---

|UNITED STATES                     
|----------------------------------
|SECURITIES AND EXCHANGE COMMISSION
|Washington, 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: June 30, 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   | [   ]  (Do not check if a
      smaller reporting company) | Smaller reporting company | [X]  

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 August 16, 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]

---

ITEM 1.

FINANCIAL STATEMENTS

|SUNSET SUITS HOLDINGS, INC.                                
|-----------------------------------------------------------
|                                                           
|UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS
|                                                           
|JUNE 30, 2010 AND 2009                                     
|                                                           
|TABLE OF CONTENTS                                          

|                                                                                                | Page
|----------------------------------------------------------------------------------------------- | ----
|Condensed Consolidated Balance
      Sheets                                                     | 4   
|Unaudited Condensed Consolidated Statements of
      Operations and Comprehensive Income (Loss) | 5   
|Unaudited Condensed Consolidated
      Statements of Cash Flows                                 | 6   
|Unaudited Condensed Consolidated Statement of
      Changes in Stockholders Equity             | 7   
|Notes to Unaudited Condensed
      Consolidated Financial Statements                            | 8   

The accompanying notes are an integral part of these
condensed consolidated financial statements 3

---

|Sunset Suits Holdings, Inc.          
|-------------------------------------
|Condensed Consolidated Balance Sheets

|Balance Sheet as of                                                          |   | June 30,                                   |  |   | December 31, | 
|---------------------------------------------------------------------------- | - | ------------------------------------------ |  | - | ------------ | 
|                                                                             |   | 2010                                       |  |   | 2009         | 
|                                                                             |   | unaudited                                  |  |   |              | 
|                                                                             |   | (all amounts in thousands of U.S. dollars) | 
|ASSETS                                                                       |   |                                            |  |   |              | 
|Current assets:                                                              |   |                                            |  |   |              | 
|Cash and cash equivalents                                                    | $ | 167                                        |  | $ | 379          | 
|Accounts receivable                                                          |   | 1,612                                      |  |   | 1,261        | 
|Receivables from
      related parties                                       |   | 1,181                                      |  |   | 815          | 
|Other trade receivables                                                      |   | 431                                        |  |   | 446          | 
|Inventories                                                                  |   | 2,028                                      |  |   | 3,220        | 
|Deferred taxes                                                               |   | 616                                        |  |   | 734          | 
|Prepaid expenses and other current
      assets                              |   | 1,223                                      |  |   | 235          | 
|Assets held for sale                                                         |   | 0                                          |  |   | 3,653        | 
|Total current assets                                                         |   | 5,647                                      |  |   | 9,482        | 
|                                                                             |   |                                            |  |   |              | 
|Non-current assets                                                           |   |                                            |  |   |              | 
|Property and equipment, less accumulated
      depreciation and amortization |   | 3,219                                      |  |   | 3,767        | 
|Other intangible assets, net                                                 |   | 1,797                                      |  |   | 2,140        | 
|Deferred taxes                                                               |   | 5                                          |  |   | 24           | 
|Long term investments                                                        |   | 1,890                                      |  |   | 2,538        | 
|Assets held for sale                                                         |   | 0                                          |  |   | 7,694        | 
|Total non-current assets                                                     |   | 6,911                                      |  |   | 16,164       | 
|                                                                             |   |                                            |  |   |              | 
|Total assets                                                                 | $ | 12,558                                     |  | $ | 25,646       | 
|                                                                             |   |                                            |  |   |              | 

The accompanying notes are an integral part of these
condensed consolidated financial statements 4

---

|Sunset Suits Holdings, Inc.          
|-------------------------------------
|Condensed Consolidated Balance Sheets

|Balance Sheet as of                                                                          |   | June 30,  |   |   | December 31, |  
|-------------------------------------------------------------------------------------------- | - | --------- | - | - | ------------ | -
|                                                                                             |   | 2010      |   |   | 2009         |  
|                                                                                             |   | unaudited |   |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                          |   |           |   |   |              |  
|Current liabilities:                                                                         |   |           |   |   |              |  
|Short-term borrowings                                                                        | $ | 254       |   | $ | 41           |  
|Current portion of finance lease payable                                                     |   | 4         |   |   | 3            |  
|Current portion of long-term debt                                                            |   | 2,143     |   |   | 1,823        |  
|Accounts payable                                                                             |   | 4,540     |   |   | 3,335        |  
|Income and other taxes payable                                                               |   | 3,084     |   |   | 3,300        |  
|Accrued employee compensation and benefits                                                   |   | 515       |   |   | 414          |  
|Accrued liabilities and other                                                                |   | 167       |   |   | 296          |  
|Liabilities associated with assets held for sale                                             |   | 0         |   |   | 9,808        |  
|Total current liabilities                                                                    |   | 10,707    |   |   | 19,020       |  
|                                                                                             |   |           |   |   |              |  
|Non-current liabilities:                                                                     |   |           |   |   |              |  
|Provisions                                                                                   |   | 185       |   |   | 138          |  
|Long-term debt                                                                               |   | 4,247     |   |   | 4,942        |  
|Liabilities associated with assets held for sale                                             |   | 0         |   |   | 7,753        |  
|Total non-current liabilities                                                                |   | 4,437     |   |   | 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)                                                                            |   | 3,257     |   |   | (5,034       | )
|Retained earnings (deficit)                                                                  |   | (9,976    | ) |   | (4,942       | )
|Accumulated other comprehensive
      income (loss)                                          |   | (7,762    | ) |   | (8,125       | )
|Total stockholders equity                                                                    |   | (2,586    | ) |   | (6,207       | )
|                                                                                             |   |           |   |   |              |  
|Total liabilities and stockholders'
      equity                                             | $ | 12,558    |   | $ | 25,646       |  
|                                                                                             |   |           |   |   |              |  

The accompanying notes are an integral part of these
condensed consolidated financial statements5

---

|Sunset Suits Holdings, Inc.                         
|----------------------------------------------------
|Condensed Consolidated Statement of
      Operations

|Statement of Operations for the period
      of                                                     |   | Three Months Ended                               |   |   | Six Months Ended |  
|--------------------------------------------------------------------------------------------------- | - | ------------------------------------------------ | - | - | ---------------- | -
|                                                                                                    |   | June 30,                                         |   |   | June 30,         |  
|                                                                                                    |   |                                                  |   |   |                  |  
|                                                                                                    |   | 2010                                             |   |   | 2009             |  
|                                                                                                    |   | unaudited                                        |   |   | unaudited        |  
|                                                                                                    |   | (all amounts in thousands of
      U.S. dollars) |  
|Net sales, retail shops                                                                             | $ | 4,738                                            |   | $ | 7,436            |  
|Cost of goods sold                                                                                  |   | 2,128                                            |   |   | 2,660            |  
|Gross profit                                                                                        |   | 2,611                                            |   |   | 4,775            |  
|                                                                                                    |   |                                                  |   |   |                  |  
|Operating expenses:                                                                                 |   |                                                  |   |   |                  |  
|Sales and marketing, including:                                                                     |   | 3,376                                            |   |   | 3,976            |  
|*expenses from related parties*                                                                     |   | 299                                              |   |   | 443              |  
|expenses from unrelated
      parties                                                               |   | 3,077                                            |   |   | 3,533            |  
|General and
      administrative                                                                    |   | 401                                              |   |   | 465              |  
|Total operating expenses                                                                            |   | 3,777                                            |   |   | 4,441            |  
|Gain (loss) on disposal
      of fixed assets, net                                                  |   | (375                                             | ) |   | 2                |  
|Operating income(loss)                                                                              |   | (1,542                                           | ) |   | 337              |  
|                                                                                                    |   |                                                  |   |   |                  |  
|Interest income                                                                                     |   | 28                                               |   |   | 0                |  
|Interest expense                                                                                    |   | 38                                               |   |   | 559              |  
|Gain (loss) on transaction in foreign
      currency                                                |   | (749                                             | ) |   | 9                |  
|                                                                                                    |   |                                                  |   |   |                  |  
|Income (loss) before income taxes                                                                   |   | (2,301                                           | ) |   | (213             | )
|Income tax (expense)
      benefit                                                                  |   | 598                                              |   |   | 46               |  
|                                                                                                    |   |                                                  |   |   |                  |  
|Income (loss) from
      Continuing Operations                                                      |   | ($ 1,703                                         | ) |   | ($ 167           | )
|                                                                                                    |   |                                                  |   |   |                  |  
|Discontinued
      Operations:                                                                      |   |                                                  |   |   |                  |  
|Income (loss) from discontinued operations, net of tax benefit of $ 87, $190 and $165, respectively |   | 0                                                |   |   | 80               |  
|Gain on disposal of production
      facility held for sale, net of tax*                            |   | 0                                                |   |   | 0                |  
|Income (loss) from Discontinued
      Operations                                                    | $ | 0                                                |   | $ | 80               |  
|                                                                                                    |   |                                                  |   |   |                  |  
|Net Income (Loss)                                                                                   |   | (1,703                                           | ) |   | (87              | )
|                                                                                                    |   |                                                  |   |   |                  |  
|Earnings (loss) per share                                                                           |   |                                                  |   |   |                  |  
|Continuing operations                                                                               |   | ($
      0.14                                    | ) |   | ($
      0.01    | )
|Discontinued operations                                                                             | $ | 0.00                                             |   | $ | 0.00             |  
|                                                                                                    |   |                                                  |   |   |                  |  
|                                                                                                    |   |                                                  |   |   |                  |  
|Earnings (loss) per
      share (basic and diluted)                                                 |   | ($
      0.14                                    | ) |   | ($
      0.01    | )
|                                                                                                    |   |                                                  |   |   |                  |  
|Shares used in
      computing per share amounts:                                                   |   |                                                  |   |   |                  |  
|Weighted average common shares
      outstanding                                                    |   | 12,499,645                                       |   |   | 12,499,645       |  
|                                                                                                    |   |                                                  |   |   |                  |  

*Gain on disposal of our subsidiary  Fashion Service on March
26, 2010 amounted to $6,831 thousand. According to Polish tax law, gains
recognized on consolidated statement of operations are not considered taxable
income. Therefore the difference between tax basis and accounting basis is
permanent and deferred tax liability is not recognized on this transaction.

The accompanying notes are an integral part of these
condensed consolidated financial statements 6

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

|                                                                                                     |   | Six Months                                 |   |   | Six Months |   |   | Twelve Months |  
|---------------------------------------------------------------------------------------------------- | - | ------------------------------------------ | - | - | ---------- | - | - | ------------- | -
|Cash Flow for the period of                                                                          |   | Ended                                      |   |   | Ended      |   |   | Ended         |  
|                                                                                                     |   | June 30,                                   |   |   | June 30,   |   |   | December 31,  |  
|                                                                                                     |   | 2010                                       |   |   | 2009       |   |   | 2009          |  
|                                                                                                     |   | unaudited                                  |   |   | unaudited  |   |   |               |  
|                                                                                                     |   | (all amounts in thousands of U.S. dollars) |  
|Cash flows from operating activities:                                                                |   |                                            |   |   |            |   |   |               |  
|Net income (loss)                                                                                    | $ | 3,257                                      |   |   | ($ 1,621   | ) |   | ($ 5,034      | )
|Adjustments to reconcile net income (loss) to cash provided
      by (used in) operating activities: |   |                                            |   |   |            |   |   |               |  
|Depreciation and amortization                                                                        |   | 338                                        |   |   | 410        |   |   | 1,017         |  
|Loss (gain) on property and equipment disposals                                                      |   | 435                                        |   |   | 0          |   |   | 589           |  
|Gain on on sale of production
      facility held for sale                                           |   | (6,831                                     | ) |   | 0          |   |   | 0             |  
|Deferred income taxes                                                                                |   | (73                                        | ) |   | (420       | ) |   | (766          | )
|Changes in assets and liabilities:                                                                   |   |                                            |   |   |            |   |   |               |  
|Accounts receivable                                                                                  |   | (444                                       | ) |   | 479        |   |   | 2,858         |  
|Inventories                                                                                          |   | 509                                        |   |   | (514       | ) |   | 351           |  
|Prepaid expenses and other current assets                                                            |   | (883                                       | ) |   | (445       | ) |   | (1,629        | )
|Accounts payable                                                                                     |   | 1,895                                      |   |   | 1,181      |   |   | 1,636         |  
|Other liabilities                                                                                    |   | 1,874                                      |   |   | 1,465      |   |   | 2,835         |  
|                                                                                                     |   |                                            |   |   |            |   |   |               |  
|Net cash provided by (used in) operating activities                                                  |   | 78                                         |   |   | 534        |   |   | 1,857         |  
|                                                                                                     |   |                                            |   |   |            |   |   |               |  
|Cash flows from investing activities:                                                                |   |                                            |   |   |            |   |   |               |  
|Purchases of investments                                                                             |   | (65                                        | ) |   | 0          |   |   | (01           | )
|Proceeds from the sale of production facility held
      for sale                                    |   | 16                                         |   |   | 0          |   |   | 0             |  
|Purchases of property and equipment                                                                  |   | (452                                       | ) |   | (893       | ) |   | (1,372        | )
|                                                                                                     |   |                                            |   |   |            |   |   |               |  
|Net cash provided by (used in)
      investing activities                                            |   | (501                                       | ) |   | (893       | ) |   | (1,373        | )
|                                                                                                     |   |                                            |   |   |            |   |   |               |  
|Cash flows from financing
      activities:                                                          |   |                                            |   |   |            |   |   |               |  
|Principal payments under capital lease                                                               |   | (32                                        | ) |   | (45        | ) |   | (142          | )
|Proceeds from short and long term
      debt                                                         |   | 248                                        |   |   | 5          |   |   | 26            |  
|Repayments of borrowings                                                                             |   | (52                                        | ) |   | (313       | ) |   | (1,001        | )
|                                                                                                     |   |                                            |   |   |            |   |   |               |  
|Net cash provided by (used in) financing activities                                                  |   | 165                                        |   |   | (352       | ) |   | ($ 1,117      | )
|                                                                                                     |   |                                            |   |   |            |   |   |               |  
|Effect of exchange rate changes on cash and
      equivalents                                        |   | 47                                         |   |   | (06        | ) |   | (80           | )
|                                                                                                     |   |                                            |   |   |            |   |   |               |  
|Net change in cash and equivalents during period                                                     |   | (212                                       | ) |   | (718       | ) |   | (713          | )
|                                                                                                     |   |                                            |   |   |            |   |   |               |  
|Cash and equivalents, beginning of period                                                            |   | 379                                        |   |   | 1,081      |   |   | 1,102         |  
|                                                                                                     |   |                                            |   |   |            |   |   |               |  
|Cash and equivalents, end of period                                                                  | $ | 167                                        |   | $ | 363        |   | $ | 388           |  
|Less asset held for sale
      (discontinued operation)                                              | $ | 0                                          |   |   | 0          |   |   | 9             |  
|Cash and equivalents, end of period                                                                  | $ | 167                                        |   | $ | 363        |   | $ | 379           |  
|                                                                                                     |   |                                            |   |   |            |   |   |               |  

For the six months ended June 30, 2010 and June 30, 2009 total
cash paid for interest amounted to $58 thousand and $147 thousand respectively.

For the six months ended June 30, 2010 and June 30, 2009 total
cash paid for taxes amounted to $579 thousand and $1,527 thousand
respectively.

The accompanying notes are an integral part of these
condensed consolidated financial statements7

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 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.

The accompanying notes are an integral part of these
condensed consolidated financial statements8

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 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 generally accepted accounting principles 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 $5,060 thousand.
Subsequent to June 30, 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 June 30, 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

The accompanying notes are an integral part of these
condensed consolidated financial statements9

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

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 six months ended June 30,
2010 and comparative periods of six months ended June 30, 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.

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.

The accompanying notes are an integral part of these
condensed consolidated financial statements 10

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 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:

|June 30, 2010                                      |  |                             | 
|-------------------------------------------------- |  | --------------------------- | 
|Balance sheet                                      |  | PLN 3.3946 to US$1.00       | 
|Statement of income and
      comprehensive income |  | PLN 3.0182 to US$1.00       | 
|                                                   |  |                             | 
|June 30, 2009                                      |  |                             | 
|Balance sheet                                      |  | PLN 3.1733 to US$1.00       | 
|Statement of income and
      comprehensive income |  | PLN 3.3531 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.

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.

The accompanying notes are an integral part of these
condensed consolidated financial statements 11

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

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. | CHANGES IN ACCOUNTIG POLICIES
|-- | -----------------------------

The Group has changed the presentation of gains and losses on
fixed assets disposals or sales of fixed assets. Gains and losses on sale of
fixed assets used to be presented below the line of income from operations in
consolidated statement of operations. According to ASC 360-10-45-5 gains and
losses on sale of fixed assets should be presented as a part of income from
operations (above the line). Since losses on fixed assets disposal presented
in a six months period ended June 30, 2010 amounted to $435 thousand and are
considered significant, Management decided to change the presentation in this
financial statement to comply fully with ASC 360-10-45-5. The comparative
figures had been changed accordingly.

|4. | 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 operations 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 19 below.

The accompanying notes are an integral part of these
condensed consolidated financial statements12

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

|5. | ACCOUNTS RECEIVABLE
|-- | -------------------

Accounts receivable by major categories are summarized as
follows:

|                                |   | June 30,  |  |   | December 31, | 
|------------------------------- | - | --------- |  | - | ------------ | 
|                                |   | 2010      |  |   | 2009         | 
|                                |   | unaudited |  |   |              | 
|Related party trade receivables | $ | 1,181     |  | $ | 815          | 
|Other trade receivables         |   | 431       |  |   | 446          | 
|                                |   |           |  |   |              | 
|                                | $ | 1,612     |  | $ | 1,261        | 
|                                |   |           |  |   |              | 

All amounts in the above table are presented net of bad debt
allowance. As of June 30, 2010 and as of December 31, 2009 there was no
allowance for doubtful debts recorded.

|6. | INVENTORIES
|-- | -----------

Inventories are summarized as follows:

|                                    |   | June 30,  |   |   | December 31, |  
|----------------------------------- | - | --------- | - | - | ------------ | -
|                                    |   | 2010      |   |   | 2009         |  
|                                    |   | unaudited |   |   |              |  
|Materials                           |   | 175       |   |   | 0            |  
|Merchandise Gross                   |   | 2,139     |   |   | 3,508        |  
|Allowance for slow moving inventory |   | (286      | ) |   | (288         | )
|                                    |   |           |   |   |              |  
|                                    | $ | 2,028     |   | $ | 3,220        |  
|                                    |   |           |   |   |              |  

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

Inventories pledged to banks - At June 30, 2010 and at December
31, 2009, inventories amounting to $1,782 thousand and $2,799 thousand,
respectively, were pledged to banks pursuant to loan agreements.

|7. | PROPERTY, PLANT AND EQUIPMENT
|-- | -----------------------------

|                                                |   | June 30,  |  |   | December 31, |  |  | Useful lives | 
|----------------------------------------------- | - | --------- |  | - | ------------ |  |  | ------------ | 
|                                                |   | 2010      |  |   | 2009         |  |  | (years)      | 
|                                                |   | unaudited |  |   |              |  |  |              | 
|Leasehold improvements                          | $ | 3,774     |  | $ | 4,389        |  |  | 5 - 10       | 
|Machinery and equipment                         |   | 409       |  |   | 487          |  |  | 3 - 20       | 
|Vehicles                                        |   | 25        |  |   | 30           |  |  | 3 - 5        | 
|Furniture and fixtures                          |   | 59        |  |   | 68           |  |  | 3 - 8        | 
|Construction in progress                        |   | 295       |  |   | 335          |  |  | -            | 
|Gross                                           |   | 4,563     |  |   | 5,309        |  |  |              | 
|                                                |   |           |  |   |              |  |  |              | 
|Less: accumulated depreciation and amortization |   | 1,344     |  |   | 1,543        |  |  |              | 
|                                                |   |           |  |   |              |  |  |              | 
|Net                                             | $ | 3,219     |  | $ | 3,767        |  |  |              | 
|                                                |   |           |  |   |              |  |  |              | 

Included in the buildings, leasehold improvements and machinery
and equipment costs shown above are $1,970 thousand (PLN 6,687 thousand) and $2,346 thousand (PLN 6,687 thousand)
of historical costs at June 30, 2010 and December 31, 2009, respectively, are
presented at estimated historical cost as described in Property, Plant,
Equipment and Depreciation and Amortization policy note.

The accompanying notes are an integral part of these
condensed consolidated financial statements13

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

Included in the group of vehicles and machinery and equipment
of property, plant and equipment are capitalized leases amounting to $65
thousand and $113 thousand (net book value) as of June 30, 2010 and December 31,
2009, respectively.

Depreciation and amortization expense relating to property,
plant and equipment (including capitalized leases) was $211 thousand and $209
thousand for the six months period ended June 30, 2010 and June 30, 2009,
respectively. At June 30, 2010 and December 31, 2009, we had no outstanding
commitments relating to the construction or remodeling of retail store
locations. At June 30, 2010, we had approximately $20 thousand in outstanding
commitments relating to the design and implementation of new computer software
systems. During the six 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 June 30,
2010 and at December 31, 2009, all property plant and equipment amounting to
$2,673 thousand and $3,013 thousand, respectively, were pledged to banks
pursuant to loan agreements.

|8. | 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.

|9. | LONG TERM INVESTMENS
|-- | --------------------

Long term investments consist of the following:

|                      |   | June 30,  |  |   | December 31, | 
|--------------------- | - | --------- |  | - | ------------ | 
|                      |   | 2010      |  |   | 2009         | 
|                      |   | unaudited |  |   |              | 
|Deposits              | $ | 1,081     |  | $ | 1,603        | 
|Long term investments |   | 810       |  |   | 935          | 
|                      |   |           |  |   |              | 
|                      | $ | 1,890     |  | $ | 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 $1,103 thousand and $1,645 thousand, respectively, as of June 30,
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 $22 thousand
and $78 thousand, for the quarters ended June 30, 2010 and June 30, 2009,
respectively.

The accompanying notes are an integral part of these
condensed consolidated financial statements14

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

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). Persuant 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 June 30, 2010 the provision is nil.

|10. | INCOME AND OTHER TAX PAYABLES
|--- | -----------------------------

Income and other tax payables consist of the following:

|                             |   | June 30,  |  |   | December 31, | 
|---------------------------- | - | --------- |  | - | ------------ | 
|                             |   | 2010      |  |   | 2009         | 
|                             |   | unaudited |  |   |              | 
|Corporate income tax payable | $ | 508       |  | $ | 596          | 
|Personal income tax payable  |   | 481       |  |   | 490          | 
|Value added tax payable      |   | 502       |  |   | 559          | 
|Social security tax payable  |   | 1,592     |  |   | 1,655        | 
|                             |   |           |  |   |              | 
|                             | $ | 3,084     |  | $ | 3,300        | 
|                             |   |           |  |   |              | 
|Less: Settled in long term   |   | 0         |  |   | 0            | 
|                             |   |           |  |   |              | 
|                             | $ | 3,084     |  | $ | 3,300        | 
|                             |   |           |  |   |              | 

Personal income tax in Poland in the years 2009 and 2010 was
charged on the assessable personal income using two tax thresholds of 18 and
32%. 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.

|11. | 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.

The accompanying notes are an integral part of these
condensed consolidated financial statements15

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

|                                                  |   | June 30,  |   |   | December 31, | 
|------------------------------------------------- | - | --------- | - | - | ------------ | 
|Corporate Income Tax:                             |   | 2010      |   |   | 2009         | 
|                                                  |   | unaudited |   |   | restated     | 
|Current                                           | $ | 1,288     |   | $ | 0            | 
|Deferred                                          |   | (142      | ) |   | 468          | 
|                                                  |   | 1,146     |   |   | 468          | 
|                                                  |   |           |   |   |              | 
|Deferred tax assets (liabilities):                |   |           |   |   |              | 
|Nondeductible accruals and allowances             | $ | 6         |   | $ | 34           | 
|Intangible asset
      valuation and amortization |   | 2         |   |   | 0            | 
|Loss and credit carry forwards                    |   | 193       |   |   | 376          | 
|Deferred compensation                             |   | 339       |   |   | 348          | 
|Inventory valuation                               |   | 44        |   |   | 0            | 
|Other (net)                                       |   | 33        |   |   | 0            | 
|Net deferred tax asset (liability)                |   | 616       |   |   | 758          | 
|                                                  |   |           |   |   |              | 
|Included in:                                      |   |           |   |   |              | 
|Current assets                                    | $ | 616       |   | $ | 734          | 
|Noncurrent assets                                 |   | 5         |   |   | 24           | 
|Current liabilities                               |   | 0         |   |   | 0            | 
|Noncurrent liabilities                            |   | (5        | ) |   | 0            | 
|Net deferred tax asset
      (liability)          |   | 616       |   |   | 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 six months period ended June 30, 2010 a current income
tax amounting to $1,288 thousand is recorded as an accrued tax asset arising
from the taxable losses for the first six 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 June 30, 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
six months ended June 30, 2010 will not be fully utilized to offset taxable
income to be generated in future years. As a result, management provided for a
deferred tax asset allowance amounting to $349 thousand. Management is therefore
of the opinion that deferred tax asset amounting to $616 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.

|12. | FINANCIAL INSTRUMENTS
|--- | ---------------------

At June 30, 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.

The accompanying notes are an integral part of these
condensed consolidated financial statements16

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

|13. | LONG-TERM DEBT
|--- | --------------

Long-term debt consists of the following:

|                                                                                                                        |   | June
      30, |  |   | December 31, | 
|----------------------------------------------------------------------------------------------------------------------- | - | -------------- |  | - | ------------ | 
|                                                                                                                        |   | 2010           |  |   | 2009         | 
|                                                                                                                        |   | unaudited      |  |   |              | 
|Secured Notes due 2013, net of unamortized discount, in USD
      (BGŹ) with interest at LIBOR+2.5% p.a.                | $ | 3,773          |  | $ | 3,758        | 
|Secured Notes due
      2012, net of unamortized discount, in USD (BWE) with interest at
      LIBOR+2.6% p.a.          |   | 86             |  |   | 361          | 
|Secured Notes due 2012, net of unamortized discount, in USD (BWE)
      with interest at LIBOR+2.6% p.a.                |   | 369            |  |   | 739          | 
|Secured Notes due
      2013, net of unamortized discount, in PLN (BGŹ) with interest at
      WIBOR+1.5% p.a.          |   | 607            |  |   | 89           | 
|Secured Notes due 2012, net of unamortized discount, in PLN (BWE)
      with interest at WIBOR+3.0% p.a.                |   | 890            |  |   | 1,014        | 
|Secured Notes due
      2011, net of unamortized discount, in PLN (Bank Śląski) with interest
      at WIBOR+2.0% p.a.* |   | 666            |  |   | 804          | 
|                                                                                                                        |   | 6,390          |  |   | 6,765        | 
|                                                                                                                        |   |                |  |   |              | 
|Less: current portion                                                                                                   |   | 2,143          |  |   | 1,823        | 
|                                                                                                                        |   |                |  |   |              | 
|                                                                                                                        | $ | 4,247          |  | $ | 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 June 30, 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.

|14. | 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:

|                                           |   | June 30,  |  |   | December 31, | 
|------------------------------------------ | - | --------- |  | - | ------------ | 
|                                           |   | 2010      |  |   | 2009         | 
|                                           |   | unaudited |  |   |              | 
|Provision for unsettled
      legal claims | $ | 163       |  | $ | 134          | 
|Provision for retirement obligation        |   | 22        |  |   | 3            | 
|                                           |   |           |  |   |              | 
|                                           | $ | 185       |  | $ | 137          | 
|                                           |   |           |  |   |              | 

The accompanying notes are an integral part of these
condensed consolidated financial statements 17

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

|15. | 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 $378 thousand and $512 thousand for the six months ended June 30,
2010 and June 30, 2009, respectively.

|16. | 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.

Guarantees to landlords

The Group provides cash deposits to Landlords for rent
facilities. These deposits are returned upon the end of lease period. The
landlords require cash deposit being paid in advance as the substitute of bank
guarantees. Therefore, according to its lease agreement the Group is required to
make the whole payment of deposit before it start to operate its retail outlet.
Due to poor liquidity, the Group is unable to satisfy all of its agreements with
landlords and did not provide for the whole deposits as it is required. As of
June 30, 2010, there were $748 thousand of deposits that were not provided by
Sunset Suits S.A.. If not paid timely, landlords bears a right to dissolve the
agreement with Sunset Suits S.A.. Currently Management is under discussion with
landlords to delay the date the total deposit is paid.

Troubled 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 $2,819 thousand at June 30, 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.

The accompanying notes are an integral part of these
condensed consolidated financial statements 18

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

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 June 30, 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 | $ | 2,169    |  | $ | 3,719    |  | $ | 2,609    |  | $ | 1,936    |  | $ | 1,183    |  | $ | 1,847        | 
|                               |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |              | 
|                               |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |              | 
|                               |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |              | 
|*Six 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 $3,136 thousand and $3,495 thousand
for the six months ended June 30, 2010 and June 30, 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.

|17. | 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.

|18. | GEOGRAPHIC AREA INFORMATION
|--- | ---------------------------

|The Group's sales by geographic
      destination are analyzed as follows: |   |                  |  |   |                  |  |  
|-------------------------------------------------------------------------- | - | ---------------- |  | - | ---------------- |  | -
|                                                                           |   | Six Months Ended |  |   | Six Months Ended |  |  
|                                                                           |   | June 30,         |  |   | June 30,         |  |  
|                                                                           |   | 2010             |  |   | 2009             |  |  
|                                                                           |   | unaudited        |  |   | unaudited        |  |  
|Poland                                                                     | $ | 7,305            |  | $ | 11,151           |  | $
|                                                                           |   |                  |  |   |                  |  |  
|Other  European Countries                                                 |   | 1,847            |  |   | 1,980            |  |  
|Sunset Suits Bohemia, s.r.o.                                               |   | 792              |  |   | 1,041            |  |  
|SIA Sunset Riga                                                            |   | 303              |  |   | 309              |  |  
|UAD Sunset Vilnius                                                         |   | 752              |  |   | 555              |  |  
|OU Posnania                                                                |   | 0                |  | $ | 75               |  |  
|                                                                           |   |                  |  |   |                  |  |  
|                                                                           | $ | 9,152            |  | $ | 13,131           |  | $
|                                                                           |   |                  |  |   |                  |  |  

The accompanying notes are an integral part of these
condensed consolidated financial statements19

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

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

|                                                     |   | June 30,  |   |   | December 31, |  
|---------------------------------------------------- | - | --------- | - | - | ------------ | -
|                                                     |   | 2010      |   |   | 2009         |  
|                                                     |   | unaudited |   |   |              |  
|Poland                                               | $ | 12,637    |   | $ | 33,224       |  
|Continuing Operations                                |   | 12,637    |   |   | 17,215       |  
|Discontinued Operations (Assets
      held for sale) |   |           |   |   | 16,009       |  
|Other  European Countries                           |   | 2,360     |   |   | 2,840        |  
|Sunset Suits Bohemia, s.r.o.                         |   | 930       |   |   | 1,240        |  
|SIA Sunset Riga                                      |   | 513       |   |   | 593          |  
|UAD Sunset Vilnius                                   |   | 861       |   |   | 942          |  
|OU Posnania                                          |   | 57        |   |   | 65           |  
|Elimination&Other                                    |   | (2,440    | ) |   | (10,418      | )
|Total assets                                         | $ | 12,558    |   | $ | 25,646       |  
|                                                     |   |           |   |   |              |  

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

|                           |   | June 30,  |  |   | December 31, | 
|-------------------------- | - | --------- |  | - | ------------ | 
|                           |   | 2010      |  |   | 2009         | 
|                           |   | unaudited |  |   | restated     | 
|Poland                     | $ | 2,907     |  | $ | 3,389        | 
|Other  European Countries |   | 312       |  |   | 378          | 
|Czech Republic             |   | 204       |  |   | 260          | 
|Latvia                     |   | 55        |  |   | 73           | 
|Lithuania                  |   | 53        |  |   | 45           | 
|Total assets               | $ | 3,219     |  | $ | 3,767        | 
|                           |   |           |  |   |              | 

|19. | 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 Krzyźanowo 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 Krzyźanowo.

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 Krzyźanowo facility will be approximately nil.

The accompanying notes are an integral part of these
condensed consolidated financial statements20

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

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.

Assets Held for Sale

There were no assets held for sale as of June 30, 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 $6,831, net of taxes which amounted to nil.
According to Polish tax law, gains recognized on consolidated statement of
operations are not considered taxable income. Therefore the difference between
tax basis and accounting basis is permanent and deferred tax liability is not
recognized on this transaction.

|20. | 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 from related party |   | June 30, |  |   | December 31, | 
|------------------------------ | - | -------- |  | - | ------------ | 
|                               |   | 2010     |  |   | 2009         | 
|Miroslaw Kranik                | $ | 1,181    |  | $ | 815          | 
|                               |   |          |  |   |              | 
|Total                          | $ | 1,181    |  | $ | 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 |   | June 30, |  |   | June 30, |  |   | December 31, | 
|----------------------------- | - | -------- |  | - | -------- |  | - | ------------ | 
|                              |   | 2010     |  |   | 2009     |  |   | 2009         | 
|Miroslaw Kranik, including:   | $ | 603      |  | $ | 1,063    |  | $ | 1,871        | 
|Inventories                   |   |          |  |   |          |  |   |              | 
|Property and equipment        |   | 361      |  |   | 476      |  |   | 994          | 
|Materials & services          |   | 242      |  |   | 587      |  |   | 877          | 
|                              |   |          |  |   |          |  |   |              | 
|Donald Chodak                 |   | 41       |  |   | 0        |  |   | 120          | 
|Total                         | $ | 644      |  | $ | 1,063    |  | $ | 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 June 30, 2009 Mr. Mirosław Kranik owed 35.96% of the share
equity of Sunset Suits Holdings, Inc..

The accompanying notes are an integral part of these
condensed consolidated financial statements21

---

|Sunset Suits Holdings, Inc.                                         
|--------------------------------------------------------------------
|Notes to Unaudited Condensed Consolidated
      Financial Statements
|For the Six Months Ended June 30, 2010 and 2009                     

|21. | 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, August 16, 2010

|Mirosław Kranik            
|---------------------------
|Chief Executive Officer    
|Sunset Suits Holdings, Inc.

The accompanying notes are an integral part of these
condensed consolidated financial statements22

---

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, ties and accessories. We operate in the formal menswear market sector within its medium price segment, which 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 six months ended June 30, 2010, we had net sales of $9.15 million, compared to net sales of $13.13 million for the six
months ended June 30, 2009. The drop in our revenue was caused by three major factors. First, our liquidity did not allow us to stock our shops with expected level of inventory, which made our total sales less than if our inventory levels had been
greater. Second, according to the Polish National

23

---

Statistics Office, impact of the global financial crisis in
Poland in the second quarter 2010 resulted in a 10% drop in total retail sales
in Poland inform April 2010 to May 2010. Finally, we closed 17 retail outlets
that were deemed not to be profitable. The total number of retail outlets in
operation as of June 30, 2010 was 12% less than the total number of retail
outlets in operation as of June 30, 2009.



For the six months ended June 30, 2010, our distribution was
carried out through a network of 77 retail outlets in Poland (compared to 88
retail outlets as of June 30, 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 by opening new retail stores in premier
malls in Poland. We opened 6 such new stores during the six months ended June
30, 2010 (including 4 new stores during three months ended June 30, 2010).

Of our 77 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. Seventeen such stores were
closed during the six months ended June 30, 2010 (including 9 closures during
the three months ended June 30, 2010).

In the next 3 to 5 years we plan to increase the number of our
retail stores overall and to develop them in profitable locations. 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:

- Operate 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;
- Operate 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;
- Operate 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.

24

---

Summary of Financial Performance

As of June 30, 2010, we had negative equity (liabilities in
excess of assets) of $2.59 million and negative working capital (current
liabilities in excess current assets) of $5.06 million. Our net income for the
six months ended June 30, 2010 was $3.26 million. Our net loss from continuing
operations for the six months ended June, 30, 2010 was $3.06 million. Our net
profit from discontinued operations for the six months ended June 30, 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 to increase profitability and cash flow in order to
both 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:

- 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

25

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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, including high volume sales 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 $0.31 million during the six months ended
June 30, 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.

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 rate
  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 1.8% compared to 2008. The GDP for the first quarter
  2010 showed 2.9% increase over the first quarter of 2010. Domestic demand,
  which is the main factor in GDP growth, reached 2.2% during the second quarter
  of 2010, with total consumption and individual consumption showing increases
  of 2.2% and 2.2%, respectively, over the first quarter of 2010. 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 3.2%. 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
  may negatively affect the forecasted Polish GDP growth, and as a result
  decrease our the purchasing power of our existing and potential customers.
  This could negatively affect our projected total sales increase and
  deteriorate our profit margins. It is believed that the negative impact of the
  global financial crisis has not been as significant to the Polish economy as
  compared to 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 the Polish National Statistical
  Office, from 2005 through 2008, the average yearly increase in the Polish
  clothing sector ranged from 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 27.2 billion PLN ($9.5 billion) in 2008 and 25.5 billion PLN ($8.9
  billion) in 2009. After the observed decrease in 2009 of 6.3%, PMR estimates
  the market value in 2010 to be 26.8 billion PLN ($9.4 billion). This
  represents an increase of 5.1% as compared to 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.

26

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- Supply chain development. We will continue to seek high quality and
  cheaper sources of supply abroad, particularly finished products. Our focus is
  on increasing liquidity is in order to allow us to make larger and more
  systematic orders from our suppliers, and will result in a decrease in
  purchase prices. Lower purchase prices have decreased our cost of goods sold,
  thus resulting in higher operating margins, beginning in the second quarter of
  2008. We believe that our overall supply chain development process will
  eventually result in increased profit margins.
- Increase in exports. We plan to expand sales of our products to
  foreign markets. Thus far, we have implemented this plan by acquiring shares
  in local companies which operate retail stores in Lithuania, Latvia and the
  Czech Republic, and we plan to further develop our network 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 Krzyźanowo, 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. Any retail stores development for the remainder of 2010 is
dependent on obtaining new loans, and or achieving positive cash flows from
operations. In order to improve our liquidity we are negotiating with our
trading partners from China a trade credit with maximum limit of $3,000,000 for
24 months period. We are only in the preliminary stages of our application.

27

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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)

|                                                   |   | Six Months
      Ended June |   |  | Six Months
      Ended June |   |   |        |  
|-------------------------------------------------- | - | --------------------------- | - |  | --------------------------- | - | - | ------ | -
|                                                   |   | 30, 2010                    |   |  | 30, 2009                    |   |   |        |  
|                                                   |   |                             |   |  | Percent                     |   |   |        |  
|                                                   |   |                             |   |  | of                          |   |   |        |  
|                                                   |   | Amount                      |   |  | Revenue                     |   |   | Amount |  
|Sales revenue                                      | $ | 9,152                       |   |  | 100%                        |   | $ | 13,131 |  
|Cost of sales                                      |   | 4,227                       |   |  | 46%                         |   |   | 4,817  |  
|Gross profit                                       |   | 4,924                       |   |  | 54%                         |   |   | 8,313  |  
|Administrative expenses                            |   | 811                         |   |  | 9%                          |   |   | 846    |  
|Selling expenses                                   |   | 6,840                       |   |  | 75%                         |   |   | 7,548  |  
|Total Expenses                                     |   | 7,652                       |   |  | 84%                         |   |   | 8,395  |  
|Gain (loss) on disposal of
      fixed assets, net |   | ($ 435                      | ) |  | (5%                         | ) |   | ($ 2   | )
|Interest income                                    |   | 29                          |   |  | %                           |   |   | 10     |  
|Interest expense                                   |   | 241                         |   |  | 3%                          |   |   | 287    |  
|Gain (loss) on transaction in foreign currency     |   | (857                        | ) |  | (9%                         | ) |   | (11    | )
|Income before income
      taxes                   |   | (4,232                      | ) |  | (46%                        | ) |   | (372   | )
|Income taxes                                       |   | 1,168                       |   |  | 13%                         |   |   | 172    |  
|Net income (loss) from
      Continuing Operations |   | (3,064                      | ) |  | (33%                        | ) |   | (200   | )
|Income (loss) from Discontinued Operations         |   | 6,321                       |   |  | 69%                         |   |   | (1,421 | )
|Net (Loss) Income                                  |   | 3,257                       |   |  | 36%                         |   |   | (1,621 | )
|                                                   |   |                             |   |  |                             |   |   |        |  

28

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

|                                                   |  | Six Months
      Ended June |   |  | Six Months
      Ended June |   |  |                 |  
|-------------------------------------------------- |  | --------------------------- | - |  | --------------------------- | - |  | --------------- | -
|                                                   |  | 30, 2010                    |   |  | 30, 2009                    |   |  |                 |  
|                                                   |  |                             |   |  | Percent                     |   |  |                 |  
|                                                   |  |                             |   |  | of                          |   |  |                 |  
|                                                   |  | Amount                      |   |  | Revenue                     |   |  | Amount          |  
|Sales revenue                                      |  | zl 27,621                   |   |  | 100%                        |   |  | zl 44,029       |  
|Cost of sales                                      |  | 12,759                      |   |  | 46%                         |   |  | 16,153          |  
|Gross profit                                       |  | 14,862                      |   |  | 54%                         |   |  | 27,875          |  
|Administrative expenses                            |  | 2,449                       |   |  | 9%                          |   |  | 2,837           |  
|Selling expenses                                   |  | 20,645                      |   |  | 75%                         |   |  | 25,311          |  
|Total Expenses                                     |  | 23,095                      |   |  | 84%                         |   |  | 28,148          |  
|Gain (loss) on disposal of
      fixed assets, net |  | (1,314                      | ) |  | (5%                         | ) |  | (7              | )
|Interest income                                    |  | 87                          |   |  | 0%                          |   |  | 34              |  
|Interest expense                                   |  | 728                         |   |  | 3%                          |   |  | 962             |  
|Gain (loss) on transaction in foreign currency     |  | (2,587                      | ) |  | (9%                         | ) |  | (38             | )
|Income before income
      taxes                   |  | (12,774                     | ) |  | (46%                        | ) |  | (1,247          | )
|Income taxes                                       |  | 3,526                       |   |  | 13%                         |   |  | 575             |  
|Net income (loss) from
      Continuing Operations |  | (zl 9,248                   | ) |  | (33%                        | ) |  | (zl 671         | )
|Income (loss) from Discontinued Operations         |  | 19,079                      |   |  | 69%                         |   |  | (4,765          | )
|Net (Loss) Income                                  |  | zl 9,831                    |   |  | 36%                         |   |  | (zl
      5,437 | )
|                                                   |  |                             |   |  |                             |   |  |                 |  

Revenues. Our net revenues for the six months
ended June 30, 2010 amounted to $9,152,000 (including foreign operations), which
is $3,979,000, or 30%, lower than for the same period in 2009, during which we
had net revenues of $13,131,000. Such decrease was partially offset by the
depreciation of USD to PLN by 11.1% . Net revenues, as denominated in PLN,
dropped by 37%, which is the effect of a decrease in sales in the foreign
network by 28% and by approximately 41% in the Polish retail network. The
decrease in sales was a net effect of a decrease of average retail prices by
23%, as well as of a decrease in total quantity of apparel sold by approximately
23%. 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 i) lower
demand for our apparel as a result of the economic slowdown in Poland; ii) the
decrease in the number of our retail outlets by 12% and; iii) our lower current
level of inventory resulting from poor liquidity.

Gross Profit as a Percentage of Total Revenue.
Gross profit as a percentage of total revenue decreased by 9% in the six months
ended June 30, 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 12% 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 half of
2010; in fact, our retail prices dropped by approximately 23% in the first half
of 2010. The lower gross profit as percentage of total revenue is also a result
of lower purchase discounts received from our suppliers during the six months
period ended June 30, 2010, due to lower volume on our purchase orders.

Gross Profit. Gross profit was $4,924,000 for the
six months ended June 30, 2010, compared to $8,313,000 for the six months ended
June 30, 2009, which was a decrease of $3,389,000 or 41%. The decrease was
mainly a result of lower net revenues and lower margins realized during the
first half of 2010.

29

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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 six months ended
June 30, 2010, amounted to $7,652,000, which is $743,000, or 9%, less than that
of the six months ended June 30, 2009, during which we had operating expenses of
$8,395,000. The decrease in our operating expenses would be higher if we take
into consideration a depreciation of USD to PLN by 11.1% . 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 six months ended June 30, 2010 were $6,840,000 (75% of net sales),
  $708,000 or nearly 9% less than the $7,548,000 (57% of net sales) that we
  spent on selling and marketing during the six months ended June 30, 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
  the Euro to the Polish zloty by 11%; ii) a decrease in average total capacity
  of our retail stores by 4%; and iii) a decrease in average salaries of our
  sales staff by 12%. As denominated in PLN selling and marketing expenses
  dropped by 18%
- Administrative Costs. Administrative expenses were $811,000 (9% of
  net sales) and $846,000 (6% of net sales) in the six months ended June 30,
  2010 and June 30, 2009, respectively. As denominated in PLN, administrative
  costs decreased by 14% or zł 388,000. A decrease in our general
  administration expenses was due to the decrease in salaries of our
  administration personnel by 13 % and a decrease in other administrative cost
  by approximately 3% (as denominated in PLN).

Gain (loss) on disposal of fixed assets. Loss on
disposal of fixed assets amounted to $435,000 as of June 30, 2010. In the six
months ended June 30, 2009, there was a loss on the sale of fixed assets
amounting to $2,000. The higher cost of disposal of fixed assets is related to
closures of retail outlets that were not fully depreciated as of their dates of
closure. There were 17 retail outlet closures during the six months ended June
30, 2010, while there were 2 closures during the same period in 2009.

Interest Expense and Financing Costs. Interest
expenses was $241,000 for the six months ending June 30, 2010, and $287,000 for
the same period in 2009. An increase in total interest expense in 2010, as
compared to 2009, is flattened by changes of translation rate of PLN to USD. As
denominated in PLN the interest expenses decreased by PLN 234,000 or 24%. The
decrease in interest expense is predominantly explained by lower amount long
term loan capital to be repaid.

Result on transactions in foreign currency. The
loss on transactions in foreign currency amounted to $857,000 in the six months
period ended June 30, 2010. In the same period in 2009, we had a loss on
transactions in foreign currency amounting to $11,000. A decrease in
transactions in foreign currency by $846,000 is a result of stronger
appreciation of the US dollar compared to the Polish zloty as of June 30, 2010
as compared to December 31, 2009. The increase in foreign exchange rate of USD
to PLN resulted in the increase in long-term debt denominated in U.S. dollars.
This was a major reason for recognition of unrealized foreign exchange losses in
the income statement for the period of six months ended June 30, 2010.

Income taxes. Income tax benefit accounted for
27.6% of pre-tax income for the six months ended June 30, 2010, as compared to
46.1% of pre-tax income for the same period in 2009. We had an income tax
benefit of $1,168,000 in the six months ended June 30, 2010, as compared to
income tax benefit of $172,000 in the six months ended June 30, 2009. An
increase in income tax benefit is primarily due to the following: i) deferred
tax asset/benefit recognized on taxable losses for the year 2009, as compared to
zero deferred tax asset/benefit for the comparative period (there were no
taxable losses for the year 2008) and; ii) higher losses for the six months period ended June 30, 2010, as compared to the six
months period ended June 30, 2009 resulting in recognition of higher current tax
benefit. Our effective tax rate is predominantly driven by the statutory
Corporate Income Tax rate in Poland of 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.

30

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Net income/loss from continuing operations We had
a net loss from continuing operations of $3,064,000 for the six months ended
June 30, 2010 and a net loss from continuing operations of $200,000 for the same
period in 2009. The decrease of $2,864,000 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.

Net income/loss from discontinuing operations We
had net income from discontinuing operations of $6,321,000 for the six months
ended June 30, 2010, and a net loss from discontinuing operations of $1,421,000
for the same period in 2009. The net income from discontinuing operations for
the six months ended June 30, 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 $3,257,000 for the six months ended June 30, 2010, and a net loss
of $1,621,000 for the same period in 2009. An increase of $4,879,000 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)

|                                           |   |               |   |   | December |   |  | Year to |  
|------------------------------------------ | - | ------------- | - | - | -------- | - |  | ------- | -
|                                           |   | June 30, 2010 |   |   | 31,2009  |   |  | Year    |  
|                                           |   |               |   |   |          |   |  | Change  |  
|ASSETS                                     |   |               |   |   |          |   |  |         |  
|Total current assets                       | $ | 5,647         |   | $ | 9,482    |   |  | (40%    | )
|Total non-current assets                   |   | 6,911         |   |   | 16,164   |   |  | (57%    | )
|Total assets                               | $ | 12,558        |   | $ | 25,646   |   |  | (51%    | )
|LIABILITIES AND STOCKHOLDERS EQUITY        |   |               |   |   |          |   |  |         |  
|Total current liabilities                  | $ | 10,707        |   | $ | 19,020   |   |  | (44%    | )
|Total non-current liabilities              |   | 4,437         |   |   | 12,832   |   |  | (65%    | )
|Total stockholders equity                  |   | (2,586        | ) |   | (6,207   | ) |  | (58%    | )
|Total liabilities and stockholders' equity | $ | 12,558        |   | $ | 25,646   |   |  | (51%    | )
|                                           |   |               |   |   |          |   |  |         |  

31

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

|                                           |  |               |   |  | December  |   |  | Year to |  
|------------------------------------------ |  | ------------- | - |  | --------- | - |  | ------- | -
|                                           |  | June 30, 2010 |   |  | 31,2009   |   |  | Year    |  
|                                           |  |               |   |  |           |   |  | Change  |  
|ASSETS                                     |  |               |   |  |           |   |  |         |  
|Total current assets                       |  | zl 19,168     |   |  | zl 27,027 |   |  | (29%    | )
|Total non-current assets                   |  | 23,460        |   |  | 46,072    |   |  | (49%    | )
|Total assets                               |  | zl 42,628     |   |  | zl 73,099 |   |  | (42%    | )
|LIABILITIES AND STOCKHOLDERS EQUITY        |  |               |   |  |           |   |  |         |  
|Total current liabilities                  |  | zl 36,345     |   |  | zl 54,213 |   |  | (33%    | )
|Total non-current liabilities              |  | 15,062        |   |  | 36,576    |   |  | (59%    | )
|Total stockholders equity                  |  | (8,779        | ) |  | (17,691   | ) |  | (50%    | )
|Total liabilities and stockholders' equity |  | zl 42,628     |   |  | zl 73,099 |   |  | (42%    | )
|                                           |  |               |   |  |           |   |  |         |  

Current assets

Excluding current assets held for sale, current assets as of
June 30, 2010 decreased by $181,000 as compared to December 31, 2009. The major
reason for this change is a fluctuation in the foreign exchange rate between the
PLN and USD. The balance sheet foreign exchange rate as of December 31, 2009 was
2.8503 PLN/USD, while it was 3.3946 PLN/USD as of June 30, 2010. In addition to
the effect of the fluctuation of the foreign exchange rate, there were two major
reasons for current assets variation: (i) a decrease in inventories by
$1,192,000 (PLN 2,293,000) and (ii) an increase in prepaid expenses by $988,000
(PLN 3,482,000). A decrease in inventories has a negative effect on our
liquidity, resulting in supply delays and reducing the level of our inventory
below our required levels. An increase in prepaid expenses and other current
assets is a result of the recognition of a current tax benefit due to our
significant losses for the six months period ended June, 30, 2010.

Non-current assets. Non-current assets as of June 30,
2010 amounted to $6,911,000. Non-current assets as of December 31, 2009 amounted
to $16,164,000. A decrease of $9,253,000, or 57%, is the result of recording a
sale of long-lived assets in connection with the sale of Fashion Service.
Long-lived assets held for sale amounted to $7,694,000 as of December 31, 2009.
Additionally long-lived assets decreased due to closures of eleven retail
outlets during the first half of 2010. We had 93 total shops in operation as of
June 30, 2010, while there were 104 shops in operation as of December 31, 2009.

Excluding non-current assets for sale, non-current assets as
of June 30, 2010 decreased by $1,559,000 as compared to December 31, 2009. The
major reason for this change is the fluctuation of the PLN/USD foreign exchange
rate. The balance sheet foreign exchange rate as of December 31, 2009 was 2.8503
PLN/USD, while it was 3.3946 PLN/USD as of June 30, 2010. In addition to the
effect of the fluctuation of the foreign exchange rate, there was a $548,000
decrease in property and equipment and a $648,000 decrease in long term
investments. The decrease in fixed assets is the result of the liquidation of
certain retail outlets. The decrease in long term investment is the result of a
decrease in the total balance of deposits paid to landlords, which is also
connected with closures of eleven retail outlets.

Current liabilities. Current liabilities as of June
30, 2010 amounted to $10,707,000. Current liabilities as of December 31, 2009
amounted to $19,020,000. The decrease of $8,313,000, or 44%, is a result of
recording a sale of long-lived assets in the 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 June 30, 2010 by $2,934,000 (9,924,000 PLN). This increase is the result
of slower repayments of our debts as a consequence of the reduction in our
liquidity.

Excluding current liabilities associated with assets held for
sale, current liabilities as of June 30, 2010 increased by $2,669,000 as
compared to current liabilities as of December 31, 2009. An increase in current
liabilities was flattened by the fluctuation of the PLN/USD foreign exchange
rate. The balance sheet foreign exchange rate as of December 31, 2009 was 2.8503
PLN/USD, while it was 3.3946 PLN/USD as of June 30, 2010. As denominated in PLN
current liabilities increased by 15,993,000. This sharp increase is mainly a
result of decreasing liquidity and our inability to pay our current debts. There
was an increase in short term borrowings of $213,00 (PLN 744,000), an increase
in accounts payable of $1,205,000 (PLN 5,906,000) and an increase in current
portion of long term debts of $320,000 (PLN 2,079,000). The increase in short
term borrowings is the result of cash proceeds in connection with a short term
note payable. The increase in accounts payable is mainly a result of decreasing
liquidity and our inability to repay our current debts. The increase in current
portion of long term debts payable is a result of (i) our long term debt payment
schedule and significant long term debts to be paid in the first half of the
year 2011, and (ii) an increase of foreign exchange rate of PLN/USD (since
approximately half of long term debts are denominated in USD).

Non-Current liabilities. Non-current liabilities as
of June 30, 2010 amounted to $4,437,000. Non-current liabilities as of December
31, 2009 amounted to $12,832,000. The decrease of $8,396,000, or 65%, is a
result of recording a sale of non-current liabilities in connection with the
sale of Fashion Service. Non-current liabilities held for sale amounted to
$7,753,000 as of December 31, 2009. Our non-current liabilities increased from
January 1, 2010 to June 30, 2010 by $172,000 (584,000 PLN).

Excluding non-current liabilities associated with assets held
for sale, non-current liabilities as of June 30, 2010 decreased by $643,000 as
compared to December 31, 2009. The major reason for this change is the
fluctuation of the PLN/USD foreign exchange rate. The balance sheet foreign
exchange rate as of December 31, 2009 was 2.8503 PLN/USD, while it was 3.3946
PLN/USD as of June 30, 2010. As denominated in PLN non-current, excluding assets
non-current associated with assets held for sale, increased by PLN 582,000.
There were two reasons for this change. First of all, a provision increased by
PLN 234,000 as a result of recording an additional accrual for cost
associated with a lost legal defense versus a claim from an owner of Karlovy
Vary shopping mall in Czech Republic for a payment of overdue rents from a year
2001. The second reason was an increase of foreign exchange rate of PLN/USD
(since approximately half of long term debts are denominated in USD).

Stockholders' equity. Total stockholders' deficiency
as of June 30, 2010 amounted to $2,586,000. Stockholders' deficiency as of
December 31, 2009 amounted to $6,207,000. The increase of $3,620,000 is mainly a
result of: i) an increase in our net profit as a consequence of the sale of
Fashion Service; and ii) an increase in our operating loss for the six months
period ended June 30, 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.

32

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Cash Flow

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

|                                                                          |  | Six Months     |   |  | Six Months     |  
|------------------------------------------------------------------------- |  | -------------- | - |  | -------------- | -
|                                                                          |  | Ended June 30, |   |  | Ended June 30, |  
|                                                                          |  | 2010           |   |  | 2009           |  
|Net cash provided by (used in)
      operating activities                 |  | 78             |   |  | 534            |  
|Net cash provided by (used in) investing activities                       |  | (501           | ) |  | (893           | )
|Net cash provided by (used in)
      financing activities                 |  | 165            |   |  | (352           | )
|Effect of foreign currency translation on cash and cash
      equivalents |  | 47             |   |  | (6             | )
|Net Cash Flow                                                             |  | ($ 212         | ) |  | ($ 718         | )
|                                                                          |  |                |   |  |                |  

(All amounts in thousands of Polish zloty)

|                                                                          |  | Six Months     |   |  | Six Months     |  
|------------------------------------------------------------------------- |  | -------------- | - |  | -------------- | -
|                                                                          |  | Ended June 30, |   |  | Ended June 30, |  
|                                                                          |  | 2010           |   |  | 2009           |  
|Net cash provided by (used in)
      operating activities                 |  | 234            |   |  | 1,790          |  
|Net cash provided by (used in) investing activities                       |  | (1,513         | ) |  | (2,995         | )
|Net cash provided by (used in)
      financing activities                 |  | 497            |   |  | (1,181         | )
|Effect of foreign currency translation on cash and cash
      equivalents |  | 142            |   |  | (22            | )
|Net Cash Flow                                                             |  | (zl 640        | ) |  | (zl 2,408      | )
|                                                                          |  |                |   |  |                |  

Cash provided by operations was $78,000 for the six months
ended June 30, 2010. To provide this cash in light of net income of $3,257,000
for the six month period, the Company reversed a gain on the disposal of its
production facility held for sale of $6,831,000 and reversed depreciation of
$338,000. The Company experienced an increase in non-cash net operating assets
of $2,950,000 during the six months ended June 30, 2010. Accounts receivable
increased by $444,000 due to an increase in related party receivables, which
also led to a decrease in operating cash flows. Inventories decreased by
$509,000 which led to an increase in net operating cash flow. Prepaid expenses
and other current assets increased by $883,000 as a consequence of the increase
in prepaid current tax credit, which led to a decrease in net operating cash
flow. The Company also experienced an increase in its trade accounts payable and
other liabilities of $3,768,000 due to slower payments of 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 $3,000,000 of additional trade credit from its suppliers in China. There is a
possibility, however, that the Company may 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 they may ultimately be 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.

33

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Operating activities. Net cash provided by
operating activities was $78,000 for the six month period ended June 30, 2010,
as compared to $534,000 used in operating activities during the same period in
2009. The decrease in net cash provided by operating activities was mainly due
to worse net income from continuing operations.

Investing activities. Net cash used in investing
activities for the six month period ended June 30, 2010 was $501,000, as
compared to $893,000 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 half of 2010 as
compared to the first half of 2009.

Financing activities. Net cash provided by
financing activities for the six months ended June 30, 2010 was $165,000, as
compared to $352,000 net cash used in financing activities during the same
period in 2009. The increase in net cash provided by financing activities was
mainly attributable to the lower repayment of long term debt and proceed from
short term borrowing in April 2010.

Repayments of Debt. Repayments of debt in the six
months ended June 30, 2010 amounted to $52,000, compared to repayments of
$313,000 made in the six months ended June 30, 2009. The decrease in the
repayment of long term debt is a result of our liquidity problems. These slower
repayment of long term debts is agreed with our creditors. Part of our long term
debt is denominated in PLN. As a result, variances in our net borrowings,
repayment tends 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.

34

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Liquidity

Our current ratio was 0.53 as of June 30, 2010, and 0.50 as of
December 31, 2009 (including current assets and liabilities held for sale). This
increase of our current ratio is a result of sale of our production facility in
the first quarter of 2010. An increase in our working capital between December
31, 2009 and June 30, 2010 amounted to $4,478,000 and it was a direct effect of
sale of production facility in March 2010.

Excluding current assets and liabilities held for sale, our
current ratio was 0.53 as of June 30, 2010, and 0.63 as of December 31, 2009. A
decrease in our current ratio, excluding current assets and liabilities held for
sale, is a result of our increasing liquidity problems that occurred in the
first half of the year 2010.

The sources of liquidity related to the sale of Fashion Service
Sp. z o. o. include cash from the purchase consideration amounting to $16,000,
and decreases in fixed cash outflows for production maintenance and payroll.

Working Capital

Our negative working capital is regarded as a serious going
concern threat. Our negative working capital amounted to $5,060,000 and
$9,538,000 including current assets and liabilities held for sale (or $3,384,000
excluding current assets and liabilities held for sale) as of June 30, 2010 and
December 31, 2009, respectively. An increase in our working capital amounted to
$4,478,000 (including current assets and liabilities held for sale). Excluding
current assets and liabilities held for sale presented as of December 31, 2009,
we had a decrease in working capital of $1,676,000. This decrease is a result of
our increasing liquidity problems that occurred in the first half of the year
2010.

Debt

We plan to re-pay approximately $6,390,000 of long term notes
in the years 2010 through 2013. We expect to be able to generate sufficient cash
flow in the future to be able to pay these notes, however, we may not be able to
achieve this. As of June 30, 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
global financial crisis on the realization of our key strategies which include,
among other things, the repayment of our debt. In order to safeguard our short
and medium term liquidity, management applied for a trade credit with a maximum
limit amounting to $3,000,000. This trade credit is applied with relation to our
China supplies. The objectives of the loan application are:

- 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 application so there is
a possibility that we will not be successful in obtaining these loans.

35

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Capital Expenditures

Our capital expenditures paid in cash for the six months ended
June 30, 2010 were $452,000, compared with $893,000 for the six months ended
June 30, 2009. This decrease was the result of weaker liquidity and therefore
our inability to invest in new retail stores during the first half of 2010.

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                                     |  |                             | 
|-------------------------------------------------- |  | --------------------------- | 
|Statement of income
      and comprehensive income |  | PLN
      2.8841 to US$1.00 | 
|                                                   |  |                             | 
|March 31,
      2009                               |  |                             | 
|Statement of income and
      comprehensive income |  | PLN 3.4420 to
      US$1.00 | 
|                                                   |  |                             | 
|June 30, 2010                                      |  |                             | 
|Balance sheet                                      |  | PLN
      3.3946 to US$1.00 | 
|Statement of income
      and comprehensive        |  | PLN 3.0182 to
      US$1.00 | 
|                                                   |  |                             | 
|June 30, 2009                                      |  |                             | 
|Balance sheet                                      |  | PLN
      3.1733 to US$1.00 | 
|Statement of income
      and comprehensive        |  | PLN 3.3531 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 are settled in PLN. Our financial
results are susceptible to foreign currency exposure risk. As described in Note
13 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 16 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.

36

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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 13,
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.

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
Euros 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 13, 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 period of the year in terms
of sales, as customers purchase coats, occasional suits and business suits from
our autumn-winter collection. We also typically experience increased sales
during the March and April, when consumers typically purchase menswear for
various special occasions including weddings, first communion and other special
events. During these periods of increased sales, products are typically sold
without discounts.

We reduce our prices during the summer, fall and winter in
order 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 which we sell at higher prices during the summer and fall.

37

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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.

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.

Guarantees to landlords

The Group provides cash deposits to Landlords for rent
facilities. These deposits are returned upon the end of lease period. The
landlords require cash deposit being paid in advance as the substitute of bank
guarantees. Therefore, according to its lease agreement the Group is required to
make the whole payment of deposit before it start to operate its retail outlet.
Due to poor liquidity, the Group is unable to satisfy all of its agreements with
landlords and did not provide for the whole deposits as it is required. As of
June 30, 2010, there were $748,000 of deposits that were not provided by Sunset
Suits S.A.. If not paid timely, landlords bears a right to dissolve the
agreement with Sunset Suits S.A.. Currently Management is under discussion with
landlords to delay the date the total deposit is fully paid.

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.

38

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Inventories and Cost of Sales

Inventories are valued at the lower of either cost or market.
We 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. Our 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 we 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.

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

We use the Polish zloty (PLN) as our 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.

39

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Our 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 our consolidated financial statements in
conformity with generally accepted accounting principles 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.

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.

40

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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
June 30, 2010, and was effective during the entire quarter ended June 30,
2010.There were no changes in internal control for the quarter.

|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 June 30, 2010.

41

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|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

There were no defaults upon senior securities during the fiscal
quarter ended June 30, 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 | Description                                                                
|------- | ---------------------------------------------------------------------------
|Number  |                                                                            
|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                                                

42

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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: August 16, 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)        

43

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