $ | 2,538        | 
|                      |   |           |  |   |              | 

The Group provides cash deposits to Landlords for rent
facilities. These deposits are returned upon the end of lease period. The
majority of the deposits are returned in nominal amount with no interest
accounted, according to lease agreements. The nominal value of the deposits
amounted to $1,392 thousand and $1,645 thousand, respectively, as of March 31,
2010 and December 31, 2009. Since the deposits are recoverable in more than one
year, the Group recorded the deposits at the present value of the eventual
deposit receipt. The difference between the present value and future value of
the deposits are accounted for as a discount and amortized over the term of the
lease, resulting in amortization of deposit discount amounting to $38 thousand
and $42 thousand, for the quarters ended March 31, 2010 and March 31, 2009,
respectively.

Long term notes receivable are from Market System Sp. z o. o..
As of December 30, 2009 OU Posnania, SIA Sunset Riga and UAB Sunset Suits sold its former receivable from Mr.
Mirosław Kranik to Market System Sp. z o. o. at its nominal value amounting to
$994 thousand. According to the agreement the notes are receivable on January 2,
2015 and accrue a fixed interest of 6% per annum payable together with the
principal (zero coupon notes). Pursuant to ASC 820-10 Management valued the
notes as of December 31, 2009. The estimated annual market yield for the notes
amounted to 7.33% per annum and the fair market value of notes as of December
31, 2009 amounted to $935 thousand. The note may represent a concentration of
credit risk. The Company maintains a provision for potential credit losses based
on expected collectability of the note, which the Company believes is adequate.
As of March 31, 2010 the provision is nil.

12

---

Sunset Suits Holdings, Inc.Notes to Unaudited Condensed
Consolidated Financial Statements 
For the Three Months Ended March
31, 2010 and 2009

9.INCOME AND OTHER TAX PAYABLES

Income and other tax payables consist of the following:

|                             |   | March 31, |  |   | December 31, | 
|---------------------------- | - | --------- |  | - | ------------ | 
|                             |   | 2010      |  |   | 2009         | 
|                             |   | unaudited |  |   |              | 
|Corporate income tax payable | $ | 584       |  | $ | 596          | 
|Personal income tax payable  |   | 580       |  |   | 490          | 
|Value added tax payable      |   | 561       |  |   | 559          | 
|Social security tax payable  |   | 1,764     |  |   | 1,655        | 
|                             |   |           |  |   |              | 
|                             | $ | 3,489     |  | $ | 3,300        | 
|                             |   |           |  |   |              | 
|Less: Settled in long term   |   | 0         |  |   | 0            | 
|                             |   |           |  |   |              | 
|                             | $ | 3,489     |  | $ | 3,300        | 
|                             |   |           |  |   |              | 

Personal income tax in Poland in the years 2009 and 2010 was
charged at 18 and 32% of the assessable personal income. Employee part of social
security tax in Poland is charged at approximately 19% on the employee gross
salaries. Personal income tax in Czech Republic, Lithuania, Latvia and Estonia
was charged at 15%, 20%, 23% and 21% of the assessable personal income
respectively.

10.INCOME TAXES

Members of the Group that are incorporated in Poland are
subject to Polish corporate income tax at the applicable tax rates on the
taxable income as reported in their Polish statutory accounts in accordance with
the relevant income tax laws applicable to foreign enterprises. Members of the
Group that are incorporated in the Czech Republic, Lithuania, Latvia and Estonia
are subject to Czech Republic, Lithuanian, Latvian and Estonian corporate income
tax at the applicable tax rates on the taxable income as reported in their the
Czech Republic, Lithuanian, Latvian and Estonian statutory accounts in
accordance with the relevant income tax laws applicable to foreign enterprises.

13

---

Sunset Suits Holdings, Inc.Notes to Unaudited Condensed Consolidated Financial
Statements 
For the Three Months Ended March 31, 2010 and 2009

|                                                  |   | March 31, |   |   | December 31, | 
|------------------------------------------------- | - | --------- | - | - | ------------ | 
|Corporate Income Tax:                             |   | 2010      |   |   | 2009         | 
|                                                  |   | unaudited |   |   | restated     | 
|Current                                           | $ | 578       |   | $ | 0            | 
|Deferred                                          |   | (8        | ) |   | 468          | 
|                                                  |   | 570       |   |   | 468          | 
|                                                  |   |           |   |   |              | 
|Deferred tax assets (liabilities):                |   |           |   |   |              | 
|Nondeductible accruals and allowances             | $ | 7         |   | $ | 34           | 
|Intangible asset
      valuation and amortization |   | 2         |   |   | 0            | 
|Loss and credit carry forwards                    |   | 228       |   |   | 376          | 
|Deferred compensation                             |   | 400       |   |   | 348          | 
|Inventory valuation                               |   | 52        |   |   | 0            | 
|Other (net)                                       |   | 60        |   |   | 0            | 
|Net deferred tax asset (liability)                |   | 750       |   |   | 758          | 
|                                                  |   |           |   |   |              | 
|Included in:                                      |   |           |   |   |              | 
|Current assets                                    | $ | 750       |   | $ | 734          | 
|Noncurrent assets                                 |   | 24        |   |   | 24           | 
|Current liabilities                               |   | 0         |   |   | 0            | 
|Noncurrent liabilities                            |   | 0         |   |   | 0            | 
|Net deferred tax asset
      (liability)          |   | 750       |   |   | 758          | 
|                                                  |   |           |   |   |              | 

A deferred tax liability is recognized primarily on our fixed
assets that has been already amortized for tax purposes but are still being
depreciated for accounting purposes.

For the three months period ended March 31, 2010 a current
income tax amounting to $578 thousand is recorded as a accrued tax asset arising
from the taxable losses for the first three months of 2010. It is expected to be
recovered as an offset to income tax liabilities eventually expected to be due
2010. This current tax asset is included in prepaid expenses and other current
assets on the balance sheet as of March 31, 2010.

A deferred tax asset is recognized primarily on deferred
compensation, and losses carried forward. Management is of the opinion that a
deferred tax asset is not fully recoverable and that the losses incurred in the
three months ended March 31, 2010 will not be fully utilized to offset taxable
income to be generated in future years as positive financial results are
expected in the next few fiscal years. As a result, management provided for a
deferred tax asset allowance amounting to $416 thousand. Management is therefore
of the opinion that deferred tax asset amounting to $750 thousand will be fully
utilized to offset taxable income to be generated in future years as positive
financial results are expected in the next few fiscal years.

11.FINANCIAL INSTRUMENTS

At March 31, 2010 and December 31, 2009, the fair values of
cash and cash equivalents, receivables and accounts payable approximated
carrying values due to the short-term nature of these instruments. The fair
value of long-term debt approximated its carrying value because of the variable
rate interest rates of the debt.

As a result of the Groups credit facilities, the Group is
exposed to changes in interest rates and foreign currency exchange rates which
may adversely affect results of operations and financial condition. The Group
does not use derivative financial instruments to minimize the risks and or costs
associated with such risks.

14

---

Sunset Suits Holdings, Inc.Notes to Unaudited Condensed
Consolidated Financial StatementsFor the Three Months Ended March
31, 2010 and 2009

12.LONG-TERM DEBT

Long-term debt consists of the following:

|                                                                                                                  |   | March 31, |  |   | December 31, | 
|----------------------------------------------------------------------------------------------------------------- | - | --------- |  | - | ------------ | 
|                                                                                                                  |   | 2010      |  |   | 2009         | 
|                                                                                                                  |   | unaudited |  |   |              | 
|Secured Notes due 2013, net of
      unamortized discount, in USD (BGZ) with interest at LIBOR+2.5% p.a.          | $ | 3,775     |  | $ | 3,758        | 
|Secured Notes due 2012, net of unamortized discount,
      in USD (BWE) with interest at LIBOR+2.6% p.a.          |   | 368       |  |   | 361          | 
|Secured Notes due 2012, net of
      unamortized discount, in USD (BWE) with interest at LIBOR+2.6% p.a.          |   | 715       |  |   | 739          | 
|Secured Notes due 2013, net of unamortized discount,
      in PLN (BGZ) with interest at WIBOR+1.5% p.a.          |   | 90        |  |   | 89           | 
|Secured Notes due 2012, net of
      unamortized discount, in PLN (BWE) with interest at WIBOR+3.0% p.a.          |   | 1,032     |  |   | 1,014        | 
|Secured Notes due 2011, net of unamortized discount,
      in PLN (Bank Slaski) with interest at WIBOR+2.0% p.a.* |   | 798       |  |   | 804          | 
|                                                                                                                  |   | 6,778     |  |   | 6,765        | 
|                                                                                                                  |   |           |  |   |              | 
|Less: current portion                                                                                             |   | 2,024     |  |   | 1,823        | 
|                                                                                                                  |   |           |  |   |              | 
|                                                                                                                  | $ | 4,754     |  | $ | 4,942        | 
|                                                                                                                  |   |           |  |   |              | 

All of our notes contain certain covenants, including, among
others, restrictions on liens and additional secured debt, and pay interest
semiannually. The weighted-average interest rate of our long-term debt was 4.15%
and 4.56% at March 31, 2010 and December 31, 2009, respectively.

All loans are secured by the Companys assets that function as
collateral.

LIBOR is the basis for variable interest rate for credits
denominated in USD defined as the London Inter Bank Offer Rate. WIBOR is the
basis for variable interest rate for credits denominated in PLN defined as the
Warsaw Inter Bank Offer Rate.

13.PROVISIONS

The Group provides provisions for unsettled legal claims and a
provision for retirement obligation.

No defined benefit plan is provided by the Group. According to
Polish law there is an obligation to pay each employee one monthly salary before
retirement. Accordingly, the Group calculates its obligation at each financial
statement date. Provision for retirement obligation is calculated based on
actuarial method.

Provisions by major categories are summarized as follows:

|                                     |   | March 31, |  |   | December 31, | 
|------------------------------------ | - | --------- |  | - | ------------ | 
|                                     |   | 2010      |  |   | 2009         | 
|                                     |   | unaudited |  |   |              | 
|Provision for unsettled legal claims | $ | 206       |  | $ | 134          | 
|Provision for retirement obligation  |   | 5         |  |   | 3            | 
|                                     |   |           |  |   |              | 
|                                     | $ | 211       |  | $ | 138          | 
|                                     |   |           |  |   |              | 

15

---

Sunset Suits Holdings, Inc.Notes to Unaudited Condensed
Consolidated Financial StatementsFor the Three Months Ended March
31, 2010 and 2009

14.EMPLOYEE BENEFITS

Sunset Suits S.A. and Fashion Service Sp. z o. o. both
contribute to a pension scheme organized by the Polish government in respect of
their employees in Poland on a monthly basis and accrue for retirement benefits
that equal one monthly salary payable at the retirement of each employee who is
employed at that date. Bohemia, Sunset Suits Vilnius, Sunset Riga and OU
Posnania contribute to a pension scheme organized by the Czech, Lithuanian,
Latvian and Estonian government in respect of their employees employed in the
Czech Republic, Lithuania, Latvia and Estonia respectively, on a monthly basis
and accrue for retirement benefits that equal one monthly salary payable at the
retirement of each employee who is employed at that date. Other than the above,
neither Group member provides any other post-retirement or post-employment
benefits.

The Group incurred expenses relating to employee benefits
amounting to $203 thousand and $259 thousand for the three months ended March
31, 2010 and March 31, 2009, respectively.

15.COMMITMENTS AND CONTINGENCIES

Contingent Liabilities

Members of the Group have been named as defendants in various
actions and proceedings, including actions brought by certain employees whose
employment has been terminated arising from the Groups ordinary business
activities. Although the amount of any liability that could arise with respect
to these actions cannot be accurately predicted, in our opinion, any such
liability will not have a material adverse effect on the Groups financial
position or results of operations.

Trouble Debt Restructuring

Predecessors or affiliates of the Group had defaulted on
payment on certain long term debt in the past. As a result of bank settlements,
part of the interest was suspended. If the bank settlements are breached, the
accrued interest might be claimed by financial institutions. Total interest
suspended amounted to $3,160 thousand at March 31, 2010 and it is not accrued in
the Groups financial statements. This suspended interest can be claimed by the
counterparty financial institutions should we fail to pay interest on the
existing bank notes in a timely manner. Management is of the opinion that the
risk of breaching the bank settlement agreement is low.

Operating Leases

In the normal course of business, the Group rents retail and
factory outlet stores space under operating lease agreements. The operating
lease agreements generally contain renewal options that may be exercised at the
applicable Group members discretion after the completion of the base rental
terms. Certain of the rental agreements provide for payment of occupancy costs.
In addition, many of the rental agreements provide for payment by us of a
percentage of outlet net sales or at specified intervals, which usually occur on
an annual basis. Sales outlets are leased for initial periods ranging from 5 to
10 years. As of March 31, 2010 there were lease agreements that last from 3
months up to 10 years. The following table presents the future minimum rental
payments as of the date of the latest balance sheet presented:

|                               |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   | Payments     | 
|------------------------------ | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | -------- |  | - | ------------ | 
|                               |   | December |  |   | December |  |   | December |  |   | December |  |   | December |  |   | after        | 
|                               |   | 31,      |  |   | 31,      |  |   | 31,      |  |   | 31,      |  |   | 31,      |  |   | December 31, | 
|Twelve months ended            |   | 2010*    |  |   | 2011     |  |   | 2012     |  |   | 2013     |  |   | 2014     |  |   | 2014         | 
|                               |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |              | 
|Future minimum rental payments | $ | 3,860    |  | $ | 4,116    |  | $ | 2,898    |  | $ | 2,070    |  | $ | 1,193    |  | $ | 2,039        | 
|                               |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |              | 
|*Nine months ended.            |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |              | 

The Group recognizes lease expense on a straight-line basis
over the term of the lease agreement. Contingent rent expense is recognized as
it is incurred. Total rent expense in continuing operations from operating lease
agreements (including occupancy costs) were $1,695 thousand and $1,711 thousand
for the three months ended March 31, 2010 and March 31, 2009, respectively.
Approximately 75% (in money terms) of lease agreements are denominated in
foreign currencies  U.S. dollars and Euro. These two foreign currencies are
commonly used in Poland in agreements for rentals of retail space.

16

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Sunset Suits Holdings, Inc.Notes to Unaudited Condensed
Consolidated Financial Statements 
For the Three Months Ended March
31, 2010 and 2009

16.SHAREHOLDERS EQUITY

Common Stock

At the date of these financial statements there were 12,499,645
of ordinary shares at $0.001 PAR value authorized.

17.GEOGRAPHIC AREA INFORMATION

The Group's sales by geographic destination are analyzed as
follows:

|                                                   | March
    31, | December 31,
|-------------------------------------------------- | ------------- | ------------
|                                                   | 2010          | 2009        
|                                                   | unaudited     |             
|Poland                                             | $ 14,454      | $ 33,224    
|Continuing
    Operations                          | 14,454        | 17,215      
|Discontinued Operations (Assets
    held for sale) | -             | 16,009      
|Other  European
    Countries                     | 2,749         | 2,840       
|Sunset Suits Bohemia, s.r.o.                       | 1,185         | 1,240       
|SIA Sunset Riga                                    | 577           | 593         
|UAD
    Sunset Vilnius                             | 923           | 942         
|OU Posnania                                        | 64            | 65          
|Elimination&Other                                  | (2,736)       | (10,418)    
|Total assets                                       | $ 14,468      | $ 25,646    

17

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Sunset Suits Holdings, Inc.Notes to Unaudited Condensed Consolidated Financial
Statements 
For the Three Months Ended March 31, 2010 and 2009

The Group's segment total assets by geographic location are
analyzed as follows:

|                                                     |   | March 31, |   |   | December 31, |  
|---------------------------------------------------- | - | --------- | - | - | ------------ | -
|                                                     |   | 2010      |   |   | 2009         |  
|                                                     |   | unaudited |   |   |              |  
|Poland                                               | $ | 13,896    |   | $ | 33,224       |  
|Continuing Operations                                |   | 13,896    |   |   | 17,215       |  
|Discontinued Operations (Assets
      held for sale) |   |           |   |   | 16,009       |  
|Other  European Countries                           |   | 2,749     |   |   | 2,840        |  
|Sunset Suits Bohemia, s.r.o.                         |   | 1,185     |   |   | 1,240        |  
|SIA Sunset Riga                                      |   | 577       |   |   | 593          |  
|UAD Sunset Vilnius                                   |   | 923       |   |   | 942          |  
|OU Posnania                                          |   | 64        |   |   | 65           |  
|Elimination&Other                                    |   | (2,736    | ) |   | (10,418      | )
|Total assets                                         | $ | 13,909    |   | $ | 25,646       |  
|                                                     |   |           |   |   |              |  

The Group's non-current assets by geographic location are
analyzed as follows:

|                           |   | March 31, |  |   | December 31, | 
|-------------------------- | - | --------- |  | - | ------------ | 
|                           |   | 2010      |  |   | 2009         | 
|                           |   |           |  |   | restated     | 
|Poland                     | $ | 3,376     |  | $ | 3,389        | 
|Other  European Countries |   | 342       |  |   | 378          | 
|Czech Republic             |   | 240       |  |   | 260          | 
|Latvia                     |   | 64        |  |   | 73           | 
|Lithuania                  |   | 38        |  |   | 45           | 
|Total assets               | $ | 3,718     |  | $ | 3,767        | 
|                           |   |           |  |   |              | 

18.DISCONTINUED OPERATIONS

Statement of Operations

Management approved a plan to exit production in Poland in the
fourth quarter of 2009. For some time, the cost of maintaining of production
facility in Krzyzanowo has been increasing due to the diseconomies of scale. As
a consequence on March 26, 2010, Sunset Suits S.A. completed the sale of its
100% equity interest in Fashion Service to Sp. z o. o. to XCRITO Ltd.,
headquartered in Limassol, Cyprus. The sale was part of a restructuring plan
initiated in the fourth quarter of fiscal year 2009 to improve the Companys
operating margin. The Group decided to source its merchandise through a supply
chain from the Far East instead of own production. Consequently management sold
the Fashion Service production facility on March 26, 2010. With the recent exit,
the Company will no longer have continuing involvement with production in
Poland. However a small sales outlet will be maintained in Krzyzanowo.

As a result of selling the production operations at the
Krzyzanowo facility, the operations of the production segment have now been
classified as discontinued operations. In accordance with FAS 144 (now ASC
360-10), Accounting for the Impairment or Disposal of Long-Lived Assets, the
accompanying Condensed Consolidated Financial Statements and notes have been
restated to reflect the results of these operations as discontinued
operations.

The Group currently estimates that the pre-tax charges related
to exit activities at Krzyzanowo facility will be approximately nil.

In accordance with FASB Statement No. 144 (now ASC 360-10),
Accounting for the Impairment or Disposal of Long-Lived Assets, the production
facility has been classified as discontinued operations, whereby its operating
results are presented on the Loss from Discontinued Operations, Net of Tax line of
the Condensed Consolidated Statements of Operations and all prior periods have
been restated.

18

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Sunset Suits Holdings, Inc.Notes to Unaudited Condensed
Consolidated Financial Statements 
For the Three Months Ended March
31, 2010 and 2009

Assets Held for Sale

There were no assets held for sale as of March 31, 2010.

As a result of the production exit plan described in note 20
above, at December 31, 2009, factory assets totaling $11,348 thousand were
classified as held for sale, including $7,694 for a long lived assets and $3,654
thousand for current asset. At December 31, 2009, liabilities related to this
exit plan totaled $28,908 thousand, including $3,085 of accounts payable,
$12,497 of tax payables and $1,978 thousand of other payables of the factory
asset held for sale. The Company subsequently sold the factory assets and
liabilities held for sale on March 26, 2010 for $16 thousand cash and recognized
a non-cash gain on the sale of $5,055, net of $1,776 of taxes.

19.RELATED PARTY TRANSACTIONS

The Group reported related party transactions with Mr. Miroslaw
Kranik our major shareholder and Chief Executive Officer. The Group also
reported transactions with Donald Chodak  our Chairman of the Board of
Directors.

Following tables disclose the Group's related party
transactions:

|Receivables to related party |   | March 31, |  |   | December 31, | 
|---------------------------- | - | --------- |  | - | ------------ | 
|                             |   | 2010      |  |   | 2009         | 
|Miroslaw Kranik              | $ | 1,874     |  | $ | 815          | 
|                             |   |           |  |   |              | 
|Total                        | $ | 1,874     |  | $ | 815          | 
|                             |   |           |  |   |              | 

The presented above receivables from Mr. Miroslaw Kranik is
mainly resulting from prepayments for retail outlets construction on behalf of
Mr. Kranik.

|Expenditures to related party |   | March 31, |  |   | March 31, |  |   | December 31, | 
|----------------------------- | - | --------- |  | - | --------- |  | - | ------------ | 
|                              |   | 2010      |  |   | 2009      |  |   | 2009         | 
|Miroslaw Kranik, including:   | $ | 318       |  | $ | 620       |  | $ | 1,871        | 
|Inventories                   |   |           |  |   |           |  |   |              | 
|Property and equipment        |   | 100       |  |   | 282       |  |   | 994          | 
|Materials & services          |   | 218       |  |   | 338       |  |   | 877          | 
|                              |   |           |  |   |           |  |   |              | 
|Donald Chodak                 |   | 27        |  |   | 0         |  |   | 120          | 
|Total                         | $ | 345       |  | $ | 620       |  | $ | 1,991        | 
|                              |   |           |  |   |           |  |   |              | 

The presented above expenditures to related party results from
purchases of services and furniture and fixtures from Mirosław Kraniks Mens
Fashion sole proprietorship.

During the year 2009 Mr. Chodak purchased 250,000 of common
shares of Sunset Suits Holdings, Inc. from Mr. Kranik, which constituted 2% of
our common shares. This purchase of shares was not any kind of remuneration for
Mr. Chodak.

At March 31, 2009 Mr. Mirosław Kranik owed 35.96% of the share
equity of Sunset Suits Holdings, Inc.

19

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Sunset Suits Holdings, Inc.Notes to Unaudited Condensed Consolidated Financial Statements 
For the Three Months Ended March 31, 2010 and 2009

20.SUBSEQUENT EVENTS

Management has evaluated, for potential recognition and disclosure, events subsequent to the date of the balance sheet through the date of this filing.

Poznań, May 20, 2010

Mirosław Kranik 
Chief Executive Officer 
Sunset Suits Holdings, Inc.

20

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended
(the Exchange Act). The words believe, expect, anticipate, project, target, optimistic, intend, aim, will or similar expressions
are intended to identify forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or
beliefs about future events. These statements are based on the beliefs of our management as well as assumptions made by and information currently available to us and reflect our current view concerning future events. As such, they are subject to
risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, among many others: our significant operating losses; our limited
operating history; uncertainty of capital resources; the speculative nature of our business; our ability to successfully implement new strategies; present and possible future governmental regulations; operating hazards; competition; the loss of key
personnel; any of the factors in the Risk Factors section of the Companys Annual Report on Form 10-K; other risks identified in this Report; and any statements of assumptions underlying any of the foregoing. You should also
carefully review other reports that we file with the SEC. The Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law.
Except as otherwise indicated by the context, references in this report to (i) the Company, we, us, and our are to the combined business of Sunset Suits Holdings, Inc., a Nevada corporation, and its
consolidated subsidiaries; (ii) Sunset Suits are to our wholly-owned subsidiary Sunset Suits S.A., a Polish company; (iii) Fashion Service are to our former wholly-owned subsidiary Fashion Service Sp. z o.o., a Polish
company; (iv) Men's Fashion are to the predecessor company to Sunset Suits, Sunset Suits Men's Fashion - Moda
Męska; (v) SEC are to the United States Securities and Exchange Commission; (vi) Securities Act are
to Securities Act of 1933, as amended; (vii) Exchange Act are to the Securities Exchange Act of 1934, as amended; (viii) Poland, Polish are to the Republic of Poland; (ix) PLN are to the legal currency
of Poland, the Polish Zloty; (x) EUR or Euro are to the legal currency of the European Union; (xi) U.S. dollars, dollars, USD and $ refer to the legal currency of the United
States; (xii) LIBOR are to the London Interbank Offered Rate; and (xiii) WIBOR refers to the Warsaw Interbank Offered Rate.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND   RESULTS OF OPERATIONS

General Overview

We distribute and sell high quality menswear, including suits, sport coats, slacks, dress shirts and ties. We are operating in the formal menswear market sector within its medium price segment. In the formal menswear market sector, the medium price
segment represents, for example, suits priced in the range of 600  1,000 PLN ($180  $300) and shirts in range of 100  180 PLN ($30  $55). We offer an assortment of styles and maintain a broad selection of
fabrics, colors and sizes.

We generate revenue through retail sales of our menswear, which we sell mainly through our retail sales outlets. For the three months ended March 31, 2010, we had net sales of $4.41 million, compared to net sales of $5.70 million for the
three months ended March 31, 2009.

For the three months ended March 31, 2010, our distribution was carried out through a network of 82 retail
outlets in Poland (90 retail outlets as of March 31, 2009). We intend to continue to build upon our business strategy by implementing new initiatives to promote our products and to fill product and brand portfolio needs as evidenced by our opening
of new retail stores in premier malls in Poland. We opened 2 of new stores during the three months ended March 31, 2010.

21

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Of our 82 existing stores, a number are located on the street in smaller cities. We are monitoring the profitability of these stores. It is possible that we could decide to close some of these stores if we determine that they do not have the
potential to be profitable. Eight such stores were closed during the three months ended March 31, 2010.

In the next 3 to 5 years we plan to develop and to increase the number of our retail stores overall. Our long term plans include doubling the current number of Sunset Suits retail locations. As part of these plans, we also intend to continue to
expand our operations globally, through direct marketing and through partnerships with licensees. With our 3 stores in Latvia, 8 stores in the Czech Republic, and 5 stores in Lithuania, we have begun working towards our goal of increasing our
international presence. We are focused on medium sized stores (approximately 50 to 70 square meters per store) located in large and medium-sized malls with large numbers of customers seeking traditional styles, good quality and competitive prices.

In the long term, our intention is to restructure our retail operations as follows:

- Up to 40 premium shops (around 70 square meters per shop) concentrated in prestigious and modern locations to develop brand strength and to become a modern market player vis-à-vis the closest competitor that offers higher prices for
comparable quality and design;
- Up to 60 medium shops (around 100 square meters per shop) concentrated in large malls with the majority of market flow is clients who are not focused on modern and current trends in design, but instead are looking for traditional shape, good quality
and competing prices;
- Up to 80 low cost shops (around 50 square meters per shop) concentrated in small malls and hypermarkets with the majority of the market flow of clients focused on low prices; and
- Franchising shops in urban areas outside the center.

In order to achieve our long-term development plans of building up to an additional 90 retail stores over approximately the next five years, we estimate we will need approximately PLN 35 million (approximately $12.2 million, for an average store
opening cost of $135,000). In order to achieve these long-term development goals, we will need to raise capital through additional financing. Management believes that it is possible that a significant portion of the funds needed for increased
inventory levels and capital expenditures required for our retail expansion will come from operations. Even management's most optimistic estimates however indicate that a substantial portion of the PLN 35 million will have to come from additional
financings or bank loans.

Summary of Financial Performance

As of March 31, 2010, we had negative equity (liabilities in excess of assets) of $1.27 million and negative working capital (current liabilities in excess current assets) of $4.45 million. Our net income for the three months ended March 31,
2010 was $4.96 million. Our net loss from continuing operations for the three months ended March 31, 2010 was $1.36 million. Our net profit from discontinued operations for the three months ended March 31, 2010 was $6.32 million.

The negative working capital and equity, along with our loss for the most recent twelve month period raise a
substantial doubt about our ability to continue as a going concern. In addition to seeking new debt financing, which may not be possible, or which may come at a high cost, we are implementing various plans both to increase profitability and cash
flow both to continue operations and to finance expansion plans. In addition, our management also expects, if necessary to continue operations, that it can conserve cash by delaying the payment of certain of its liabilities and by decreasing
inventory purchases. Some of the possible sources of improving profitability and cash flow through which we seek to be able to internally finance much of the expansion are as follows:

22

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- We are attempting to increase our gross margin for 2010 as a result of the full implementation of our revised strategy of higher pricing and certain improvements in our supply chain which began in 2008, and maintenance of those margins thereafter.
We may, however, be unsuccessful in the further implementation of this strategy.
- We are attempting to increase sales efficiency (i.e., sales per store) by opening more stores in prime mall locations and closing stores that are not profitable. We do have the risk, however, that increases in sales will turn out to be insufficient
to cover the higher occupancy costs of the prime locations. Additionally, because of the global financial crisis, we are opening fewer new stores than we originally planned. Our current financial condition allows us to open up to 10 new retail
outlets per year. In addition, due to the impact of the global financial crisis on our Company, we anticipate that our development plans have been delayed by two years..
- We are engaging in a cost cutting policy focused on negotiations of rent agreements and salaries, negotiations with raw materials suppliers and a reduction in the number of employees. We believe that because of the global economic crisis we will
have some success in the negotiations. It is possible, however, that we will either be unsuccessful in cutting costs or that the reductions in costs will be concurrent with the receipt of less value from suppliers, resulting in no net benefit to the
Company.
- We plan to attempt to renegotiate the payment schedules with our trade creditors. We believe that many of the creditors will have an incentive to provide terms so as to increase the likelihood of collection of the full amount due. We could, however,
be unsuccessful in our efforts. Accordingly, we may need to make concessions to the creditors that will be more costly to the Company than the benefit received.
- We plan to attempt to renegotiate the terms of our bank settlement agreements. If we are successful, we would not increase our operating cash flow but would increase the availability of existing operating cash flow to be used for capital investment.
We could, however, be unsuccessful in our efforts.
- To the extent that our expansion plan is successful, it would provide additional cash flows to finance later expansion of the Company. However, any new stores may prove to be unprofitable, or insufficiently profitable to provide an acceptable return
on our investment. Our ability to finance capital investments from operating cash flows in future years will be negatively impacted if we are unable to achieve our objectives in the near term. We are capable, however, of scaling back the expansion
plans, if necessary, to be conducted over a longer period than anticipated

Our ability to generate operating cash flow from increases in retail sales is due to immediate receipt of cash upon sales. We do not need working capital in the form of accounts receivable to generate sales. We will, however, need to finance
additional accounts receivable for our new distribution channels, like volume sale to corporations with customized discounts. A significant portion of inventory, which is necessary for our retail operations, can be financed through credits of
accounts payable.

We believe that in a normalized situation with no growth or decrease in sales, operating cash flows would
tend toward net income plus depreciation and amortization, which $0.27 million during the three months ended March 31, 2010. If we were to have stagnant costs and sales, we would not, however, be able to achieve this operating cash flow in the
short run. Even with successful settlements to stretch our tax payments we would still have to repay the remaining old tax and trade obligations.

23

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Principle Factors Affecting Our Financial Performance

We believe that the following factors will continue to affect our financial performance:

- Economic growth in Poland. Growth in Polands GDP, employment and wages should result in increased demand for our products. According to the Polish Central Statistical Office, Polands economic growth in 2009 measured by the
countrys GDP was 1.7% compared to 2008. The GDP for the first quarter 2010 showed 2.8% increase over the fourth quarter of 2009. Domestic demand, which is the main factor in GDP growth, reached 2.3% during the first quarter of 2010, with total
consumption and individual consumption showing increases of 2.5% and 3.3%, respectively, over the fourth quarter of 2009. The contribution of individual consumption to GDP growth in 2009 was 2.3%. The International Monetary Fund forecasts that
Polish GDP growth for 2010 will approximate 2.7%. The Monetary Policy Council estimates that Poland's economic growth is slowing due to the current global economic crisis, and that this slowdown will be further impacted by a deteriorating business
outlook and greater difficulty in accessing credit. Despite continued over-liquidity in the banking system, borrowing costs remain high. At the same time, data from the Monetary Policy Council indicates that unemployment is on the rise and wage
growth is slowing.
- Global financial crisis. The downturn in global financial markets might affect negatively the forecasted Polish GDP growth, and as a result decrease our customers' purchasing power. This might negatively affect our projected total sales
increase and deteriorate our profit margins. The negative impact of the global financial crisis is believed not to affect the Polish economy as seriously as the US economy, however. This is, among others reasons, due to a lower reliance of Polish
corporations and households on financial markets. Polish corporations finance their operations from their own resources in larger part than US corporations. Polish households' dependence on mortgage loans is significantly smaller than in the
US.
- Clothing market development. The Polish clothing market has grown significantly in recent years. According to GUS (Polish National Statistical Office), from 2005 through 2008, the average yearly increase in the Polish clothing sector was in
range 5% to 18% per year. According to the reports of PMR Research (a well-recognized market research company specializing in Central and Eastern Europe) the total clothing and footwear market in Poland reached in 2008 27.2 billion PLN ($9.5
billion) and 25.5 billion PLN ($8.9 billion) in 2009. After the observed decrease in 2009 of 6.3%, PMR estimates the market value for the year 2010 to be 26.8 billion PLN ($9.4 billion). This means an increase of 5.1% as compared to the year
2009. The downturn in global financial markets might negatively affect future clothing and footwear markets in Poland, in turn decreasing our projected total net sales and profit margins. On the other hand, our market position may result in an
increase in projected total net sales and profit margins, as customers switch from the higher priced sector to our medium-priced segment.
- Supply chain development. We will continue to seek high quality and cheaper sources of supply abroad, particularly finished products. Since we focus on increase in liquidity, increased liquidity would allow us to make larger and more
systematic orders from our suppliers and will result in a decrease of the purchase prices. Lower purchase prices have decreased our cost of goods sold resulting in higher operating margins beginning from the second quarter of 2008. We believe
that
our overall supply chain development process will continue to result in increased profit margins eventually.

24

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- Increase in exports. We plan to expand sales of our products to foreign markets. This goal has been achieved through acquisitions of shares in local companies operating retail stores in Lithuania, Latvia and the Czech Republic, as well as
through further development of retail outlets in these countries. We believe that the overall increase in export sales through our network of acquired retail stores will result in increased sales of menswear and positively affect our overall
sales.

Sale of Production and Distribution Operations

On March 26, 2010, Sunset Suits S.A., our wholly owned subsidiary, entered into a purchase agreement (the Agreement) with XCRITO Ltd. (an unrelated third party), a corporation headquartered in Limassol, Cyprus (XCRITO),
pursuant to which we sold to XCRITO 100% of our equity interest in our wholly-owned subsidiary Fashion Service. Pursuant to the Agreement, XCRITO agreed to pay to the Company $16,000, and in turn will acquire all of the assets and liabilities of
Fashion Service, except for liabilities resulting from long term debt (including current amounts owed on such debt), equal to approximately $6,767,000, which will be assumed pursuant to the Agreement by Sunset Suits S.A.

In connection with the Agreement, Mirosław Kranik, our President and Chief Executive Officer, agreed to continue to manage the operations of Fashion Service for up to 90 days from the closing of the transaction. In addition, the Company has agreed
to rent office space from Fashion Service in Krzyzanowo, Poland for a period of 6 months following the closing of the transaction. Our management estimates that we will obtain approximately 25% of our total inventory needs from Fashion Service for a
period up to 6 months following the closing of the transaction.

The sale of Fashion Service was part of a restructuring plan intended to improve our operating margin. The size of our current retail operations was not sufficient to fully utilize the manufacturing capacity of Fashion Service. In order to do so, we
would have been required to engage in wholesale distribution to large distributers or retail clients. We recognized lower gross margins from our manufacturing business segment as compared to its retail segment, which therefore lowered the gross
margin of the Company as a whole. In addition, the manufacturing plant would have required major upgrades in order to satisfy our needs. Accordingly, our management decided that it was more cost effective and in the best interests of the Company and
our shareholders to increase its sourcing of merchandise through a supply chain in Asia instead of maintaining its own production lines.

Short-Term Financial Plan

Our short-term financial plan for 2010 includes various initiatives as discussed above, through which we hope to achieve positive net income for the year and positive cash flows from operations or cash flows, which are negative only to the extent
that we use cash to decrease our overdue tax payables. We believe that we will achieve this plan. If we are able to achieve positive cash flows from operations, it would allow us to simultaneously pay down our current debts and overdue loans and tax
payables according to agreed schedules. It would also allow us to have sufficient cash flows to operate normally for the remainder of 2010. We are only in the preliminary stages of our application for these two long term loans for an aggregate
amount of approximately $5 million. There is a significant possibility that we will not be successful in obtaining these loans. Any retail stores development for the remainder of 2010 is dependent on obtaining these loans, and or achieving
positive cash flows from operations.

25

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Results of Operations

The following tables set forth key components of our results of
operations for the periods indicated, in dollars and as a percentage of revenue.

(All amounts, other than percentages, in thousands of US
dollars)

|                                                   |   | Tree Months
      Ended |   |  | Tree Months
      Ended |   |   |        |  
|-------------------------------------------------- | - | ----------------------- | - |  | ----------------------- | - | - | ------ | -
|                                                   |   | March 31,
      2010    |   |  | March 31,
      2009    |   |   |        |  
|                                                   |   |                         |   |  | Percent                 |   |   |        |  
|                                                   |   |                         |   |  | of                      |   |   |        |  
|                                                   |   | Amount                  |   |  | Revenue                 |   |   | Amount |  
|Sales revenue                                      | $ | 4,414                   |   |  | 100%                    |   | $ | 5,695  |  
|Cost of sales                                      |   | 2,100                   |   |  | 48%                     |   |   | 2,157  |  
|Gross profit                                       |   | 2,314                   |   |  | 52%                     |   |   | 3,538  |  
|Administrative expenses                            |   | 410                     |   |  | 9%                      |   |   | 381    |  
|Selling expenses                                   |   | 3,464                   |   |  | 78%                     |   |   | 3,573  |  
|Total Expenses                                     |   | 3,874                   |   |  | 88%                     |   |   | 3,954  |  
|Gain (loss) on disposal of
      fixed assets, net | $ | (60                     | ) |  | (1%                     | ) | $ | (04    | )
|Interest income                                    |   | 1                       |   |  | %                       |   |   | 19     |  
|Interest expense                                   |   | 274                     |   |  | 6%                      |   |   | 177    |  
|Gain (loss) on transaction in foreign currency     |   | (37                     | ) |  | (1%                     | ) |   | (21    | )
|Income before income
      taxes                   |   | (1,931                  | ) |  | (44%                    | ) |   | (599   | )
|Income taxes                                       |   | 570                     |   |  | 13%                     |   |   | 126    |  
|Net income (loss) from
      Continuing Operations |   | (1,361                  | ) |  | (31%                    | ) |   | (473   | )
|Income (loss) from Discontinued Operations         |   | 6,321                   |   |  | 143%                    |   |   | (1,062 | )
|Net (Loss) Income                                  |   | 4,960                   |   |  | 112%                    |   |   | (1,534 | )

26

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(All amounts, other than percentages, in thousands of Polish
zloty)

|                                                   |  | Tree Months
      Ended |   |  | Tree Months
      Ended |   |  |           |  
|-------------------------------------------------- |  | ----------------------- | - |  | ----------------------- | - |  | --------- | -
|                                                   |  | March 31,
      2010    |   |  | March 31,
      2009    |   |  |           |  
|                                                   |  |                         |   |  | Percent                 |   |  |           |  
|                                                   |  |                         |   |  | of                      |   |  |           |  
|                                                   |  | Amount                  |   |  | Revenue                 |   |  | Amount    |  
|Sales revenue                                      |  | zl 12,729               |   |  | 100%                    |   |  | zl 19,603 |  
|Cost of sales                                      |  | 6,056                   |   |  | 48%                     |   |  | 7,425     |  
|Gross profit                                       |  | 6,673                   |   |  | 52%                     |   |  | 12,177    |  
|Administrative expenses                            |  | 1,183                   |   |  | 9%                      |   |  | 1,312     |  
|Selling expenses                                   |  | 9,991                   |   |  | 78%                     |   |  | 12,298    |  
|Total Expenses                                     |  | 11,174                  |   |  | 88%                     |   |  | 13,610    |  
|Gain (loss) on disposal of
      fixed assets, net |  | (174                    | ) |  | (1%                     | ) |  | (13       | )
|Interest income                                    |  | 2                       |   |  | %                       |   |  | 67        |  
|Interest expense                                   |  | 791                     |   |  | 6%                      |   |  | 610       |  
|Gain (loss) on transaction in foreign currency     |  | (107                    | ) |  | (1%                     | ) |  | (71       | )
|Income before income
      taxes                   |  | (5,570                  | ) |  | (44%                    | ) |  | (2,060    | )
|Income taxes                                       |  | 1,644                   |   |  | 13%                     |   |  | 433       |  
|Net income (loss) from
      Continuing Operations |  | (3,926                  | ) |  | (31%                    | ) |  | (1,627    | )
|Income (loss) from Discontinued Operations         |  | 18,231                  |   |  | 143%                    |   |  | (3,654    | )
|Net (Loss) Income                                  |  | 14,305                  |   |  | 112%                    |   |  | (5,281    | )

Revenues. Our net revenues for the three months
ended March 31, 2010 amounted to $4,414,000 (including foreign operations),
which is $1,282,000, or 23%, lower than for the same period in 2009, during
which we had net revenues of $5,695,000. Such decrease was smoothed as a result
of depreciation of USD to PLN by 19.3% . Net revenues, as denominated in PLN,
dropped by 35%, which is the effect of a decrease in sales in the foreign
network by 14% and by approximately 37% in Polish retail network. The decrease
in sales was a net effect of a decrease of average retail prices by 16%, as well
as of a decrease in total quantity of apparel sold by approximately 25%. The
lower prices is a result of higher discounts used by the Group to sell out slow
moving inventory. The lower quantity sold is a result of lower demand for our
apparel being a result of the economic slowdown in Poland.

Gross Profit as a Percentage of Total Revenue.
Gross profit as a percentage of total revenue decreased by 10% in the three
months ended March 31, 2010, as compared to the same period in 2009. There was a
decrease of 10% of gross margin in the Polish retail network, and a 11% drop in
gross margin in our foreign network. Such a cumulative decrease was principally
due to the inability to increase our retail prices during the first quarter of
2010. Actually our retail prices dropped by approximately 16%. The lower gross
profit as percentage of total revenue is also a result of lower purchase
discounts received from our suppliers during the three months period ended March
31, 2010, due to lower volume on our purchase orders.

Gross Profit. Gross profit was $2,314,000 for the
three months ended March 31, 2010, compared to $3,538,000 for the three months
ended March 31, 2009, which was a decrease of $1,224,000 or 35%. The decrease
was mainly a result of lower net revenues and lower margins realized during the
first quarter 2010.

27

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Operating Expenses. Operating expenses consist of the following expenses: selling and marketing expenses and general and administrative expenses. Our total operating expenses in the three months ended March 31, 2010, amounted to
$3,874,000, which is $80,000, or 2%, less than that of the three months ended March 31, 2009, during which we had operating expenses of $3,954,000. The decrease in our operating expenses is even higher if we take into consideration a
depreciation of USD to PLN by 19.3% . As denominated in PLN, total operating expenses dropped by 18%. The decrease in operating expenses was mainly due to a decrease in selling and marketing expenses.

- Selling and Marketing Expenses. Selling and marketing expenses in the three months ended March 31, 2010 were $3,464,000 (78% of net sales), $109,000 or nearly 3% less than the $3,573,000 (63% of net sales) that we spent on selling
and marketing during the three months ended March 31, 2009. A decrease in our selling and marketing expenses is mainly a net effect of the following factors: i) a decrease in average rent costs due to depreciation of Euro to Polish zloty by 12%; ii)
a decrease in average salaries of selling staff by 28%. As denominated in PLN selling and marketing expenses dropped by 19%
- Administrative Costs. Administrative expenses were $410,000 (9% of net sales) and $381,000 (7% of net sales) in the three months ended March 31, 2010 and March 31, 2009, respectively. As denominated in PLN, administrative costs
decreased by 10% or $129,000. A decrease in our general administration expenses was due to decrease in salaries of our administration personnel by 12%.

Gain (loss) on disposal of fixed assets. Loss on disposal of fixed assets amounted to $60,000 as of March 31, 2010. In the three months ended March 31, 2009, there was a loss on sale of fixed asset amounting to $4,000. The
higher cost of disposal of fixed assets is related to closures of retail outlets that were not fully depreciated as of the date of shutting down. There were 8 retail outlets closures during the three months ended March 31, 2010, while there were 2
closures during the same period in 2009.

Interest Expense and Financing Costs. Interest expenses were $274,000 for the three months ending March 31, 2010 and $177,000 for the same period in 2009. An increase in total interest expense in 2010 as compared to 2009 is
primarily the result of changes of translation rate of PLN to USD. As denominated in PLN the interest expenses increased by PLN 181,000 or 30%. Also the increase in interest expense can be explained by a higher cost of interest on overdue trade
payables.

Result on transactions in foreign currency. The loss on transaction in foreign currency amounted to $37,000 in the three months period ended March 31, 2010. In the same period in 2009, we had a loss on transaction in foreign
currency amounting to $21,000. An decrease in transaction in foreign currency by $16,000 is a result of stronger appreciation of US dollar to Polish zloty during the first quarter of 2010 than in the same period of the year 2009.

Income taxes. Income tax credit accounted for 29.5% of pre-tax income for the three months ended March 31, 2010 as compared to 21.0% of pre-tax income for the same period in 2009. We had an income tax credit of $570,000 in the
three months ended March 31, 2010, as compared to income tax credit of $126,000 in the three months ended March 31, 2009. An increase in income tax credit is primarily due to taxable losses for the year 2009 and recognition of deferred tax asset
resulting in deferred tax credit charge. Our effective tax rate is predominantly driven by the statutory Corporate Income Tax rate in Poland which is 19%. The statutory Corporate Income Tax rates in other countries do not significantly affect our
tax charge since their share in the net profit or loss of us and our subsidiaries is not significant.

Net income/loss from continuing operations We had a net loss from continuing operations of $1,361,000 for the three months ended March 31, 2010 and a net loss from continuing operations of $467,000 for the same period in 2009. The decrease of $888,000 in the net income was
principally due to lower net sales as compared to the prior year. Our operating
costs did not decrease in line with our net sales which is primarily a result of
high operating leverage, resulting mainly from our lease agreements denominated
in Euro.

28

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Net income/loss from discontinuing operations We
had a net income from discontinuing operations of $6,231,000 for the three
months ended March 31, 2010 and a net loss from discontinuing operations of
$1,062,000 for the same period in 2009. The net income from discontinuing
operations for the three months ended March 31, 2010 is made up of a net
operating loss of $509,000 and a gain on disposal of production facility held
for sale of $6,831,000, net of tax.

Net income/loss (profit after taxes). We had a
net income of $4,960,000 for the three months ended March 31, 2010 and a net
loss of $1,534,000 for the same period in 2009. An increase of $6,494,000 in net
income was principally due to gain on disposal of production facility held for
sale.

Balance Sheet Analysis

(All amounts, other than percentages, in thousands of US
dollars)

|                                           |   |           |   |   |              |   |  | Year to |  
|------------------------------------------ | - | --------- | - | - | ------------ | - |  | ------- | -
|                                           |   | March 31, |   |   | December 31, |   |  | Year    |  
|                                           |   | 2010      |   |   | 2009         |   |  | Change  |  
|ASSETS                                     |   |           |   |   |              |   |  |         |  
|Total current assets                       | $ | 6,320     |   | $ | 9,482        |   |  | (33%    | )
|Total non-current assets                   |   | 8,148     |   |   | 16,164       |   |  | (50%    | )
|Total assets                               | $ | 14,468    |   | $ | 25,646       |   |  | (44%    | )
|LIABILITIES AND STOCKHOLDERS EQUITY        |   |           |   |   |              |   |  |         |  
|Total current liabilities                  | $ | 10,768    |   | $ | 19,020       |   |  | (43%    | )
|Total non-current liabilities              |   | 4,965     |   |   | 12,832       |   |  | (61%    | )
|Total stockholders equity                 |   | (1,265    | ) |   | (6,207       | ) |  | (80%    | )
|Total liabilities and stockholders' equity | $ | 14,468    |   | $ | 25,646       |   |  | (44%    | )

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|                                           |  |           |   |  |              |   |  | Year to |  
|------------------------------------------ |  | --------- | - |  | ------------ | - |  | ------- | -
|                                           |  | March 31, |   |  | December 31, |   |  | Year    |  
|                                           |  | 2010      |   |  | 2009         |   |  | Change  |  
|ASSETS                                     |  |           |   |  |              |   |  |         |  
|Total current assets                       |  | zl 18,151 |   |  | zl 27,027    |   |  | (33%    | )
|Total non-current assets                   |  | 23,401    |   |  | 46,072       |   |  | (49%    | )
|Total assets                               |  | zl 41,552 |   |  | zl 73,099    |   |  | (43%    | )
|LIABILITIES AND STOCKHOLDERS EQUITY        |  |           |   |  |              |   |  |         |  
|Total current liabilities                  |  | zl 30,925 |   |  | zl 54,213    |   |  | (43%    | )
|Total non-current liabilities              |  | 14,258    |   |  | 36,576       |   |  | (61%    | )
|Total stockholders equity                 |  | (3,632    | ) |  | (17,691      | ) |  | (79%    | )
|Total liabilities and stockholders' equity |  | zl 41,552 |   |  | zl 73,099    |   |  | (43%    | )

Current assets. Current assets as of March 31,
2010 amounted to $6,320,000. Current assets as of December 31, 2009 amounted to
$9,482,000. A decrease of $3,162,000 or 33% is mainly a result of recording a
sale of current-assets in the transaction of sale of Fashion Service to the
third party. Current-assets held for sale amounted to $3,653,000 as of December
31, 2009.

Non-current assets. Non-current assets as of
March 31, 2010 amounted to $8,148,000. Non-current assets as of December 31,
2009 amounted to $16,164,000. An decrease of $8,016,000 or 50% is a result of
recording a sale of long-lived assets in the transaction of sale of Fashion
Service. Long-lived assets held for sale amounted to $7,694,000 as of December
31, 2009.

Current liabilities. Current liabilities as of
March 31, 2010 amounted to $10,768,000. Current liabilities as of December 31,
2009 amounted to $19,020,000. A decrease of $8,252,000 or 43% is a result of
recording a sale of long-lived assets in the transaction of sale of Fashion
Service. Current liabilities associated with assets held for sale amounted to
$9,808,000 as of December 31, 2009. Moreover our current liabilities increased
from January 1, 2010 to March 31, 2010 by $1,073,000. This increase is the
result of a decrease in our liquidity.

Non-Current liabilities. Non-current liabilities
as of March 31, 2010 amounted to $4,965,000. Non-current liabilities as of
December 31, 2009 amounted to $12,832,000. A decrease of $7,868,000 or 61% is a
result of recording a sale of non-current liabilities in the transaction of sale
of Fashion Service. Non-current liabilities held for sale amounted to $7,753,000
as of December 31, 2009.

Stockholders' equity. Total stockholders'
deficiency as of March 31, 2010 amounted to $1,265,000. Stockholders' deficiency
as of December 31, 2009 amounted to $6,207,000. The increase of $4,942,000 is
mainly a result of a decrease in net income for the three month period ended
March 31, 2010.

Liquidity and Capital Resources

The following table provides detailed information about our net
cash flow for all financial statements periods presented in this report. Our
principal uses of cash are for payments on current liabilities, capital
expenditures and repayments on long term borrowings.

30

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Cash Flow

(All amounts in thousands of U.S. dollars)

|                                                                          |  | Three Months    |   |  | Three Months    |  
|------------------------------------------------------------------------- |  | --------------- | - |  | --------------- | -
|                                                                          |  | Ended March 31, |   |  | Ended March 31, |  
|                                                                          |  | 2010            |   |  | 2009            |  
|Net cash provided by (used in)
      operating activities                 |  | 144             |   |  | (193            | )
|Net cash provided by (used in) investing activities                       |  | (180            | ) |  | (385            | )
|Net cash provided by (used in)
      financing activities                 |  | (180            | ) |  | (216            | )
|Effect of foreign currency translation on cash and cash
      equivalents |  | 6               |   |  | (13             | )
|Net Cash Flow                                                             |  | ($ 210          | ) |  | ($ 807          | )

(All amounts in thousands of Polish zloty)

|                                                                          |  | Three Months    |   |  | Three Months    |  
|------------------------------------------------------------------------- |  | --------------- | - |  | --------------- | -
|                                                                          |  | Ended March 31, |   |  | Ended March 31, |  
|                                                                          |  | 2010            |   |  | 2009            |  
|                                                                          |  |                 |   |  |                 |  
|Net cash provided by (used in)
      operating activities                 |  | 414             |   |  | (603            | )
|Net cash provided by (used in) investing activities                       |  | (519            | ) |  | (1,201          | )
|Net cash provided by (used in)
      financing activities                 |  | (518            | ) |  | (673            | )
|Effect of foreign currency translation on cash and cash
      equivalents |  | 17              |   |  | (39             | )
|Net Cash Flow                                                             |  | ($ 606          | ) |  | ($ 2,516        | )

Cash provided by operations was $144,000 for the three months
ended March 31, 2010. To provide this cash in light of net income of $3,184,000
for the three month period, the Company reversed a gain on disposal of
production facility held for sale of $6,831,000 and reversed depreciation of
$265,000. The Company experienced an increase in non-cash net operating assets
of $3,626,000 during the three months ended March 31, 2010. Accounts receivable
decreased by $556,000 due to an increase in related party receivables, which
also led to a decrease in operating cash flows. The Company also experienced an
increase in its trade accounts payable and other liabilities of $2,778,000 due
to slower payments of its debts, which led to an increase in cash flows from
operations.

We need to fully eliminate negative working capital, and over
the next twelve months we will not be able finance our net loss by speeding-up
the collections of its accounts receivable and reducing inventory balance on
hand. We should, however, have the ability to delay the payment of certain of
its operating liabilities so as to continue in operation for the next twelve
months. The Company is also seeking $5,000,000 of additional loans. There is a
very significant possibility, however, that the Company might not be able to
obtain any of this additional financing. Management has various plans for
increasing the profitability and cash flows of the Company as discussed above in
the section titled "Overview". Each of our plans carries significant uncertainty
as to their achievability and there are risks that they may actually decrease
profitability and cash flows. Several of our plans are particularly risky in the
near term even if successful in the long-term, because investment in additional
working capital and leasehold improvements are required in the short-term. Also,
even the existing facilities will require some capital expenditures to replace
depreciated property and
equipment. Consequently, there is a significant risk that we will be unable to continue its operations through December 31, 2010.

31

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Even if our short-term cash flow requirements can be met, there are nonetheless significant long-term risks. In the long term, our tax liabilities will still need to be repaid regardless of payment extension currently in place. In addition to the
negative working capital of $6,231,000 million, we had long-term liabilities of $4,965,000 at March 31, 2010. Of the $4,965,000 of long-term liabilities, approximately $1,896,000 are long term debt which are not due until 2013, which
leaves $8,442,000 of obligations to be repaid in the five years following the date of our balance sheet.

Operating activities. Net cash provided by operating activities was $144,000 for the three month period ended March 31, 2010, as compared to $193,000 used in operating activities during the same period in 2009. The increase in
net cash provided by operating activities was mainly due to an increase in our net operating liabilities.

Investing activities. Net cash used in investing activities for the three month period ended March 31, 2010 was $180,000, as compared to $385,000 net cash used in investing activities for the same period in 2009. The decrease
in net cash used in investing activities was mainly a result of lower investments in new shops made during the first quarter of 2010 as compared to the first quarter of 20009.

Financing activities. Net cash used in financing activities for the three months ended March 31, 2010 was $180,000, as compared to $216,000 net cash used in financing activities during the same period in 2009. The decrease of
net cash provided by financing activities was mainly attributable to the lower repayment of long term debt, offset by an increase in payment on capital leases..

Repayments of Debt. Repayments of debt in the three months ended March 31, 2010 amounted to $26,000, compared to repayments of $194,000 made in the three months ended March 31, 2009. Part of our long term debt is denominated in
PLN. As a result, variances in our net borrowings repayment tend to be driven by changes in foreign exchange rate fluctuations.

Principal Factors Affecting Our Liquidity

We currently expect to generate a positive net cash flow for fiscal year 2010. There can be no assurance that this estimate will prove to be accurate. Unforeseen events, including changes in our net income, or working capital requirements, could
occur, which could cause our cash flow to vary significantly from this estimate.

32

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Liquidity

Our current ratio was 0.59 as of March 31, 2010, and 0.50 as of December 31, 2009. This increase of the current ratio is a result of sale of our production facility in the first quarter of the year 2010. An increase in our working capital between
December 31, 2009 and March 31, 2010 amounted to $5,090,000 and it was a direct effect of sale of production facility in March 2010.

The sources of liquidity related to the sale of Fashion Service Sp. z o. o. include cash from the purchase consideration, and decreases in fixed cash outflows for production maintenance and payroll.

Working Capital

The negative working capital is regarded as a serious going concern threat. Our negative working capital amounted to $6,231,000 and $6,154,000 as of March 31, 2010 and 2009, respectively. The decrease in working capital A decrease in our
working capital amounted to $77,000.

On November 4, 2009, the Polish tax authorities issued a decision with respect to the deferment of delinquent tax obligations of Sunset Suits S.A. amounting to $1,179,000. According to a decision Sunset Suits is obliged to pay delinquent tax
obligations up to November 2010 with bullet payment amounting to $999,000 on November 2, 2010.

Debt

We plan to re-pay approximately $6,709,000 of long term notes in the years 2010  2013. We expect to be able to generate sufficient cash flow in the future to be able to pay these notes but we might not be able to achieve this. As of March
31, 2010, based on exchange rates in effect at that time, the principal payments due in future years total $1,248,997 for the remainder of 2010, $1,493,776 in 2011, $2,045,766 in 2012, $1,894,000 in 2013.

Management took actions to mitigate the negative effect of the world's financial crisis on realization of our key strategies which include repayment of our debt.  In order to safeguard our short and medium term liquidity, management applied for two
long term loans amounting to $5,000,000 approximately. The objectives of the loan application are:

- Consolidation and restructuring of our current long term debt;
- Improvement of our future credit terms on import purchases; and
- Improvement of our current liquidity ratios by applying for bank guarantees that would release our paid in deposits to our outlet landlords.

We are in the preliminary stages of our applications for these two loans so there is a significant possibility that we will not be successful in obtaining these loans.

Capital Expenditures

Our capital expenditures paid in cash for the three months ended March 31, 2010 were $120,000, compared with $320,000 for the three months ended March 31, 2009. This decrease was the result of weaker liquidity and therefore our inability to
invest in new retail stores during the first quarter of 2010.

33

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Foreign Currency Exposure

Financial statement translation exposure

We use PLN as our functional currency. Transactions in
currencies in other than PLN are translated into PLN at the exchange rates as of
the specific transaction dates. Monetary assets and liabilities denominated in
currencies other than PLN as of the date of our balance sheet are translated
into PLN at the exchange rates prevailing as of such date. All transaction
differences are recorded in the income statement.

Our consolidated financial statements are presented in USD.
Foreign currency translation is accounted for in accordance with ASC 830
(formerly SFAS No. 52, Foreign Currency Translation.) Accordingly, all assets
and liabilities are translated from PLN to USD at the exchange rates prevailing
as of the date of the balance sheet and all income and expenditure items are
translated at the average rates for each of the years presented. Gains and
losses resulting from foreign currency translation are accumulated as separate
components of stockholders equity. The exchange rate adopted for the foreign
exchange transactions are the rates of exchange quoted by the Polish National
Bank.

The translation of PLN into USD has been made as follows:

|March 31, 2010                                     |                            
|-------------------------------------------------- | ---------------------------
|Balance sheet                                      | PLN
      2.8720 to US$1.00
|Statement of income and
      comprehensive income | PLN 2.8841 to
      US$1.00
|                                                   |                            
|                                                   |                            
|March 31,
      2009                               |                            
|Balance sheet                                      | PLN 3.5416 to
      US$1.00
|Statement of income
      and comprehensive income | PLN
      3.4420 to US$1.00
|                                                   |                            
|                                                   |                            
|December 31, 2009                                  |                            
|Balance sheet                                      | PLN
      2.8503 to US$1.00
|Statement of income and
      comprehensive income | PLN 3.1162 to
      US$1.00

Operating Exposure

Most of our transactions were settled in PLN. Our financial
results are susceptible to foreign currency exposure risk. As described in Note
12 to our consolidated financial statements included in this report, part of our
long term debt is denominated in U.S. dollars. Therefore, our financial results
are exposed to the U.S. dollar to PLN foreign exchange rate fluctuations.

Our operating expenses are also vulnerable to foreign currency
exposure risk. As described in Note 15 to our consolidated financial statements
included in this report, the majority of rental agreements for retail and
factory outlet stores space are denominated in Euros. Therefore our operating
results are exposed to fluctuations in the exchange rates between the U.S.
dollar and the Euro to the PLN.

Market Risk  interest and exchange rate sensitivity

Financial instruments held by us include cash equivalents and
long-term debt. Interest rates on our long-term debt are variable. Accordingly,
a change in rates would have an effect on our interest expense. Note 12,
Long-Term Debt in the Notes to Consolidated Financial Statements included in
this report outlines the
principal amounts, interest rates and other terms required to evaluate the expected sensitivity of interest rate changes on the fair value of our variable rate long-term debt. Given our balance of long-term debt and the current interest rates on
bank deposits, the effect of an even insignificant change in long-term interest rates on our interest cost would be material.

34

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Cash and cash equivalents held by us are affected by short-term interest rates. Therefore, a change in short-term interest rates would have an impact on our interest income. Given our balance of cash and cash equivalents and the current interest
rates on bank deposits, the effect of a change in short-term interest rates on our interest income would not be material.

Principally all of our revenue and expenses, except for retail space rentals, are currently denominated in PLN. Translation to U.S. dollars exposes us to fluctuations in foreign currency exchange rates, the rate of exchange of the United States
dollar against PLN.

Approximately 75% of our lease agreements require us to pay in Euro based on the exchange rate as of the day of payment, as is common in Polish agreements for rentals of retail outlets.

Moreover, certain of our long-term debts are denominated in United States dollars as presented in the Note 12, Long-Term Debt in the Notes to Consolidated Financial Statements included in this report. Accordingly, we are primary exposed
to the exchange rate changes during and up to the day of the long-term debts payments, as well as we are exposed to the exchange rate changes at the balance sheet date. During times of a strengthening U. S. dollar, our result on transaction in
foreign currency will be negatively impacted, and during times of a weakening U. S. dollar, our result on transaction in foreign currency will be favorably impacted.

Our foreign wholesale operations are denominated in PLN. Therefore we are not directly exposed to the change of foreign exchange rates of other currencies to PLN. An increase in PLN could make our products less competitive to foreign buyers while a
decrease in PLN could make us more competitive.

Seasonality

Like most other retail businesses, our business is seasonal. The best month for sales is December, in which our total non-discounted sales increase. The last quarter of the year is the best sales period when customers purchase coats, occasional
suits and business suits from an autumn-winter collection. We also typically experience increased sales during the Spring (March, April). During this period consumers typically purchase menswear for various special occasions including weddings,
first communion and other special events. During these periods of increased sales, products are also sold without price reductions.

We reduce our prices during the Summer, Fall and Winter to encourage sales. As a result, our margins are reduced during these seasons. In order to make up for these reduced margins, we will often create special collections that we sell at higher
prices during the Summer and Fall.

Concentration Risk

We have no significant concentration risk regarding our revenues. Over 95% of total revenues are generated through retail sales to individual customers.

We have no significant concentration risk regarding suppliers and accounts payable. We operate with several suppliers who do not have a significant bargaining power on our operations.

35

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Inflation

Inflationary factors, such as increases in the cost of our product and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to
date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of sales revenue if the selling prices of our apparel
do not increase with these increased costs.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our securities.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial
statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of
financial statements, including the following:

Accounts Receivable

Accounts receivable are reported at amounts management expects to be collected, net of trade discounts and an allowance for estimated sales returns.

Outstanding account balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. None of Sunset
Suits Holding, Inc., Sunset Suits S.A., Fashion Service Sp. z o. o., Bohemia s.r.o., UAB Sunset Suits Vilnius, SIA Sunset Riga and OU Posnania have any off-balance-sheet credit exposure to any of their customers.

Inventories and Cost of Sales

Inventories are valued at the lower of cost or market. The Group reduces the carrying cost of inventories for obsolete or slow moving items as necessary to properly reflect the inventorys net realizable value. The cost elements included in
inventory consist of all direct costs of merchandise (net of purchase discounts and vendor allowances), allocated overhead (primarily design and indirect production costs), inbound freight and import fees.

Cost of sales includes the inventory cost elements listed above as well as warehouse outbound freight and internally transferred merchandise freight. The Group's cost of sales may not be comparable to those of other entities, since some entities
include all of the costs associated with their distribution functions in cost of sales while the Group includes these costs in selling, general and administrative expenses.

Property, Plant, Equipment and Depreciation and Amortization

Property, plant and equipment are recorded at cost. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the assets. Leasehold improvements recorded at the inception of a lease are amortized using
the straight-line method over the life of the lease or the useful life of the improvement, whichever is shorter; for improvements made during the lease term, the amortization period is the shorter of the useful life or the remaining lease term
(including any renewal periods that are deemed to
be reasonably assured). Property under capital leases is amortized over the lives of the respective leases or the estimated useful lives of the assets, whichever is shorter.

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The exact historical cost of buildings, machinery and equipment and leasehold improvements acquired prior to 2006, substantially all of which (except leasehold improvements, that were acquired in the 2000s) were acquired in the mid to late 1990s,
could not be reasonably determined due to a lack of accounting documentation. For buildings and machinery and equipment groups of tangible fixed assets, all of which were acquired in the mid to late 1990s, the historical cost was estimated using, as
a starting point, an engineers estimate of the historical cost of past investment. Management is of the opinion that this valuation is the reasonable estimation of historical cost for these groups of tangible fixed assets. For leasehold
improvements, all of which were acquired in the 2000s, historical cost was recreated by identifying all bills and invoices related to retail outlets fittings, even if, they were not properly recorded in the accounting system in the past.

Operating Leases

Total rent payments under operating leases that include scheduled payment increases and rent holidays are amortized on a straight-line basis over the term of the lease. Rent expense on our buildings and retail stores is classified as an SG&A
expense and, for certain stores, includes contingent rents that are based on a percentage of retail sales over stated levels. Landlord allowances are amortized by the straight-line method over the original term of the lease as a reduction of rent
expense.

Foreign Currency Translation

The Group uses the Polish zloty (PLN) as its functional currency. Transactions in currencies during the year in other than PLN are translated into PLN at the exchange rates as of the specific transaction dates. Monetary assets and liabilities
denominated in currencies other than PLN as of the date of the balance sheet are translated into PLN at the exchange rates prevailing as of such date. All transaction differences are recorded in the income statement.

The Groups consolidated financial statements are presented in USD. Foreign currency translation is accounted for in accordance with SFAS No. 52, Foreign Currency Translation (now ASC 830-10). Accordingly, all assets and liabilities
are translated from PLN to USD at the exchange rates prevailing as of the date of the balance sheet and all income and expenditure items are translated at the average rates for each of the years presented. Gains and losses resulting from foreign
currency translation are accumulated as a separate component of stockholders' equity in accumulated other comprehensive income. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the Polish National
Bank.

Use of estimates

The preparation of the Groups consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect
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. The financial statements include some amounts that are based on managements best estimates and judgments. The most significant estimates relate to allowance for uncollectible accounts receivable, inventory obsolescence,
depreciation, intangible asset valuations and useful lives, goodwill impairments, employee benefit plans, environmental accruals, taxes and contingencies. These estimates may be adjusted as more information becomes available, and any adjustment
could be significant.

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Recent Accounting Pronouncements

In June 2009, the FASB issued guidance to change financial reporting by enterprises involved with variable interest entities (VIEs). The standard replaces the quantitative-based risks and rewards calculation for determining which enterprise has a
controlling financial interest in a VIE with an approach focused on identifying which enterprise has the power to direct the activities of a VIE and the obligation to absorb losses of the entity or the right to receive the entitys residual
returns. This accounting standard is effective for fiscal years beginning after November 15, 2009. The Company has evaluated the impact of the adoption of this pronouncement on its consolidated financial statements and has determined there will be
no impact of adoption on its consolidated financial statements.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this report on Form 10-Q. This
evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Executive Officer, and our Chief Financial Officer. Based upon that evaluation, management concluded that our disclosure
controls and procedures are effective to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is accumulated and communicated to management (including the chief executive officer and chief
financial officer) to allow timely decisions regarding required disclosure and that our disclosure controls and procedures are effective to give reasonable assurance that the information required to be disclosed by us in reports that we file under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

There were no changes in our internal control over financial reporting identified in connection with the evaluation performed that occurred during the period covered by this report that have materially affected or are reasonably likely to materially
affect, our internal control over financial reporting.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the
Exchange Act is accumulated and communicated to management, including the Companys Chief Executive and acting Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

Internal Controls Over Financial Reporting

Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Companys internal control over financial reporting and include in this Quarterly Report on Form 10-Q a report on managements assessment of the
effectiveness of our internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting is effective, as of March 31, 2010, and was effective during
the entire quarter ended March 31, 2010.There were no changes in internal
control for the quarter.

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PART II 
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits
and legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will
have a material adverse affect on our business, financial condition or operating
results.

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report,
you should carefully consider the factors discussed in Part I, "Item 1A. Risk
Factors" in our Annual Report on Form 10-K for the year ended December 31, 2009,
which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the only
risks facing our Company. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition or future results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES OR USE OF
PROCEEDS

There were no unregistered sales of equity securities during
the fiscal quarter ended March 31, 2010.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities during the fiscal
quarter ended March 31, 2010.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

The following exhibits are filed with this report, except those
indicated as having previously been filed with the SEC and are incorporated by
reference to another report, registration statement or form. As to any
shareholder of record requesting a copy of this report, we will furnish any
exhibit indicated in the list below as filed with this report upon payment to us
of our expenses in furnishing the information.

|Exhibit Number |  | Description                                                                
|-------------- |  | ---------------------------------------------------------------------------
|               |  |                                                                            
|31.1           |  | Rule 13a-14(a)/15d-14(a) Certification - Principal
      Executive Officer 
|               |  |                                                                            
|31.2           |  | Rule 13a-14(a)/15d-14(a) Certification - Principal
      Accounting Officer
|               |  |                                                                            
|32             |  | Section 1350 Certifications                                                

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SIGNATURES

In accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereto duly authorized individual.

Date: May 24, 2010

SUNSET SUITS HOLDINGS, INC.

By: /s/ Mirosław Kranik        Mirosław Kranik 
        Chief Executive Officer and 
        Acting Chief Financial Officer  
        (Principal Executive, Financial 
        and Accounting Officer)



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