SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

[x]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [FEE REQUIRED]

        For the fiscal year ended December 31, 1997

                                       OR

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

        For the transition period from ______________  to ______________

                         Commission File Number 0-20769

                           CABLE & CO. WORLDWIDE, INC.
                 (Name of small business issuer in its charter)

           Delaware                                         22-3341195
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

                   724 Fifth Avenue, New York, New York 10019
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (212) 489-9686

      Securities registered pursuant to Section 12(b) of the Exchange Act:

      Securities registered pursuant to Section 12(g) of the Exchange Act:
                          Common Stock, $.01 par value
                                (Title of Class)

                                    Warrants
                                (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                YES _X_                          NO ___

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained,  to the best
of  registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

Issuer's revenues for its most recent fiscal year.   $13,878,016.

The number of shares of Common Stock held by nonaffiliates of the registrant (as
determined  for the purpose of this Form  10-KSB  only) as of March 31. 1998 was
30,670,252, with an approximate aggregate market value of $2,606,971 (based upon
the average of the bid and asked  prices of such  shares as of such  date).  The
number of shares of the Common Stock of the issuer  outstanding  as of March 31,
1998 was 43,048,164 .

<PAGE>


                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                  Page
                                                                                 Number
                                                                                 ------
                             Item Number and Caption
<S>      <C>                                                                      <C>
PART I
         Item 1.  Description of Business ......................................    3
         Item 2.  Description of Properties ....................................   13
         Item 3.  Legal Proceedings ............................................   13
         Item 4.  Submission of Matters to a Vote of Securityholders ...........   13

PART II
         Item 5.  Market for Common Equity and Related Stockholder Matters .....   14
         Item 6.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operation .....................................   15
         Item 7.  Financial Statements .........................................   21
         Item 8.  Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure .....................................   21

PART III
         Item 9.  Directors, Executive Officers, Promoters and Control Persons..   21
         Item 10. Executive Compensation .......................................   23
         Item 11. Security Ownership of Certain Beneficial Owners and Management   26
         Item 12. Certain Relationships and Related Transactions ...............   27
         Item 13. Exhibits, Financial Statement Schedules, and Reports on
                  Form 8-K .....................................................   29
</TABLE>



                                      -2-
<PAGE>


                                     PART I

Item 1. Description of Business


     The Company designs, manufactures, imports and markets on a wholesale basis
a broad  range of men's  casual and dress  footwear  bearing  the Cable & Co.(R)
trademark,  the Bacco Bucci(R)  trademark,  the XBacco trademark and the Alberto
Salvucci  trademark.  The  Company's  products are designed to appeal to fashion
conscious consumers.  The retail price of the men's shoes sold under the Cable &
Co.  trademark  ranges from $139 to $175 for casual  shoes and from $175 to $220
for dress shoes. The retail price of the men's casual shoes sold under the Bacco
Bucci trademark  ranges from $130 to $145. The Company has recently  developed a
new line of men's  casual  shoes known as XBacco.  The retail price of the shoes
sold under the XBacco label is approximately $120. The retail price of the men's
dress shoe sold under the Alberto  Salvucci  trademark ranges from $350 to $380.
The Company markets its products to approximately 1,800 department and specialty
store locations in the United States,  including (i) major department stores and
specialty  stores,  such as  Bloomingdales,  Dillard  Department  Stores,  Inc.,
Nordstrom,  Inc. and R.H. Macy & Co., Inc.,  (ii) upscale  specialty  retailers,
such as Saks Fifth Avenue,  Lord & Taylor and  Parisian,  and (iii) upscale shoe
and apparel merchants.

     In August 1997 the Company acquired the rights to the Bacco Bucci trademark
from D&D Design and Details  Limited  ("D&D  Design"),  an entity  controlled by
Alberto  Salvucci,  the  Chairman  of the  Board of  Directors  and a  principal
stockholder of the Company. Prior to August 1997, the Company licensed the right
to use the Bacco Bucci  trademark  from D&D Design.  In August 1997, the Company
also  acquired  the Cable & Co.  trademark  from Cable & Co.  S.R.L.,  an entity
controlled by Mr. Salvucci,  in many major countries throughout the world. Prior
to August 1997,  the Company owned the rights to the Cable & Co.  trademark only
in the Western Hemisphere.

     The Company  believes  that its footwear is  comfortable,  fashionable  and
practical. The Company incorporates  technically  sophisticated designs into the
construction  of its  footwear,  which is  intended  to be worn  with  casual or
business attire.  The Company sells  approximately 40 styles of men's shoes each
season  bearing the Cable & Co.  trademark,  approximately  20 styles  under the
Bacco Bucci  trademark and  approximately  10 styles under the Alberto  Salvucci
trademark.  The Company  anticipates  selling  approximately  15 styles of men's
casual shoes each season under the XBacco trademark.

     The Company  plans to increase  revenues  by  increasing  sales to existing
accounts,  establishing new accounts, developing high quality shoes with styling
and  design  detail  to sell at  competitive  prices,  expanding  the  Company's
marketing programs and globalizing the sales of the Cable & Co., Bacco Bucci and
XBacco brands. The Company also intends to explore  additional  opportunities to
license rights to related products such as belts, wallets, accessories and other
small leather goods.  There can be no assurance that the Company will be able to
achieve such objectives.


                                      -3-
<PAGE>


     The Company was formed on November 10, 1994 to acquire (the  "Acquisition")
certain net assets of Hongson,  Inc.  used in the sale and marketing of footwear
bearing  the  Cable  &  Co.   trademark   (the   "Acquired  Net  Assets").   See
"-Acquisition."

     The Company's  principal  executive  office is located at 724 Fifth Avenue,
New York, New York 10019, and its telephone number is (212) 489-9686.

Acquisition of Trademarks

     In August 1997, the Company  purchased all of the rights to the Bacco Bucci
trademark,  from D&D  Design,  an entity  controlled  by Alberto  Salvucci,  the
Chairman of the Board of Directors and a principal  stockholder  of the Company.
The rights  sold to the  Company  include  trademarks  registered  in the United
States, Canada, Italy, Austria, China, France, Germany, Portugal, Russia, Spain,
Switzerland,  Hong Kong, India,  Korea, Sri Lanka, Taiwan and the United Kingdom
together  with any other  rights owned by D&D Design  whether or not  registered
throughout the world.  Prior to the acquisition,  the Company held a license for
the rights to the Bacco Bucci trademark in North, Central and South America. The
purchase  price for the Bacco Bucci  trademark  consists of  $3,150,000 of which
$400,000  has been paid,  and the  balance of which is payable in  installments.
Payments of $350,000 and $400,000  are due in September  1998 and January  1999,
respectively.  The remaining balance is payable in four installments of $500,000
in January 2000 through January 2003. In addition, the Company has agreed to pay
to D&D Design annual royalties of 7% of net sales for a period of five years for
all goods  bearing the Bacco Bucci  trademark  sold outside  North,  Central and
South America, commencing on the date the Company commences exploiting the Bacco
Bucci  trademark in each country,  but expiring no later than December 31, 2007.
The  Company  also issued to D&D Design an  aggregate  of  11,973,411  shares of
Common Stock.

     The Company  also  acquired in many major  countries  throughout  the world
outside of the Western Hemisphere all of the rights to the Cable & Co. trademark
from Cable & Co.  S.R.L.,  an entity  controlled by Mr.  Salvucci.  Prior to the
acquisition,  the Company  owned the rights to the Cable & Co.  trademark in the
Western   Hemisphere.   The  rights  sold  to  the  Company  include   trademark
registrations  in the  following  countries,  among  others:  Austria,  Belgium,
France,   Germany,  India,  Russia,  Italy,   Netherlands,   Spain,  Sweden  and
Switzerland.  The rights  also  include  all of the rights  owned by Cable & Co.
S.R.L. in Africa,  Asia Minor,  Australia,  all of Europe and other parts of the
world,  except  United  Kingdom and parts of Asia.  The  purchase  price for the
rights to the Cable & Co. trademark include the shares of Common Stock discussed
above,  the 7%  royalties  payable  with  respect to the Bacco Bucci  trademark,
together  with a payment of $100,000,  which amount has been paid to Cable & Co.
S.R.L.

     The purchase price,  including costs and expenses,  for the Bacco Bucci and
Cable & Co.  trademarks  is  approximately  $5,413,000,  resulting  in an annual
charge to earnings of approximately  $270,000. For financial statement purposes,
the  Company  has  valued  the  shares  of  Common  Stock at  $2,694,017,  which
represents  a discount  to the market  price,  to reflect  the  restrictions  on
transfer

                                      -4-
<PAGE>


under  the  Securities  Act of 1933,  as  amended  (the  "Securities  Act").  In
addition,  the Company has discounted the future  payments of the purchase price
for the Bacco Bucci  trademark.  The purchase  price is being  amortized  over a
period of 20 years.  The Company  believes  that the impact on gross profit will
not be significant.

     For the year  ended  December  31,  1997,  the  Company's  net  sales  were
$13,878,016 and the Company paid or accrued to Cable & Co. S.R.L. and D&D Design
an  aggregate of $726,685 or 5.2% of net sales for  commissions.  If the Company
had  acquired the rights to the Bacco Bucci  trademark  on January 1, 1997,  the
amounts  payable to D&D Design and Cable & Co. S.R.L.  would be the same for the
year ended  December 31, 1997,  since the  royalties for 1997 on the Bacco Bucci
footwear were waived.  For the year ended  December 31, 1996,  the Company's net
sales were  $13,522,166 and the Company paid and accrued to D&D Design and Cable
& Co.  S.R.L.  an aggregate of $661,818 or 4.9% of net sales for  royalties  and
commissions. If the Company had acquired the rights to the Bacco Bucci and Cable
& Co.  trademarks  as of January 1, 1996,  the amount  payable to D&D Design and
Cable & Co. S.R.L.  on a pro forma basis would have been $550,107 or 4.1% of net
sales for the year ended December 31, 1996.

     Management  believes  that the  purchase of the Bacco Bucci and Cable & Co.
trademarks  is an  integral  part of the  Company's  plans  for  expansion.  The
purchase  of the Bacco  Bucci  trademark  will  result in  savings on the annual
royalties payable to D&D Design with respect to sales of Bacco Bucci footwear in
North,  Central and South  America.  For the year ended  December 31, 1996,  the
royalties  paid to D&D Design with respect to sales of Bacco Bucci footwear were
$111,711.  No royalties  were paid for the year ended  December  31,  1997.  The
Company's strategy includes expanding sales of the Bacco Bucci footwear.  In the
event that sales of the Bacco Bucci footwear  increase  significantly,  of which
there can be no  assurance,  the Company  believes  that the amount saved by the
Company in royalty payments would be substantial. The Company also plans to sell
footwear  bearing  the Cable & Co.  and Bacco  Bucci  trademarks  outside of the
Western Hemisphere, which rights the Company did not possess prior to the recent
acquisitions.  The Company  anticipates  utilizing a network of distributors and
licensees to sell its footwear outside the United States.  However,  the network
is not  established  and there can be no assurance  that the Company will do so.
The Company has had  discussions to sell Bacco Bucci and Cable & Co. footwear in
the  Middle  East,  Turkey,  Russia and India and has opened an office in Milan,
Italy to  assist  the  Company  in  commercial  globalization  of the  Company's
footwear.  However, no definitive agreements have been reached. In addition, the
Company intends to sell Bacco Bucci footwear in the United Kingdom.  However, no
definitive agreements have been reached.

     The fees payable to D&D Design and Cable & Co. S.R.L. commencing January 1,
1998 are summarized in the table below:

Brand                           Fee(1)                            Royalty
-----                           ------                            -------

Cable & Co.                     6.5% of the cost of goods         Not applicable
                                shipped to the Company

                                      -5-
<PAGE>


Bacco Bucci (outside of         6.5% of the cost of goods         7%(2)
North, Central, South           shipped to the Company
America)

Bacco Bucci (North, Central,    6.5% of the cost of goods         Not applicable
South America)                  shipped to the Company

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

(1)  Does  not  include  (i)  the   reimbursement   of   out-of-pocket   travel,
     manufacturing  and  other  expenses  borne  by Cable & Co.  S.R.L.  and D&D
     Design.

(2)  For the sale of goods  bearing  the Bacco Bucci  trademark  for a period of
     five years outside of North,  Central and South America,  commencing on the
     date that the Company  commences  exploiting  the Bacco Bucci  trademark in
     each country, but expiring no later than December 31, 2007.

     In the year ended  December 31, 1996, the Company paid a fashion and design
advisory fee of $86,000 to D&D Design for Cable & Co. and Bacco Bucci  footwear.
The fee was paid for fashion and design advisory services which were provided to
the Company.  During the year ended  December 31, 1997, the Company paid fashion
and design advisory fees to D&D Design of $58,000.

     As a result of the  acquisition of the Bacco Bucci  trademark,  the Company
will no longer be obligated to pay  royalties of 3% per year with respect to net
sales of Bacco Bucci footwear in North,  Central and South America.  However, it
is anticipated  that the Company will continue to pay  commissions to D&D Design
and Cable & Co. S.R.L. as directed by Alberto Salvucci,  at the rate of 6.5%, in
the  aggregate,  of the cost of goods  shipped to the Company.  The Company will
also be  obligated  to pay  royalties  to D&D Design equal to 7% of net sales of
products bearing the Bacco Bucci trademark  outside of North,  Central and South
America for a period of five years commencing on the date the Company  commences
exploiting the Bacco Bucci trademark in each country, but expiring no later than
December 31, 2007 It is also  anticipated  that the Company will pay commissions
on the purchase of Cable & Co.  footwear to entities  controlled by Mr. Salvucci
at a rate of 6.5% of the cost of goods shipped to the Company.

Distribution and Wholesale Operations

     The Company's  products are distributed to approximately  800 customers for
sale in  approximately  1,800 store  locations in the United States.  During the
year ended December 31, 1997,  approximately 25% of the Company's net sales were
made to two customers,  including 14% to one customer.  The Company  markets its
products  to  (i)  major  department  stores  and  specialty  stores,   such  as
Bloomingdales,  Dillard Department Stores, Inc., Nordstrom, Inc. and R.H. Macy &
Co., Inc., (ii) upscale specialty  retailers,  such as Saks Fifth Avenue, Lord &
Taylor and Parisian, and (iii) upscale shoe and apparel merchants. Out-of-season
products are sold primarily through selected discounters.


                                      -6-
<PAGE>


     The Company's strategy has been to provide marketing and management support
to its  customers  by  producing  what  management  believes to be strong  image
advertising  campaigns.  The Company markets its product line and introduces new
styles at industry footwear shows,  which occur during the year in Las Vegas and
New York,  and at regional shows  throughout the year.  These trade shows afford
the Company an opportunity  to assess demand for its products.  After each trade
show, the Company's agents and corporate account  specialists visit customers to
review the  Company's  product  lines and to secure  purchase  commitments.  The
Company  also  facilitates  sales  by  offering  what  management  believes  are
creative,  quality  products and maintaining  adequate  inventory  levels of new
products as well as products included in the Company's "open stock" program. The
Company's "open stock" program enables  customers to order  individual  pairs of
shoes  from the  Company's  inventory,  primarily  through  an  electronic  data
interchange system. See "- Management Information Systems."

     Substantially  all of the  Company's  footwear  is sold in  North  America,
predominantly in the United States and, to a lesser extent, in Canada.

Design

     The Company  believes that its success will depend in  substantial  part on
its ability to originate and define  fashion  trends and to anticipate and react
to changing  consumer  demands in a timely manner.  To meet this objective,  the
Company retains Cable & Co. S.R.L. and D&D Design,  both of which are controlled
by  Alberto  Salvucci,  Chairman  of  the  Board,  a  director  and a  principal
stockholder of the Company, to provide design, production and production control
services.  The  process  of  designing  and  introducing  a  new  product  takes
approximately three to four months. The Company's  management works with Cable &
Co. S.R.L. and D&D Design to create designs which they believe fit the Company's
image,  reflect  current  or  approaching  trends and can be  manufactured  on a
cost-effective  basis.  Once the initial  designs are complete,  prototypes  are
developed,  fit trials are conducted and the prototypes are reviewed and refined
prior to commencement of production.

Manufacturing

     In  the  second  quarter  of  1997,  the  Company  commenced  manufacturing
approximately  45% of its footwear in a leased facility in Montegranaro,  Italy.
The Company  believes  that the  manufacturing  of its  footwear  has  decreased
production  costs by  approximately  10%.  The  Company  intends to  manufacture
approximately 75% of its footwear by December 31, 1998, although there can be no
assurance  thereof.  Cable & Co.  S.R.L.  and D&D Design  maintain  an office in
Montegranaro,  Italy and monitor the production, quality and timely distribution
of the Company's products.

     The footwear marketed by the Company is produced primarily in Italy because
management believes that Italian manufacturers can satisfy the Company's quality
control requirements. For the year ended December 31, 1997, the Company produced
approximately 22% of its footwear and 86% of the balance were purchased from two
manufacturers  in Italy.  The Company is generally the largest customer of these
manufacturers and has established long-standing relationships with most of them.


                                      -7-
<PAGE>


     In advance of the Fall and Spring selling seasons, the Company's management
works  with Cable & Co.,  S.R.L.  and D&D Design to  develop  new  products  for
industry  trade shows and with  manufacturers  to  determine  production  costs,
materials,  minimum quantities and component  requirements for new styles. Based
on  indications  of interest  obtained  at trade  shows and  initial  purchasing
commitments  from  retailers,  the  Company  places  production  orders with its
manufacturers. To maintain inventory positions, the Company places manufacturing
orders  prior to  receiving  firm  commitments.  Once an order has been  placed,
delivery  time ranges from four weeks to four  months  depending  on whether the
construction  is new or is  currently  in  production.  The  Company,  primarily
through Cable & Co.,  S.R.L.  and D&D Design,  monitors  product quality through
inspections at the factories throughout the production process and upon receipt.
To reduce the risk of inventory overstocking, the Company monitors sales data on
a weekly basis.

Advertising and Marketing

     The Company markets its products based on the products'  respective  design
and quality specifications. The Company's advertisements appear in men's fashion
publications and related general interest  publications,  including GQ, Details,
Out, Swing,  and CI. The Company spent  approximately  $1,352,000 on advertising
during the year ended December 31, 1996 and approximately  $1,168,000 during the
year ended  December 31, 1997.  In order to  strengthen  brand  awareness of its
products  and  increase  sales,  the Company  intends to continue to be actively
involved in the development of marketing and merchandising  programs. As part of
this  effort,  the  Company  provides  cooperative  marketing  programs,   sales
incentives and sales promotions for its customers.

     The  Company  has an  in-house  direct  teleservicing  department  which is
responsible  for  maintaining  and servicing the  Company's  present  customers,
referring  retail  customers to local retail stores to purchase  advertised  and
non-advertised  products and  providing  product  information.  Currently,  this
function is performed  during normal  business hours using a toll free telephone
number.

Product Delivery

     Once  manufacturing  is  completed  overseas,  the  Company's  products are
inspected,  packed and shipped by air and maritime  vessel to the United States.
Thereafter,  the products are  transported by truck to an independent  warehouse
facility.  The products are then  transported  to the  Company's  customers.  By
maintaining  significant inventory positions,  the Company strives to fill "open
stock" customer orders within 72 hours. While the Company's "open stock" program
requires an  increased  investment  in  inventories,  management  believes  that
filling orders on a timely basis is an invaluable  service for its customers and
provides the Company with a distinct competitive advantage.

Management Information Systems

     Information  systems are essential to the Company's ability to maintain its
competitive  position and to support continued growth. The Company's  management
information  system was designed to provide,  among other things,  comprehensive
order  processing,  production,  accounting and 



                                      -8-
<PAGE>


management information for the importing,  distribution and marketing aspects of
the Company's business. The Company has installed an electronic data interchange
system  which  provides a computer  link  between the Company and certain of its
customers  that enable both the customer  and the Company to monitor  purchases,
shipments and invoicing.

Trademarks

     Cable & Co.(R) is a  registered  trademark  of the  Company  in the  United
States,  Canada and  several  Central  and South  American  countries,  Austria,
Belgium,  France,  Germany,  India,  Russia,  Italy,   Netherlands,   Spain  and
Switzerland.  The registered  trademark  includes footwear and related products.
The Bacco Bucci trademark has been registered in United States,  Canada,  Italy,
Austria,  China, France, Germany,  Portugal,  Russia, Spain,  Switzerland,  Hong
Kong, India, Korea, Sri Lanka, Taiwan and the United Kingdom.  The Company is in
the process of filing  trademark  applications  for the XBacco trademark and for
the Alberto Salvucci trademark.  Additional trademark registration  applications
which may be filed by the Company with the United  States  Patent and  Trademark
Office  and in other  countries  may or may not be  granted  and the  breadth or
degree of protection of the Company's  existing or future  trademarks may not be
adequate.  Moreover,  the Company may not be able to defend  successfully any of
its legal rights with respect to its present or future  trademarks.  The failure
of the  Company to protect  its legal  rights to its  trademarks  from  improper
appropriation or otherwise may have a material adverse affect on the Company.

Competition

     Competition  in the footwear  industry is intense.  The Company's  products
compete with other branded products within their product category.  Depending on
the  product  category  involved,  the  Company  competes on the basis of style,
price,  quality,  comfort  and  brand  prestige  and  recognition,  among  other
considerations. The Company competes with numerous manufacturers,  importers and
distributors of footwear and accessories for the limited  shelf-space  available
for displaying such products to the consumer. Moreover, the general availability
of contract  manufacturing  capacity allows relatively easy access by new market
entrants.  The Company believes that its ability to deliver quality  merchandise
in a timely manner is a critical competitive factor,  particularly in connection
with the introduction of new product lines. The Company's ability to manufacture
a portion of its products and to maintain existing relationships and develop new
relationships  with foreign  manufacturers is another  important  element in its
ability to compete.  Some of the Company's competitors are substantially larger,
have achieved greater  recognition for their brand names,  have captured greater
market share and have substantially greater financial,  distribution,  marketing
and other resources than the Company.

Government Regulation

     The Company is subject to the risks of doing  business  abroad,  including,
but not limited to,  fluctuations  in exchange  rates and changes in regulations
relating  to  imports,  including  quotas,  duties,  taxes  and  other  charges.
Political and economic instability in countries where the Company's products 



                                      -9-
<PAGE>


are  manufactured  or sold may have a material  adverse  affect on the Company's
business, prospects, financial condition, and results of operations.

     In order to reduce the risk of exchange rate  fluctuations and to cover the
currency risk in each season's  outstanding  purchase orders, the Company enters
into forward exchange contracts to protect gross profit margins on most, but not
all, of its foreign  currency  transactions.  The  Company has an  aggregate  of
$6,000,000  of  foreign  exchange  lines of credit  available.  At any one point
during the year,  the Company  generally has $5,500,000 to $6,000,000 of forward
foreign exchange contracts outstanding. The Company cannot anticipate all of its
currency  needs and,  therefore,  cannot fully hedge against such  fluctuations.
Thus,  changes  in  exchange  rates  could  adversely  affect the costs of goods
purchased by the Company.

     Although the goods sold by the Company are not currently subject to quotas,
countries in which the  Company's  products are  manufactured  may, from time to
time, impose new or adjust  prevailing quotas or other  restrictions on exported
products  and the  United  States  may  impose  new  duties,  tariffs  and other
restrictions  on  imported  products,  any of which could  materially  adversely
affect the  Company's  operations  and its ability to import its  products  and,
accordingly  its  business,  prospects,  financial  condition,  and  results  of
operations. In accordance with the 1993 Harmonized Tariff Schedule, a fixed duty
structure is in effect for the United States.  The Company pays import duties on
its products ranging from  approximately 8.5% to 10%, depending on the principal
component  and  whether  the  product  is  men's  or  women's  footwear.   Other
restrictions on the importation of footwear are  periodically  considered by the
United  States  Congress and no assurance can be given that tariffs or duties on
the Company's goods may not be raised, resulting in higher costs to the Company,
or that  import  quotas  respecting  such  goods may not be imposed or made more
restrictive.

     The Company imports a large portion of its products from Italy. Italy is on
the "watch list" maintained by the USTR for purposes of monitoring protection of
intellectual  property  rights.  According to the USTR, its  consultations  with
Italy have  contributed  to an improved and  stronger  legal  framework  for the
protection of intellectual  property rights.  If the USTR were to determine that
Italy's  actions,  policies or practices with respect to  intellectual  property
rights are actionable,  sanctions  against imports from Italy,  including higher
duties, could be imposed.

Licensing

     The Company intends to explore  opportunities  to license rights to related
products,  such as belts,  wallets,  accessories  and other small leather goods.
There can be no assurance  that the Company will enter into any such licenses on
favorable  terms or not at all.  On July 1, 1997,  the  Company  entered  into a
license  agreement  (the  "License  Agreement")  with  Roffe  Accessories,  Inc.
("Roffe"), whereby the Company granted a license to Roffe to use the Cable & Co.
trademark  in North  America  for silk  neckwear  for a period  of three  years.
Pursuant  to the  License  Agreement,  Roffe  shall pay to the Company a royalty
equal to 5% of the first  $500,000  of gross sales and 6%  thereafter,  together
with a fee equal to 2% of gross sales to be utilized for  advertising  expenses.
The License Agreement  provides for minimum sales of $400,000 in the first year,
$600,000 in the second year and  $1,100,000 



                                      -10-
<PAGE>


in the third year.  In the event that Roffe does not achieve the minimum  annual
sales and does not pay to the Company the  required  royalties,  the Company has
the right to terminate the License Agreement.

Seasonality

     The Company's business is subject to seasonal fluctuations. Historically, a
significant  portion of the Company's  sales are realized  during the spring and
fall fashion seasons, the Company's first and third fiscal quarters,  and levels
of sales are generally lower during the winter and summer fashion  seasons,  the
Company's second and fourth quarters, respectively. Fourth quarter sales are the
most volatile,  and inventories are based upon anticipating  sales at the retail
level and  maintaining  a sufficient  amount of the styles and designs which are
required at the retail level.  If the Company's  sales were to be  substantially
below seasonal norms during the spring and fall fashion  seasons,  the Company's
business,  prospects,  financial  condition,  and results of operations would be
materially and adversely affected. The Company must make decisions regarding how
much  inventory to maintain well in advance of anticipated  sale.  Deviations in
actual sales from projected  demand for products  could have a material  adverse
affect on the Company's business, prospects,  financial condition and results of
operations.

Backlog

     As of December  31,  1997 and March 31,  1998,  the  Company  had  unfilled
customers orders of approximately $2,489,000 and $4,669,000,  respectively.  The
Company's backlog is affected by a number of factors,  including seasonality and
customer purchases of its products through the Company's "open stock" program.

Employees

     As of January 1, 1998,  the Company had 39 full-time  employees of which 13
were  involved  in sales and 26 in general  management  and  administration.  In
addition, the Company utilizes the services of three independent exclusive sales
agents  on a  regular  basis.  The  Company  considers  its  relations  with its
employees,  none of whom are covered by collective bargaining agreements,  to be
excellent.

     In  addition,  the  Company has an ongoing  need to expand its  management,
marketing  and support  staff,  particularly  in light of its  expansion  plans.
Competition for personnel having the  qualifications  required by the Company is
intense and no  assurance  can be given that the Company will be  successful  in
recruiting or retaining such personnel when needed on competitive  terms,  or at
all.

Insurance

     The Company maintains  insurance coverage  including workers'  compensation
coverage,  and  liability  insurance  in respect  of  hazards  on the  Company's
business premises. The Company carries a general liability policy which provides
for coverage of $1,000,000 per  occurrence and $2,000,000 



                                      -11-
<PAGE>


in the  aggregate.  The  Company  believes  that its  policy  and its limits are
consistent with those of other similarly situated footwear manufacturers.

Acquisition

     On January 16, 1995, the Company  entered into an asset purchase  agreement
(the "Asset Purchase Agreement")  providing for the purchase from Hongson,  Inc.
of the Acquired Net Assets.  The net purchase  price for the Acquired Net Assets
was $1,401,787.  The Company believes that the assets of Hongson, Inc. have been
liquidated  and that Hongson,  Inc. is no longer doing  business.  In connection
with the Acquisition,  Harry Chen, a principal stockholder of Hongson, Inc., was
issued 266,880 shares of Common Stock for an aggregate purchase price of $100.

     As a  condition  of the Asset  Purchase  Agreement,  David  Albahari,  Alan
Kandall,   Alberto  Salvucci,   Harry  Chen  and  the  Company  entered  into  a
stockholders  agreement  (the  "Stockholders  Agreement")  with respect to their
shares of Common Stock.  Pursuant to the Stockholders  Agreement,  Mr. Salvucci,
Mr. Kandall and Mr. Albahari (the  "Management  Group") agreed not to sell their
shares of Common Stock for a period of nine months if the Company  either merged
with an entity having a publicly  traded class of  securities or registered  its
shares under the Securities Act without the consent of the Company's  investment
advisor or  underwriter,  respectively.  The  Management  Group  also  placed an
aggregate  of 320,256  shares of Common  Stock in  escrow,  which were not to be
released  to  the  Management  Group  unless  the  Company   satisfied   certain
performance  criteria (the "Escrow Shares").  The Stockholders  Agreement was to
expire on the  earlier  of a merger  of the  Company,  the date  upon  which the
Company  consummated an initial public offering or on the fifteenth  anniversary
of the  Stockholders  Agreement.  In January 1996,  the Company  terminated  the
Stockholders  Agreement and released all of the Escrow Shares to the  Management
Group,  although the terms for the release of the Escrow Shares had not yet been
satisfied, in anticipation of the Company's initial public offering.

     In October 1995, the Company purchased all of Mr. Chen's remaining interest
in the Company,  namely,  266,880  shares of Common Stock,  and 21,660 shares of
Preferred  Stock,  which Mr. Chen  purchased for $250,000 in 1995 as a part of a
private  placement  of  the  Company's  Series  A  Preferred  Stock  (the  "1995
Financing"),  for consideration of $400,000.  $132,500 of such consideration was
attributable  to the  266,880  shares  of  Common  Stock  and  $267,500  of such
consideration  was  attributable to the 21,660 shares of Preferred Stock and the
accrued  dividends  thereon.  The Company allocated the $132,500 it paid for Mr.
Chen's  266,880  shares of Common Stock to the net  purchase  price paid for the
Acquired Net Assets in the Acquisition.


                                      -12-
<PAGE>


Item 2. Description of Properties

     The  Company,   through  its   wholly-owned   subsidiary  Cable  &  Company
Enterprises,  Ltd., leases  approximately 4,500 square feet at 724 Fifth Avenue,
New York,  New York at a monthly  base  rental of  $9,750,  which  increases  to
$10,500 per month commencing in May 2000. The lease expires on July 31, 2005 and
the space is  utilized  as the  Company's  executive  office  and  showroom.  In
addition,  the  Company,  through  Cable &  Company  Enterprises,  Ltd.,  leases
approximately  2,800  square  feet of office  space in  Edison,  New Jersey at a
monthly base rental of $4,086,  which amount increases each year of the lease to
a maximum of $4,981 in September  1999. The lease expires on September 30, 2000.
The Company leases a factory in Montegrenaro,  Italy. The lease expires in March
2003 and the annual rental is approximately  $16,900.  The Company believes that
such facilities are satisfactory and satisfy the Company's current  requirements
and that additional  facilities are readily available at commercial  rentals, if
required.

Item 3. Legal Proceedings

     The  Company  effected  an  underwritten  initial  public  offering  of its
securities on June 5, 1996 (the "IPO").  On July 15, 1997, as part of an inquiry
into the activities of a principal underwriter of the IPO, the Commission issued
an Order  of  Private  Investigation  relating  to such  underwriter  and  three
companies,  including  the  Company,  in  which  the  underwriter  had  acted as
principal  underwriter.  Prior to the  Commission  issuing  its Order of Private
Investigation,  and since  November 19,  1996,  the Company and its officers and
directors  have fully  cooperated  with the  Commission in  connection  with its
present inquiry.

     In addition,  the Company  received a grand jury subpoena which the Company
believes is in connection with an  investigation  of the underwriter  pending in
the United  States  District  Court for the Southern  District of New York.  The
Company has been advised by the Assistant United States Attorney  conducting the
Grand Jury  investigation  that the Company is not the subject or target of such
investigation.

Item 4. Submission of Matters to a Vote of Securityholders

     None.


                                      -13-
<PAGE>


                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

                                 [to be updated]

Market Information

     The Common Stock was quoted on the NASDAQ SmallCap Market through  February
10, 1998 under the symbol "CCWW" when it was delisted  from trading.  The Common
Stock commenced trading on the NASD's Electronic Board thereafter. The following
table sets forth the range of high and low bid  quotations  as  reported  by The
NASDAQ SmallCap  Market for the Common Stock,  for the quarters  indicated.  The
quotations  reflect  inter-dealer  prices without retail  mark-up,  mark-down or
commissions and may not represent actual transactions.


                                                Common Stock
                                       High                         Low
1996
Second Quarter                        10 1/2                        8 1/2
Third Quarter                         11 1/4                        2 1/4
Fourth Quarter                         2 15/16                        3/4
1997
First Quarter                          1 11/32                        5/16
Second Quarter                           13/16                        7/32   
Third Quarter                            15/32                        9/32  
Fourth Quarter                           15/32                        3/32  

Holders

     As of December 31, 1997, the Company had approximately 89 record holders of
its  Common  Stock  and  1,333  beneficial  holders  of its  Common  Stock as of
September 26, 1997.

Dividends

     The  Company  has not paid any  dividends  on its  Common  Stock  since its
inception.  The Company has no  intention  of paying any cash  dividends  on its
Common  Stock in the  foreseeable  future,  as it intends to use any earnings to
generate increased growth. The payment by the Company of cash dividends, if any,
in the future rests within the  discretion of its Board of Directors  and, among
other things, will depend upon the Company's earnings,  capital requirements and
financial  condition,  as well as other  relevant  factors.  The Company's  loan
agreements  with Heller  Financial,  Inc.,  prohibit the payment of dividends if
such payment would cause the Company to violate any of the  Company's  financial
covenants.


                                      -14-
<PAGE>


Sales of Unregistered Securities

     In a private  placement  under  Section 4(2) and  regulation D, in December
1997,  Mathers  Associates loaned the Company  $400,000.  The loan is payable in
December 1998 together with interest  thereon at the rate of 10% per annum.  The
loan  is  accelerated  and  payable  in  full  in the  event  that  the  Company
consummates a financing which results in gross proceeds of at least  $2,000,000.
As part of the  transaction,  790,807  shares of Common  Stock are  issuable  to
Susquehanna  Holdings  Corp.   ("Susquehanna").   The  Company  also  issued  to
Susquehanna  a warrant  which  entitles  Susquehanna  to purchase  the number of
shares of Common Stock equal to 1.75% of the  Company's  outstanding  securities
less 790,807 shares of Common Stock at a purchase  price of $.01 per share.  The
warrant  expires on the  earlier of  December  15,  1999 or on the date that the
Company consummates debt or equity financings,  singly or in the aggregate of at
least $12,500,000.

Item 6.          MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

     When used in the Form 10-KSB and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases, "will likely result"
and "the Company expects" "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, each of which speak
only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.

General

     The Company designs, manufactures, imports and markets on a wholesale basis
a broad range of footwear bearing the Cable & Co. trademark, Bacco Bucci
trademark and XBacco trademark. The Company markets its products to
approximately 1,800 department and specialty store locations in the United
States. Prior to August 1997, the Company had licensed the right to use the
Bacco Bucci name from D&D Design, an entity controlled by Alberto Salvucci, a
principal stockholder of the Company, the Chairman of the Board, and a director.
In August 1997, the Company acquired the rights to the Bacco Bucci trademark
from D&D Design. In addition, in August 1997, the Company acquired the rights to
the Cable & Co. trademark from Cable & Co. S.R.L., an entity also controlled by
Mr. Salvucci, in many major countries throughout the world.

     The Company plans to increase revenues by increasing sales to existing
accounts, establishing new accounts and developing high quality shoes with
styling and design detail to sell at competitive prices and expanding the
Company's marketing programs, introducing a new product line under the XBacco
trademark and to globalize the Cable & Co. and Bacco Bucci brands. The Company
also intends to explore opportunities to license rights to related products such
as bags, belts, ties, wallets, accessories and other small leather goods.
However, there can be no assurance that the Company will be able to achieve such
objectives.

     On June 23, 1997, the Company entered into an agreement with Roffe
Accessories Inc., as licensee, to manufacture a line of Cable & Co. neckwear,
effective July 1, 1997. The company anticipates that the neckwear line will be
in stores for Spring 1998 season.

Net Sales

     The Company's net sales for the year ended December 31, 1997 were
$13,878,016 as compared to net sales of $13,522,166 for the year ended December
31, 1996, an increase of 2.6%. The Company believes that the increase in net
sales is primarily attributable to the increase in net sales of men's footwear
bearing the Bacco Bucci trademark. Net Sales of the mens footwear bearing the
Bacco Bucci trademark for the year ended December 31, 1997 was $4,876,726 as
compared to net sales of $3,580,722 for the year ended December 31, 1996, an


                                      -15-
<PAGE>


increase of 36.2%. The increase is primarily attributable to the increase in net
sales to existing customers as well as an increase in the number of customers.
The increase in net sales is also attributable to net sales of $14,335 of mens
footwear bearing the Alberto Salvucci trademark. This footwear is a new line
which was introduced during the fourth quarter of 1997. Net sales of the men's
footwear bearing the Cable & Co. trademark for the year ended December 31, 1997
was $8,986,955 as compared to net sales of $9,475,909 for the year ended
December 31, 1996, a decrease of 5.2%. The Company believes that the decrease is
primarily attributable to a decrease in net sales of $598,000 as a result of a
major pre-season promotion, during the year ended December 31, 1996, which did
not occur in 1997. The balance of the decrease was primarily attributable to a
52.2% increase in returns, from $1,227,177 for the year ended December 31, 1996
to $2,322,933 for the year ended December 31, 1997. The increase in returns is
due to lower than anticipated sell-through at retail of certain styles during
previous seasons. During the year ended December 31, 1996, the Company suspended
the production and marketing of the women's footwear bearing both the Cable &
Co. trademark and the Bacco Bucci trademark. As a result of the suspension of
the womens' footwear bearing the Cable & Co. trademark and the Bacco Bucci
trademark, there were no sales of womens' footwear bearing the Cable & Co.
trademark and Bacco Bucci trademark for the year ended December 31, 1997 as
compared to net sales of $465,535 for the year ended December 31, 1996. The
Company does not plan to reintroduce the women's footwear bearing either the
Cable & Co. trademark or the Bacco Bucci trademark prior to fiscal 1999 in order
to continue focusing the Company's resources on the development of the Bacco
Bucci product line.

Cost of Goods Sold

     The Company's cost of goods sold for the year ended December 31, 1997 was
$9,348,135 as compared to $10,211,283 for the year ended December 31, 1996, a
decrease of 8.5%. The Company believes that such decrease is primarily
attributable to the decrease in the cost of the merchandise purchased for the
year ended December 31, 1997. The Company believes that the primary reasons for
the decrease in the cost of the merchandise purchased was a 11.1% decrease in
the average price of the goods at the factory level, which is attributable to
the Company redesigning the shoes as well as a portion of the shoes being
manufactured at the Company's facility in Italy. The Company's gross profit as a
percentage of net sales was 32.6% for the year ended December 31, 1997 as
compared to 24.5% for the year ended December 31, 1996. The Company believes
that such an increase is primarily attributable to a more favorable exchange
rate between the dollar versus the lira, lower freight rates, a greater
percentage of shipments made by boat versus air, lower manufacturing costs
attributable to the opening of the Company's factory in April 1997, the redesign
of the shoes and a decrease in the quantity and size of markdown sales taken on
men's footwear bearing the Cable & Co. trademark. The favorable exchange rate
between the dollar versus the lira created a foreign currency transaction gain
of approximately $131,000 for the year ended December 31, 1997, as compared to a
foreign currency transaction loss of approximately $217,000 for the year ended
December 31, 1996. Markdown sales for the mens footwear bearing the Cable & Co.
trademark for the year ended December 31, 1997, was 12.6% of net sales as
compared to 14.7% of net sales for the year ended December 31, 1996, yielding a
gross profit margin of 8.1% and (5.9)% respectively.


                                      -16-
<PAGE>


Noncash Compensatory Charges

     For the year ended December 31, 1997 the Company incurred noncash
compensatory charges of $1,660,637. Of such amount (i) $498,047 is attributable
to shares of common stock issued pursuant to consulting agreements entered into
in May 1997, and (ii) $1,162,500 is attributable to shares of common stock
issued in January 1996 pursuant to an international consulting agreement. The
consulting agreements entered into in May 1997 were being amortized over a 12
month period. In December 1997, the Company determined that it was no longer
receiving consulting services and expensed. the remaining balance of $207,520.
The initial amount of the international consulting agreement was $1,685,000 and
was being amortized over a 36 month period. In September 1997 the Company
determined that it was no longer receiving consulting services and expensed the
remaining balance of $741,340.

     For the year ended December 31, 1996 the Company incurred noncash
compensatory charges of $2,811,481. Of such amount (i) $522,410 is attributable
to shares of common stock issued pursuant to an international consulting
agreement, (ii) $1,345,075 is attributable to an aggregate of 320,256 shares of
common stock held by David Albahari, the Company's former President and Chief
Executive Officer, Alan Kandall, the Company's President and Chief Executive
Officer, and Alberto Salvucci, the Chairman of the Board, which shares were
released from escrow pursuant to the Stockholders Agreement, and (iii) $943,996
is attributable to an aggregate of 224,761 shares of Common Stock issued to Mr.
Albahari, Mr. Kandall and Mr. Salvucci.

Operating Expenses

     The Company's selling and general and administrative expenses for the year
ended December 31, 1997 were $7,054,692, 50.8% as a percentage of net sales, as
compared to selling and general and administrative expenses for the year ended
December 31, 1996 of $6,617,228, 48.9% as a percentage of net sales. The Company
believes that the increase in selling and general and administrative expenses is
primarily attributable to the increase in payroll, travel and entertainment
expenses, show expenses, professional fees and amortization expense. Payroll and
travel and entertainment expenses for the year ended December 31, 1997 were
$2,082,068, 15.0% of net sales as compared to payroll and travel and
entertainment expenses for the year ended December 31, 1996 $1,557,736, 11.5% of
net sales. The increase in payroll and travel and entertainment expenses is
primarily attributable to the expansion of the sales staff, by approximately ten
people, in order to increase revenues in existing accounts, expand the customer
base and continue to develop the Bacco Bucci product line. Show expenses for the
year ended December 31, 1997 were $325,611, 2.3% of net sales as compared to
show expenses for the year ended December 31, 1996 $243,692, 1.8% of net sales.
The show expenses increased due to the Company participating in more shows in
1997, adding a display booth for the mens footwear bearing the Bacco Bucci
trademark and increased attendance of an expanded sales staff at the shows.
Professional fees for the year ended December 31, 1997 were $585,734, 4.2% of
net sales as compared to professional fees for the year ended December 31, 1997
529,541, 3.9% of net sales. The increase in professional fees is primarily
attributable to the increase in fees incurred in connection with being a public
Company for the entire year of 1997, as compared to 1996 when the company was
only public for part of the year. Amortization 


                                      -17-
<PAGE>


expense increased due to the Company purchasing the Bacco Bucci and Cable & Co.
trademarks in August 1997 for a purchase price of approximately $5,400,000. The
trademarks are being amortized over a period of 20 years. For the year ended
December 31, 1997, $115,000 of amortization expense was incurred. In addition,
royalty fees decreased as a result of the purchase of the Bacco Bucci trademark
in August 1997. In 1997, the Company was no longer required to pay royalty fees
on sales of Bacco Bucci footwear in the western hemisphere. Shipping expenses
and advertising expenses decreased as compared to the year ended December 31,
1996. Shipping costs for the year ended December 31, 1997 were lower as a result
of the Company entering into a new warehousing lease during 1997, with lower
warehousing rates. Advertising expenses for the year ended December 31, 1997
were $1,167,858, 8.4% of net sales as compared to advertising expenses for the
year ended December 31,1996 of $1,351,976, 10.0% of net sales. The decrease in
advertising expenses is primarily attributable to the decrease in media
advertisements as a result of the Company changing the advertising campaigns
during the second half of 1997.

Interest Expense and Bridge Note Discount

     The Company's interest expense for the year ended December 31, 1997 was
$724,464 as compared to interest expense for the year ended December 31, 1996 of
$577,579, an increase of 25.4%. The Company believes that the increase is
primarily attributable interest of approximately $89,000 in connection with the
purchase of the Bacco Bucci trademark and the Cable and Co. trademark. In
addition, the Company believes the increase in interest expense is due to the
increased borrowing in relation to higher levels of inventory.

     For the year ended December 31, 1996, the Company incurred a charge of
$738,000 in relation to the discount on the Bridge Notes payable. A total
discount of $738,000 was recorded in February 1996 and was being amortized over
a 12 month period. The Company repaid the Bridge Notes in June 1996. Upon
repayment of the Bridge Notes, the Company fully amortized the remaining
discount of $453,050

Termination Agreements

     In October 1997, the Company entered into an agreement as of July 21, 1997,
to terminate an employment agreement between the Company and David Albahari the
former President, Chief Executive Officer and a director of the Company. As part
of the termination agreement, Mr Albahari is to receive $250,000 commencing July
1, 1997 through September 30, 1998, as well as reimbursement for certain legal
and other expenses. Included in the $250,000 payments are payments in connection
with a non-competion agreement, effective from July 1, 1997 through June 30,
1998, in the amount of $50,000. Additionally, the Company issued Mr. Albahari
options to purchase 901,756 shares of Common Stock at a purchase price of $0.01
per share. The 901,756 options were recorded at a value of $309,979. In October
1997, Mr. Albahari converted these options into shares of common stock.

     In December 1997, the Company entered into an agreement, between the
Company and a former sales representative. As part of the termination agreement,
the former sales representative is to receive $70,000 commencing July 1, 1997
through June 30, 1998.


                                      -18-
<PAGE>


     The total non-recurring expense of $682,152 recognized in connection with
the termination agreements for the year ended December 31, 1997 includes (i)
$200,000, which represents the total cash payments of $250,000 to David Albahari
less $50,000 allocable to the non-competition agreement, (ii) $309,979, which
represents the value of the 901,756 options, issued to David Albahari, to
purchase shares of common stock (iii) $102,173 in legal and other expenses and
(iv) $70,000, which represents total cash payments to the former sales
representative.

Liquidity and Capital Resources

     The Company has funded its requirements for working capital and capital
expenditures from net cash provided through various borrowings, including
borrowings under its credit facility with Heller Financial, Inc. ("Heller"), a
$1,800,000 private placement (the " Bridge Financing"), a public offering of the
Company securities, an off shore financing, and a July 1997 private placement.
As of December 31, 1997, the Company had working capital deficiency of
$3,411,034 and a debt to equity ratio of 5.3 to 1.0.

     The Company's obligations to Heller include a collateral installment note
in the original principal amount of $1,000,000 of which $166,667 was outstanding
as of December 31, 1997. The collateral installment note is payable in 36
monthly installments of $27,777 and bears interest at 3% above the prime rate of
Chase Manhattan Bank, N.A. ("Chase"). In addition, the Company may borrow from
Heller the lesser of 50% of the Company's eligible inventory or $2,000,000 (the
"Inventory Loan"). At December 31, 1997 Heller has advanced the Company $818,239
in excess of the inventory line. The Inventory Loan bears interest at 1.5% above
Chase's prime rate. The Company also finances its accounts receivable under a
factoring agreement with Heller. Pre- approved accounts are factored without
recourse to the Company and non-approved accounts are factored with recourse. At
December 31, 1997, $931,423 of the $2,421,191 (38.5%) of factored accounts
receivable, were factored with recourse. Heller is entitled to a fee equal to
1.0% of all accounts receivable purchased. Moreover, advances by Heller bear
interest at rates equal to Chase's prime rate (8.5% at December 31, 1997) plus
1.0% to 1.5%. Under the credit facility, all of the Company's obligations to
Heller may not exceed $6,000,000. At December 31, 1997 Heller has advanced the
Company $975,986 in excess of its credit line. In addition, at December 31,
1997, the factor had advanced the Company $3,675,450 in excess of its borrowing
base.

     The Company has a letter of credit line with Heller up to a maximum of
$750,000. At December 31, 1997, the Company has outstanding letters of credit in
the amount of $537,000, $400,000 of which is serving as collateral for foreign
currency contracts and $137,000 is serving as collateral for lease security
deposits.

     At December 31, 1997, the Company was not in compliance with certain
covenants and the Company has received a notice of default from Heller. In the
event that Heller demands payment of the outstanding obligations or does not
advance additional funds to the Company, substantial doubt would exist with
regard to the Company's ability to continue as a going concern.

     On April 3, 1997, the Company became a 99% owner of a newly formed
corporation, Cable & Company 1955 SPA, located in Italy. Cable & Company 1955
SPA, leases a manufacturing facility in Montegranaro, Italy to manufacture the
Company's footwear bearing the Cable & Co trademark. Alberto Salvucci, the
Chairman of the board and stockholder of the Company, owns the remaining 1% of
Cable & Company 1955 SPA. The total investment during the year ended December
31, 1997 was $252,747.


                                      -19-
<PAGE>


     In July 1997, the Company completed a private placement, whereby it issued
13,690,000 shares of common stock at a price of $.10 per share. The gross
proceeds received in such an offering was $1,369,000.

     In August 1997 the Company purchased all of the rights to the Bacco Bucci
trademark, an intangible asset, from D&D Design and Details Limited ("D&D
Design"), an entity controlled by Alberto Salvucci, the Chairman of the Board, a
director, and a principal stockholder of the Company.

     The purchase price for the Bacco Bucci trademark consists of $3,150,000, of
which $400,000 was paid during the year ended December 31, 1997, and the balance
shall be payable in installments. Payments of $350,000 and $400,000 are due in
September 1998 and January 1999, respectively. The remaining balance is payable
in four equal installments of $500,000 in January 2000 through January 2003. In
addition, the Company has agreed to pay to D&D Design annual royalties of 7% of
net sales for a period of five years for all goods bearing the Bacco Bucci
trademark sold outside North, Central, and South America, commencing on the date
the Company commences exploiting the Bacco Bucci trademark in each country, but
expiring no later than December 31, 2007. The Company also issued to D&D Design
an aggregate of 11, 973, 411 shares of Common Stock.

     The Company also acquired in many major countries throughout the world
outside of the Western Hemisphere, all of the rights to the Cable & Co.
trademark from Cable & Co. S.R.L., an entity controlled by Mr. Salvucci.

     The purchase price for the rights to the Cable & Co. trademark include the
shares of Common Stock discussed above, the 7% royalties payable with respect to
the Bacco Bucci trademark, together with a payment of $100,000, which amount has
been paid to Cable & Co. S.R.L.

     The Company believes that it has an immediate need for additional financing
of approximately $1,500,000. The Company also believes that additional financing
of approximately $6,500,000 will be required over the next two to four months to
finance the Companys plans for continued operations for at least the next twelve
months.

     In order to obtain the financing necessary to provide the Company with
working capital and its expansion plans, the Company intends to raise
approximately $14,000,000 in additional financing of which $4,000,000 is
currently being offered in a private placement and the balance of which is
intended to be sought thereafter.

     There can be no assurance that such financing will be consummated. If such
financing is not consumated substantial doubt would exist with regard to the
Company's ability to continue as a going concern.



                                      -20-
<PAGE>

Item 7. Financial Statements.

        See Index immediately following the signature page.


Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure.

          None.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons

Directors and Executive Officers

     The following table sets forth certain information concerning the directors
and executive officers of the Company.

Name                   Age      Position
----                   ---      --------

Alberto Salvucci        43      Chairman of the Board and Director
Alan Kandall            54      Chief Executive Officer, President, and Director
Joel Brooks             39      Chief Financial Officer and Treasurer
Steven Katz             49      Director
Martin C. Licht         56      Secretary and Director
Michael Bartos          45      Executive Vice President



                                      -21-
<PAGE>

     The Company's  officers are elected to serve in such  capacities  until the
earlier  to  occur  of  the  election  and  qualification  of  their  respective
successors or until their  respective  deaths,  resignations  or removals by the
Company's  Board of Directors from such positions.  The Company's  directors are
elected to serve in such  capacities  until the earlier to occur of the election
and  qualification  of their respective  successors or their respective  deaths,
resignations or removals by the Company's stockholders from such positions.

     The  following  is a brief  summary  of the  background  of each  executive
officer and director:

     Alberto Salvucci has been the Chairman of the Board since January 1997. Mr.
Salvucci  has been  the  President  of Cable & Co.  S.R.L.  since  1988.  He has
provided design, production and production control services to the Company since
its inception and provided similar services to Hongson,  Inc. commencing in 1989
through February 1995.

     Alan Kandall has served as President and Chief Executive Officer since July
1997.  In January  1997 Mr.  Kandall  was named Chief  Operating  Officer of the
Company.  From February 1995 through July 1997, he served as the Executive  Vice
President,  Chief Financial Officer, and Treasurer of the Company. He has been a
member of the Board of Directors since the Company's inception.  From April 1993
through  February 1995, Mr. Kandall was the Chief Financial  Officer of Hongson,
Inc.,  which the Company  believes  has been  liquidated  and is no longer doing
business.  From June 1992 to March 1993,  Mr.  Kandall  was the Chief  Financial
Officer of Publix Corp, an apparel company.  From January 1992 through May 1992,
Mr. Kandall was the Chief  Financial  Officer of Orle,  Inc., a women's  apparel
company.  From 1988 through 1991, Mr. Kandall was the Chief Financial Officer of
Barbizon Corporation, a women's apparel company.

     Joel Brooks has served as Chief Financial  Officer and Treasurer since July
1997. From February 1995 until July 1997, Mr. Brooks was the comptroller for the
Company.  From April 1994 to February 1995, Mr. Brooks was the  comptroller  for
Hongson,  Inc. From April 1992 to March 1994, Mr. Brooks was the comptroller for
USA Detergents,  Inc. From 1989 to March 1992, Mr. Brooks was an accountant with
Goldstein  Golub  Kessler  &  Company,   P.C.,   independent   certified  public
accountants.

     Steven Katz has been the  president  of Steven Katz &  Associates,  Inc., a
management  consulting firm, located in Milltown,  New Jersey, which specializes
in strategic  planning and corporate  development  since December 1984. Mr. Katz
has been a member of the Board of Directors since July 1997.

     Martin C. Licht has served as Secretary and a member of the Company's Board
of Directors since its inception.  He has been a practicing  attorney since 1967
and is a partner of the law firm of McLaughlin & Stern, LLP. Mr. Licht is also a
director of Natural Health Trends Corp.,  which is traded on the Nasdaq SmallCap
Market.


                                      -22-
<PAGE>


     Michael  Bartos has been an Executive  Vice  President of the Company since
December  1997.  From January 1996 to November 1997, Mr. Bartos was the director
of Branded Operations for Dynasty Footwear. From November 1994 to November 1995,
Mr. Bartos was  President of Outfitter,  LLC. From January 1993 to October 1994,
Mr.  Bartos was  President of Hongson,  Inc. From December 1983 to January 1993,
Mr. Bartos was Executive Vice President of Hongson, Inc.


Compliance with Section 16(a) of the Exchange Act

     Based  solely  upon a review  of (i) Forms 3 and 4 and  amendments  thereto
furnished  to the  Company  pursuant  to Rule  16a-3(e),  promulgated  under the
Securities  Exchange  Act of 1934 (the  "Exchange  Act"),  during the  Company's
fiscal year ended  December 31, 1997,  and (ii) Forms 5 and  amendments  thereto
and/or written representations furnished to the Company by any director, officer
or ten percent security holder of the Company (collectively "Reporting Persons")
stating  that he or she was not  required to file a Form 5 during the  Company's
fiscal year ended  December 31, 1997, it has been  determined  that no Reporting
Person is delinquent with respect to his or her reporting  obligations set forth
in Section 16(a) of the Exchange Act, except that no filings were made by

Suquehanna Holdings Corp.

Item 10. Executive Compensation

Directors' Compensation

     Except for  directors'  fees of $15,681 paid to Steven Katz in fiscal 1997,
directors  of the  Company  did not  receive  any fixed  compensation  for their
services as directors. However, the Board of Directors may authorize the payment
of a fixed sum to  non-employee  directors  for their  attendance at regular and
special meetings of the Board as is customary for similar  companies.  Directors
will be  reimbursed  for their  reasonable  out-of-pocket  expenses  incurred in
connection with their duties to the Company.  For the fiscal year ended December
31, 1997,  except for the  payments to Steven Katz,  the Company did not pay its
directors any cash or other form of  compensation  for acting in such  capacity.
For the fiscal year ended  December 31, 1997,  directors who were also executive
officers of the Company received cash compensation for acting in the capacity of
executive  officers.  See  "Management  - Executive  Compensation"  and "- Stock
Options."



                                      -23-
<PAGE>

Executive Compensation

                           Summary Compensation Table

     The following  table  provides a summary of cash and non-cash  compensation
for the  years  ended  December  31,  1995,  1996 and 1997 with  respect  to the
following officers of the Company:


<TABLE>
<CAPTION>
                                                              Annual Compensation                 Long-Term Compensation
                                                              -------------------                 ----------------------

                                                                                                            Awards
                                                                                                            ------
                                                                                                                 Securities
                                                                                                  Restricted     Underlying
                                                                              Other Annual           Stock         Options     
     Name and Principal Positions        Year   Salary($)     Bonus($)     Compensation($)(1)     Award(s)($)      SARs(#)     
     ----------------------------        ----                 --------     ------------------     -----------      -------     
<S>                                      <C>       <C>      <C>                <C>                    <C>        <C>           
David Albahari (3) ....................  1997      $203,308      --            $180,600(5)            --         $309,979(6)   
                                         1996      $200,000 $763,026(2)            --                 --             --        
                                         1995      $200,000      --                --                 --             --        


Alan Kandall (4) ......................  1997      $183,982      --                --                 --             --        
                                         1996      $150,000 $763,022(2)            --                 --             --        
                                         1995       150,000      --                --                 --             --        

<CAPTION>                              
                                      Long-Term Compensation    
                                      ----------------------    
                                          LTIP          All Other      
     Name and Principal Positions      Payouts($)      Compensation    
     ----------------------------      ----------      ------------    
<S>                                        <C>              <C>        
David Albahari (3) ....................    --               --         
                                           --               --         
                                           --               --         
                                                                       
                                                                       
Alan Kandall (4) ......................    --               --         
                                           --               --         
                                           --               --         
                                                                       
                                                                       
</TABLE>
----------                             

(1)  Excludes  perquisites and other personal  benefits that in the aggregate do
     not exceed 10% of each of such individual's total annual salary and bonus.

(2)  Represents  74,921 shares of Common Stock and 74,920 shares of Common Stock
     issued to Mr. Albahari and Mr. Kandall, respectively, together with 106,752
     shares of Common Stock released from escrow for each of Mr. Kandall and Mr.
     Albahari,  based  upon a fair  market  value of $4.20 per  share  which was
     ascribed to such  shares for  financial  statement  purposes on the date of
     issuance and the date of the release from escrow.

(3)  Mr. Albahari was the President and Chief  Executive  Officer of the Company
     from January 1, 1995 through July 21, 1997.

(4)  Mr. Kandall was the Executive Vice President,  Chief Financial  Officer and
     Treasurer  from January 1, 1996  through July 21, 1997 and Chief  Executive
     officer and President from July 21, 1997 to the present.

(5)  Consists  of  $150,000  payable  to Mr.  Albahari  in 1998,  which has been
     accrued by the Company and $30,600 of expenses paid by the Company in 1997.

(6)  Consists  of  options  to  purchase  901,756  shares of Common  Stock at an
     exercise price of $.01 per share.

Employment Agreements

     The Company has entered  into an  employment  agreement  with Alan  Kandall
expiring in June 2002, under which he will receive an annual salary of $200,000,
except for 1998 for which Mr.  Kandall has agreed to reduce his salary by 12,500
per quarter.  The  agreement  provides  that the  executive  will be eligible to
receive short-term  incentive bonus  compensation,  the amount of which, if any,
will  be  determined  by  the  Board  of  Directors   based  on  the  employee's
performance,   contributions   to  the  Company's   success  and  the  Company's
profitability.  The employment  agreement also provides for termination based on
death, disability, voluntary resignation or material failure in performance. The
employment agreement does not provide for severance payments upon termination



                                      -24-
<PAGE>


unless the executive is terminated  without  cause,  in which case the executive
will receive severance payments until the later of two and a half years from the
date of  termination or June 30, 2002.  The agreement  contains  non-competition
provisions  that  preclude  Mr.  Kandall from  competing  with the Company for a
period of two years from the date of termination of employment.

     In October 1997, the Company entered into an agreement as of July 21, 1997,
to pay David  Albahari,  the former  President,  Chief  Executive  Officer and a
director  of the  Company,  $200,000  per  year  commencing  July  1997  through
September 30, 1998,  and to reimburse  Mr.  Albahari for certain  expenses.  The
employment  agreement  between  the  Company  and Mr.  Albahari  was  terminated
pursuant to such  agreement.  The Company  also issued Mr.  Albahari  options to
purchase  901,756 shares of Common Stock at a purchase price of $0.01 per share.
In October 1997 Mr. Albahari exercised the options.

Stock Options

     Except for 901,756  granted to Mr.  Albahari,  no options  were granted to,
held or exercised by, any of the Company's officers during the fiscal year ended
December  31,  1997.  The Company  has  adopted the 1996 Stock  Option Plan (the
"Plan") under which up to 280,000 options to purchase shares of Common Stock may
be granted to key employees,  consultants  and members of the Board of Directors
of the Company.  The exercise  price of the options  will be  determined  by the
Stock  Option  Committee  selected by the Board of  Directors,  but the exercise
price will not be less than 85% of the fair market  value of the Common Stock on
the date of grant.  No options have been granted to date.  Options granted under
the Plan may be either (i)  options  intended  to qualify  as  "incentive  stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), or (ii) non-qualified  stock options.  Incentive stock
options  may be granted  under the Plan to  employees,  including  officers  and
directors who are employees.  Non-qualified options may be granted to employees,
officers, directors and consultants of the Company.

     The Plan is  administered  by the Board of Directors.  Under the Plan,  the
Board of Directors  has the  authority to determine  the persons to whom options
will be granted, the number of shares to be covered by each option,  whether the
options  granted  are  intended to be  incentive  stock  options,  the manner of
exercise, and the time, manner and form of payment upon exercise of an option.

     Incentive  stock  options  granted  under the Plan may not be  granted at a
price less than the fair market  value of the Common  Stock on the date of grant
(or less than 110% of fair market value in the case of employees  holding 10% or
more of the voting stock of the  Company).  Non-qualified  stock  options may be
granted at an exercise price established by the Stock Option Committee  selected
by the Board of Directors,  but may not be less than 85% of fair market value of
the shares on the date of grant.  Incentive stock options granted under the Plan
must  expire not more than ten years  from the date of grant,  and not more than
five years from the date of grant in the case of incentive stock options granted
to an employee  holding 10% or more of the voting stock of the  Company.  To the
extent that the  aggregate  fair market value,  as of the date of grant,  of the
shares for which incentive  stock options become  exercisable for the first time
by an optionee  during the calendar year exceeds  $100,000,  the 




                                      -25-
<PAGE>

portion of such option  which is in excess of the  $100,000  limitation  will be
treated as a non-qualified stock option.

Item 11. Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth certain  information as to the Common Stock
ownership of each of the Company's directors,  executive officers, all executive
officers and directors as a group and all persons known by the Company to be the
beneficial owners of more than five percent of the Common Stock.

                                                                 Approximate
Name and Address of                         Number of            Percentage of
Beneficial Owner                            Shares(1)            Common Stock
----------------                            ---------            ------------
Alan Kandall                                  404,063                  *
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York  10019

Alberto Salvucci                           12,377,474(2)            28.2%
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York  10019

Steven Katz                                         0                  *
Briar Ridge Plaza
440 S. Main Street
Milltown, New Jersey 08850

Joel Brooks                                    29,375                  *
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York  10019

Martin C. Licht(3)                                  0                  *
c/o McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York  10016

Michael Bartos                                      0                  *
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York  10019

Susquehanna Holding Corp.(4)                2,540,807                5.8%
230 Mathers Road
Ambler, Pennsylvania  19002



                                      -26-
<PAGE>


All present officers                       12,810,912               29.2%
and directors as a group
  (6 persons)


(1)  Securities   "beneficially  owned"  by  an  individual  are  determined  in
     accordance  with the definition of "beneficial  ownership" set forth in the
     regulations of the Commission.  Accordingly, they may include securities as
     to which the individual has or shares voting or investment power or has the
     right to acquire under  outstanding  stock options within 60 days after the
     date of this table.  Except as otherwise  noted,  each individual or entity
     has sole voting and investment power over the securities listed.

(2)  Includes  11,973,411  shares of Common Stock owned by D&D Design,  which is
     controlled by Mr. Salvucci.

(3)  Does not include  shares of Common Stock owned by Mr.  Licht's  three adult
     children.  Mr.  Licht's  three  adult  children  each have sole  voting and
     dispositive power with respect to their securities.

(4)  Does not include an indeterminate number of shares of Common Stock issuable
     upon the  exercise of a warrant  granted in  December  1997.  See  "Certain
     Transactions."

*    Represents less than 1% of the applicable  number of shares of Common Stock
     outstanding.

Item 12. Certain Relationships and Related Transactions

     In August  1997,  the Company  purchased  the rights to the Cable & Co. and
Bacco Bucci  trademarks  from Cable & Co. S.R.L.  and D&D Design,  respectively.
Alberto  Salvucci,  the  Chairman  of the  Board of  Directors  and a  principal
stockholder of the Company,  controls D&D Design and Cable & Co. S.R.L. Prior to
the  acquisition,  the Company  held a license for the rights to the Bacco Bucci
trademark in North,  Central and South America. The purchase price for the Bacco
Bucci trademark  consists of $3,150,000 of which $400,000 has been paid, and the
balance of which is payable in  installments.  Payments of $350,000 and $400,000
are due in September 1998 and January 1999, respectively.  The remaining balance
is payable in four  installments  of $500,000 in January  2000  through  January
2003. In addition,  the Company has agreed to pay to D&D Design annual royalties
of 7% of net sales for a period of five  years for all goods  bearing  the Bacco
Bucci trademark sold outside North, Central and South America, commencing on the
date the Company commences exploiting the Bacco Bucci trademark in each country,
but expiring no later than  December  31,  2007.  The Company also issued to D&D
Design an aggregate of 11,973,411  shares of Common Stock in connection with the
acquisition.

     The Company  also  acquired in many major  countries  throughout  the world
outside  of the  Western  Hemisphere,  all  of the  rights  to the  Cable  & Co.
trademark from Cable & Co. S.R.L., an entity  controlled by Mr. Salvucci.  Prior
to the acquisition, the Company owned the rights to the Cable & Co. trademark in
the Western  Hemisphere.  The  purchase  price for the rights to the Cable & Co.
trademark  include the shares of Common Stock discussed  above, the 7% royalties
payable with respect 




                                      -27-
<PAGE>


to the Bacco Bucci trademark,  together with a payment of $100,000, which amount
has been paid to Cable & Co. S.R.L.

     The purchase price,  including costs and expenses,  for the Bacco Bucci and
Cable & Co.  trademarks  is  approximately  $5,413,000,  resulting  in an annual
charge to earnings of approximately  $270,000. For financial statement purposes,
the  Company  has  valued  the  shares  of  Common  Stock at  $2,694,017,  which
represents  a discount  to the market  price,  to reflect  the  restrictions  on
transfer under the Securities  Act. In addition,  the Company has discounted the
future  payments  of the  purchase  price for the  Bacco  Bucci  trademark.  The
purchase price is being amortized over a period of 20 years.

     For the year ended  December  31,  1996,  the Company  paid an aggregate of
$226,931  to D&D  Design  and  Cable & Co.  S.R.L.  with  respect  to sales  and
purchases of Bacco Bucci  footwear which is comprised of $115,220 of commissions
and $111,711 of royalties.  In addition, for such period the Company paid to D&D
Design $86,000 for fashion and design  advisory fees for Bacco Bucci and Cable &
Co. footwear. For the year ended December 31, 1997, the Company paid and accrued
an  aggregate of $246,498 to D&D Design and Cable & Co.  S.R.L.  with respect to
purchases of Bacco Bucci footwear which is solely commissions.  In addition, for
the year ended  December  31, 1997,  the Company  paid to D&D Design  $58,000 of
fashion and design  advisory fees for Bacco Bucci and Cable & Co.  footwear.  No
royalties  for sales of Bacco  Bucci  footwear  were paid  during the year ended
December 31,  1997.  For the year ended  December 31, 1996,  the Company paid an
aggregate  of $434,887  to Cable & Co.  S.R.L.  and D&D Design  with  respect to
purchases of Cable & Co. footwear which is solely for commissions.  For the year
ended  December 31, 1997,  the Company paid and accrued an aggregate of $474,712
to Cable & Co.  S.R.L.  and D&D Design with  respect to purchases of Cable & Co.
footwear which is solely for commissions.  For the year ended December 31, 1997,
the Company paid and accrued an aggregate of $5,475.  It is anticipated that the
Company  will  continue to pay  commissions  on the  purchase of Cable & Co. and
Bacco Bucci footwear to entities controlled by Mr. Salvucci at a rate of 6.5% of
the cost of goods shipped to the Company.

     In October 1997, the Company  entered into an agreement as of July 21, 1997
to pay David  Albahari,  the former  President,  Chief  Executive  Officer and a
director, $200,000 per year commencing July 1997 through September 30, 1998, and
to  reimburse  Mr.  Albahari for certain  expenses.  The Company also issued Mr.
Albahari  options to purchase 901,756 shares of Common Stock at a purchase price
of $0.01 per share, which were exercised in October 1997. In connection with the
issuance of the options, the Company recorded an expense of $309,978.

     In February 1995, Mr. Albahari, Mr. Kandall and Mr. Salvucci each purchased
329,143 shares of Common Stock from the Company for $50,000 each. As a condition
of the Asset Purchase Agreement, David Albahari, Alan Kandall, Alberto Salvucci,
Harry Chen and the Company entered into the Stockholders  Agreement with respect
to their shares of Common Stock.  Pursuant to the  Stockholders  Agreement,  Mr.
Salvucci, Mr. Kandall and Mr. Albahari agreed not to sell their shares of Common
Stock for nine  months if the  Company  either  merged  with an entity  having a
publicly  traded  class  of  securities  or  registered  its  shares  under  the
Securities  Act  without  the  consent of the  




                                      -28-
<PAGE>


Company's investment advisor or underwriter,  respectively. The Management Group
also placed an aggregate of 320,256  shares of Common Stock in escrow which were
not to be released to the Management Group unless the Company  satisfied certain
performance criteria. The Stockholders Agreement was to expire on the earlier of
a merger of the Company, the date upon which the Company consummated the sale of
its securities  pursuant to a registration  statement filed under the Securities
Act or on the fifteenth  anniversary of the Stockholders  Agreement.  In January
1996, the Company terminated the Stockholders  Agreement and released all of the
Escrow Shares to the Management Group, although the terms for the release of the
Escrow Shares had not yet been satisfied.

     In February  1996,  the Company  issued an aggregate  of 224,761  shares of
Common Stock to Messrs.  Kandall,  Albahari and Salvucci, of which 74,921 shares
of Common Stock were issued to Mr.  Albahari  and 74,920  shares of Common Stock
were each issued to Mr. Kandall and Mr. Salvucci as additional compensation..

        Mr. Kandall,  the President and Chief Executive  Officer of the Company,
has guaranteed certain of the Company's  obligations  aggregating  approximately
$69,310 as of December  31, 1997 for leasing  computer  hardware  and  telephone
equipment. The Company has paid Mr. Licht and law firms of which Mr. Licht was a
member legal fees of $428,408 in 1996 and $347,105 in 1997, and accrued $226,228
for 1997. On May 1, 1997, the Company  entered into a consulting  agreement with
Susquehanna Holding Corp. ("Susquehanna").  Pursuant to the consulting agreement
(the "Susquehanna Consulting  Agreement"),  the Company issued 500,000 shares of
Common  Stock  to  Susquehanna.  In July  1997 as part of a  private  placement,
Susquehanna  purchased  1,250,000  shares of Common Stock at $.10 per share.  In
November  1997, the Company  amended the  Susquehanna  Consulting  Agreement and
agreed to pay to  Susquehanna  the sum of $7,500 per month for a period of three
years and issued a warrant to Norbert Zeelander to purchase  1,000,000 shares of
Common Stock at a purchase price of $.15 per share,  which is exercisable  until
November,  2002.  In  December  1997,  Mathers  Associates  loaned  the  Company
$400,000. The loan is payable in December 1998 together with interest thereon at
the rate of 10% per annum.  The loan is  accelerated  and payable in full in the
event that the Company  consummates a financing  which results in gross proceeds
of at least  $2,000,000.  In connection with the loan,  790,807 shares of Common
Stock are  issuable to  Susquehanna.  The Company also issued to  Susquehanna  a
warrant which  entitles  Susquehanna  to purchase the number of shares of Common
Stock equal to 1.75% of the Company's outstanding securities less 790,807 shares
of Common Stock at a purchase  price of $.01 per share.  The warrant  expires on
the  earlier of December  15,  1999 or on the date that the Company  consummates
debt or equity financings, singly or in the aggregate of at least $12,500,000.

Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) Index to Financial Statements


                                      -29-
<PAGE>

Number         Description of Exhibit



     1.   Financial Statements

          See Index immediately following the signature page.

     2.   Exhibits Included Herein

          See Exhibit Index on page 25 hereof for the exhibits  filed as part of
          this Form 10-KSB.

(b)  Reports on Form 8-K

     The Company  did not file any reports on Form 8-K during the quarter  ended
December 31, 1997.

(c)  Exhibit Index

Number          Description of Exhibit
------          ----------------------

2.1 --    Assignment  of  Trademark  dated  July 29,  1997  between D & D Design
          Details Limted and the Company.**


2.2  --   Assignment of Trademark dated July 29, 1997 between Cable &Co. SRL and
          the Company**

2.3  --   Asset Purchase Agreement dated January 16, 1995 between Hongson, Inc.,
          as seller and Cable & Co. Worldwide, Inc., as buyer.*

3.1  --   Certificate of Incorporation of the Company, as amended.*

3.2  --   By-Laws of the Company.*

4.1  --   Form of Warrant  Agreement  between  the Company  and  American  Stock
          Transfer & Trust, as warrant agent.*

4.2  --   Specimen Certificate of the Company's Common Stock.*

4.3  --   1996 Stock Option Plan.*

4.4  --   Specimen Certificate of the Company's Warrant.*

10.1 --   Employment  Agreement  dated as of July 1, 1997 between the Company
          and Alan Kandall.*

10.2 --   Agreements between the Company and Heller Financial, Inc.*

10.3 --   Agreement  dated as of the 26th day of January 1996 between U.K.  Hyde
          Park Consultants, Ltd. and the Company.*

10.4 --   Lease dated July 28, 1995 between Raritan Plaza I Associates, L.P., as
          landlord, and Cable & Company Enterprises, Ltd., as tenant.*


                                      -30-
<PAGE>


Number          Description of Exhibit
------          ----------------------


10.5 --   Lease  dated May 16,  1995  between  724 Fifth  Avenue  Realty Co., as
          landlord, and Cable & Co. Enterprises Ltd., as tenant.*

10.6 --   Agreement  dated as of July 21,  1997  between  the  Company and David
          Albahari **

10.7 --   License  Agreement  dated  July 1, 1997  Between  the  Company & Roffe
          Aecessories, Tnc.**

10.8 --   Assignment  of Trademark  dated July 29, 1997 between D & D Design and
          Details Limited and the Company**.

10.9 --   Assignment  of Trademark  dated July 29, 1997 brtween  Cable & Co. SRL
          and the Company**.

10.10 --  Agreement dated May 15, 1996 among D&D Design and Details Limited, Pio
          Alberto Salvucci and Cable & Co. Worldwide, Inc.

21.1 --   List of Subsidiaries.* 

27.1 -- Financial Data Schedule.

99.1 --   Cable& Co.  Trademark  Registration  from the United States Patent and
          Trademark Office.*

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

* Previously filed with Registration Statement No. 333-3000.

** Previously filed with Registration Statement No. 333-3079. 


                                      -31-
<PAGE>


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: April 14, 1998                       CABLE & CO. WORLDWIDE, INC.

                                            By: /s/ Alan Kandall
                                               ---------------------------------
                                                Alan Kandall, President and
                                                Chief Executive Officer

                                            By: /s/ Joel Brooks
                                               ---------------------------------
                                                Joel Brooks, Treasurer and
                                                Chief Financial Officer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant in the capacities and on the date indicated.

<TABLE>
<CAPTION>
          Name                                          Title                       Date
          ----                                          -----                       ----
<S>                                    <C>                                       <C> 
/s/ Alberto Salvucci                   Chairman of the Board and Director        April 14, 1998
------------------------------
Alberto Salvucci

/s/ Alan Kandall                       President, Chief Operating Officer        April 14, 1998
------------------------------
Alan Kandall                           and Director

/s/ Martin C. Licht                    Secretary and Director                    April 14, 1998
------------------------------
Martin C. Licht

/s/ Steven Katz                        Director                                  April 14, 1998
------------------------------
Steven Katz
</TABLE>


                                      -32-
<PAGE>


CABLE & CO. WORLDWIDE, INC.
 AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1997





<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES


                                                   INDEX TO FINANCIAL STATEMENTS

================================================================================

Independent Auditor's Report                                             F-2


Consolidated Financial Statements:

   Balance Sheet                                                         F-3
   Statement of Operations                                               F-4
   Statement of Stockholders' Equity                                  F-5 - F-6
   Statement of Cash Flows                                               F-7
   Notes to Consolidated Financial Statements                         F-8 - F-20



                                                                             F-1


<PAGE>


INDEPENDENT AUDITOR'S REPORT

To the Board of Directors of
Cable & Co. Worldwide, Inc.

We have  audited  the  accompanying  consolidated  balance  sheet of Cable & Co.
Worldwide,  Inc.  and  Subsidiaries  as of December  31,  1997,  and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the two years in the period then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of  Cable  & Co.
Worldwide,  Inc. and  Subsidiaries  as of December 31, 1997,  and the results of
their  operations  and their  cash flows for each of the two years in the period
then ended in conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern.  As discussed in Note 18 to
the consolidated financial statements, the Company has suffered recurring losses
from operations,  has current liabilities in excess of current assets and is not
in  compliance  with the  covenants  of its  factoring  agreement  which  raises
substantial doubt about its ability to continue as a going concern. Management's
plan in regard to these matters is also  described in Note 18. The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York

February 26, 1998



                                                                             F-2

<PAGE>

                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET
================================================================================

<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                                                 <C>    
ASSETS (Note 6)

Current Assets:
  Cash                                                                                         $    132,264
  Accounts receivable, less allowances for doubtful accounts and sales discounts of $280,000        887,158
  Inventory (Notes 1 and 2)                                                                       5,442,465
  Prepaid expenses and other current assets (Notes 3 and 19)                                      1,266,519
  Deferred income tax asset, net of valuation allowance of $4,000,000 (Note 15)                        --
-----------------------------------------------------------------------------------------------------------
      Total current assets                                                                        7,728,406



Property and Equipment, net (Notes 1, 4 and 9)                                                    1,219,236

Trademarks and Trade Names, net of accumulated amortization of $290,521 (Note 1)                  6,294,043

Other Intangible Assets, net of accumulated amortization of $39,294 (Note 1)                         12,464

Other Assets                                                                                        516,222
-----------------------------------------------------------------------------------------------------------
      Total Assets                                                                             $ 15,770,371
===========================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Due to factor (Note 6)                                                                       $  6,975,986
  Accounts payable                                                                                1,585,605
  Accrued expenses and other current liabilities (Notes 5 and 14)                                 1,225,746
  Notes payable (Note 7)                                                                            967,752
  Current portion of installment payable - trademark (Note 8)                                       334,030
  Current portion of capitalized lease obligations (Notes 4 and 9)                                   36,646
  Income taxes payable                                                                               13,675
-----------------------------------------------------------------------------------------------------------
      Total current liabilities                                                                  11,139,440

Installment Payable - trademark - net of current portion (Note 8)                                 1,878,155

Capitalized Lease Obligations - net of current portion (Notes 4 and 9)                               64,262

Deferred Rent (Note 10)                                                                              95,140

Other Liabilities                                                                                    13,502

Deferred Income Tax Liability (Note 15)                                                              94,000
-----------------------------------------------------------------------------------------------------------
      Total liabilities                                                                          13,284,499
-----------------------------------------------------------------------------------------------------------

Commitments and Contingencies (Notes 1 and 10)

Minority Interest in Cable & Company 1955 SPA (Note 1)                                                2,404
-----------------------------------------------------------------------------------------------------------
Stockholders' Equity: (Notes 1 and 12)
  Preferred stock - $.01 par value; authorized 1,416,347 shares; no shares issued                      --
  Common stock - $.01 par value; authorized 50,000,000 shares; issued 43,048,164 shares             430,482
  Additional paid-in capital                                                                     15,353,760
  Treasury stock - 35,000 common shares, at cost                                                    (29,676)
  Accumulated deficit                                                                           (13,292,505)
  Cumulative foreign currency translation adjustment                                                 21,407
-----------------------------------------------------------------------------------------------------------
      Stockholders' equity                                                                        2,483,468
-----------------------------------------------------------------------------------------------------------
      Total Liabilities and Stockholders' Equity                                               $ 15,770,371
===========================================================================================================
</TABLE>


                                  See Notes to Consolidated Financial Statements

                                                                             F-3

<PAGE>

                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF OPERATIONS
================================================================================

<TABLE>
<CAPTION>
Year ended December 31,                                              1996            1997
--------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>         
Net sales                                                       $ 13,522,166    $ 13,878,016
Cost of goods sold (Note 14)                                      10,211,283       9,348,135
--------------------------------------------------------------------------------------------

Gross profit                                                       3,310,883       4,529,881

Noncash compensatory charges (Notes 1 and 12)                     (2,811,481)     (1,660,637)

Selling expenses (Note 1)                                         (4,217,605)     (4,469,085)

General and administrative expenses (Note 1)                      (2,441,082)     (2,600,238)

Commission income                                                     41,459          15,000
--------------------------------------------------------------------------------------------

Loss from operations                                              (6,117,826)     (4,185,079)

Interest expense (Notes 6, 7 and 9)                                  577,579         724,464

Termination agreements (Note 17)                                        --           682,152

Bridge note discount (Note 12)                                       738,000            --
--------------------------------------------------------------------------------------------

Loss before provision for income taxes                            (7,433,405)     (5,591,695)

Provision for income taxes (Note 15)                                  24,900          59,000
--------------------------------------------------------------------------------------------

Net loss                                                          (7,458,305)     (5,650,695)

Dividends on preferred stock (Note 12)                                27,248            --
--------------------------------------------------------------------------------------------

Net loss applicable to common stock                             $ (7,485,553)   $ (5,650,695)
--------------------------------------------------------------------------------------------

Net loss per common share (Note 1)                              $      (2.79)   $       (.25)
============================================================================================

Weighted average number of common shares outstanding (Note 1)      2,682,820      22,247,148
============================================================================================
</TABLE>


                                  See Notes to Consolidated Financial Statements

                                                                             F-4


<PAGE>




                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
================================================================================

<TABLE>
<CAPTION>
Years ended December 31, 1996 and 1997
------------------------------------------------------------------------------------------------------------------------
                                                                                                                        
                                                                                                                        
                                                       Preferred Stock           Common Stock             Additional    
                                                   Number                     Number                       Paid-in      
                                                   of Shares     Amount       of Shares       Amount       Capital      
------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>               <C>     <C>               <C>        <C>           
Balance at January 1, 1996                          --             --        1,007,445   $     10,074   $         34    
                                                                                                                        
Issuance of common stock and warrants                                                                                   
 to purchase common stock (Note 12)                 --             --          400,000          4,000      1,721,000    
                                                                                                                        
Deferred consulting costs (Note 12)                 --             --             --             --       (1,685,000)   
                                                                                                                        
Amortization of deferred consulting costs                                                                               
 (Note 12)                                          --             --             --             --          522,410    
                                                                                                                        
Release of escrow shares (Note 12)                  --             --             --             --        1,345,075    
                                                                                                                        
Issuance of common stock (Note 12)                  --             --          224,761          2,248        941,748    
                                                                                                                        
Issuance of common stock and warrants in                                                                                
 private placement (Note 12)                        --             --          180,000          1,800       (192,800)   
                                                                                                                        
Discount on bridge notes (Note 12)                  --             --             --             --          738,000    
                                                                                                                        
Issuance of common stock and warrants in                                                                                
 initial public offering (Note 12)                  --             --        1,119,500         11,195      4,673,318    
                                                                                                                        
Issuance of common stock upon redemption                                                                                
 of preferred stock - Series A                      --             --          462,531          4,625         (4,625)   
                                                                                                                        
Issuance of preferred stock - Series B             3,653   $         37           --             --        2,050,489    
                                                                                                                        
Purchase of treasury stock                          --             --             --             --             --      
                                                                                                                        
Cash dividend preferred stock - Series A            --             --             --             --             --      
                                                                                                                        
Net loss                                            --             --             --             --             --      
------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1996                       3,653             37      3,394,237         33,942     10,109,649    

<CAPTION>                                   
Years ended December 31, 1996 and 1997      
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cumulative                        
                                                                                                 Foreign                           
                                                      Treasury Stock                             Currency               Stock-     
                                                Number                      Accumulated          Translation            holders'   
                                                of Shares       Amount         Deficit           Adjustment             Equity     
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>          <C>                                       <C>         
Balance at January 1, 1996                          --             --      $   (103,109)             --             $    (93,001)  
                                                                                                                                   
Issuance of common stock and warrants                                                                                              
 to purchase common stock (Note 12)                 --             --              --                --                1,725,000   
                                                                                                                                   
Deferred consulting costs (Note 12)                 --             --              --                --               (1,685,000)  
                                                                                                                                   
Amortization of deferred consulting costs                                                                                          
 (Note 12)                                          --             --              --                --                  522,410   
                                                                                                                                   
Release of escrow shares (Note 12)                  --             --              --                --                1,345,075   
                                                                                                                                   
Issuance of common stock (Note 12)                  --             --              --                --                  943,996   
                                                                                                                                   
Issuance of common stock and warrants in                                                                                           
 private placement (Note 12)                        --             --              --                --                 (191,000)  
                                                                                                                                   
Discount on bridge notes (Note 12)                  --             --              --                --                  738,000   
                                                                                                                                   
Issuance of common stock and warrants in                                                                                           
 initial public offering (Note 12)                  --             --              --                --                4,684,513   
                                                                                                                                   
Issuance of common stock upon redemption                                                                                           
 of preferred stock - Series A                      --             --              --                --                     --     
                                                                                                                                   
Issuance of preferred stock - Series B              --             --              --                --                2,050,526   
                                                                                                                                   
Purchase of treasury stock                        20,000   $    (18,053)           --                --                  (18,053)  
                                                                                                                                   
Cash dividend preferred stock - Series A            --             --           (80,396)             --                  (80,396)  
                                                                                                                                   
Net loss                                            --             --        (7,458,305)             --               (7,458,305)  
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                   
Balance at December 31, 1996                      20,000        (18,053)     (7,641,810)             --                2,483,765   
                                                                                                                     (continued)
</TABLE>

                                  See Notes to Consolidated Financial Statements

                                                                             F-5


<PAGE>

                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
================================================================================

<TABLE>
<CAPTION>
Years ended December 31, 1996 and 1997
---------------------------------------------------------------------------------------------------------------------------
                                                                                                                           
                                                                                                                           
                                                       Preferred Stock           Common Stock             Additional       
                                                   Number                     Number                       Paid-in         
                                                   of Shares     Amount       of Shares       Amount       Capital         
---------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>       <C>               <C>            <C>          <C>              
Purchase of treasury stock                         --              --              --             --             --        

Issuance of common stock upon
 conversion of preferred stock (Note 12)         (3,653)   $        (37)     11,213,760   $    112,138   $   (112,101)     

Issuance of common stock (Note 12)                 --              --         1,875,000         18,750        479,297      

Deferred consulting costs (Note 12)                --              --              --             --         (498,047)     

Amortization of deferred consulting
 costs (Note 12)                                   --              --              --             --        1,660,637      

Issuance of common stock in connection
 with private placement (Note 12)                  --              --        13,690,000        136,900      1,232,100      

Private placement costs (Note 12)                  --              --              --             --         (393,019)     

Issuance of common stock in connection
 with purchase of trademark (Note 12)              --              --        11,973,411        119,734      2,574,283      

Issuance of options in connection with
 termination agreement (Notes 12 and 17)           --              --              --             --          309,979      

Issuance of common stock upon exercise
 of options (Notes 12 and 17)                      --              --           901,756          9,018         (9,018)     

Cumulative foreign currency translation
 adjustment (Note 1)                               --              --              --             --             --        

Net loss                                           --              --              --             --             --        
---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                        - 0 -  $        - 0 -    43,048,164   $    430,482   $ 15,353,760      
===========================================================================================================================



<CAPTION>                                       
Years ended December 31, 1996 and 1997          
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Cumulative                        
                                                                                                  Foreign                           
                                                       Treasury Stock                             Currency               Stock-     
                                                 Number                      Accumulated          Translation            holders'   
                                                 of Shares       Amount         Deficit           Adjustment             Equity     
------------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock                          15,000   $    (11,623)           --              --     $    (11,623)           
                                                                                                                                    
Issuance of common stock upon                                                                                                       
 conversion of preferred stock (Note 12)              --             --              --              --             --              
                                                                                                                                    
Issuance of common stock (Note 12)                    --             --              --              --          498,047            
                                                                                                                                    
Deferred consulting costs (Note 12)                   --             --              --              --         (498,047)           
                                                                                                                                    
Amortization of deferred consulting                                                                                                 
 costs (Note 12)                                      --             --              --              --        1,660,637            
                                                                                                                                    
Issuance of common stock in connection                                                                                              
 with private placement (Note 12)                     --             --              --              --        1,369,000            
                                                                                                                                    
Private placement costs (Note 12)                     --             --              --              --         (393,019)           
                                                                                                                                    
Issuance of common stock in connection                                                                                              
 with purchase of trademark (Note 12)                 --             --              --              --        2,694,017            
                                                                                                                                    
Issuance of options in connection with                                                                                              
 termination agreement (Notes 12 and 17)              --             --              --              --          309,979            
                                                                                                                                    
Issuance of common stock upon exercise                                                                                              
 of options (Notes 12 and 17)                         --             --              --              --             --              
                                                                                                                                    
Cumulative foreign currency translation                                                                                             
 adjustment (Note 1)                                  --             --              --      $     21,407         21,407            
                                                                                                                                    
Net loss                                              --             --      $ (5,650,695)           --       (5,650,695)           
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                        35,000   $    (29,676)   $(13,292,505)   $     21,407   $  2,483,468            
====================================================================================================================================
</TABLE>

                                  See Notes to Consolidated Financial Statements



                                                                             F-6


<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================

<TABLE>
<CAPTION>
Year ended December 31,                                                                                  1996               1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                  <C>                <C>         
Cash flows from operating activities:
  Net loss                                                                                           $(7,458,305)       $(5,650,695)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization                                                                        225,403            453,341
    Provision for doubtful accounts and sales discounts                                                  484,875               --
    Provision for deferred income taxes                                                                   24,900             41,000
    Noncash compensatory charges                                                                       2,811,481          1,660,637
    Issuance of options in connection with termination agreement                                            --              309,979
    Amortization of discount on bridge notes                                                             738,000               --
    Noncash advertising expense                                                                             --               56,495
    Changes in operating assets and liabilities:
      (Increase) decrease in accounts receivable                                                          65,534           (787,027)
      (Increase) decrease in inventory                                                                   136,467         (3,315,079)
      (Increase) decrease in prepaid expenses and other current assets                                   171,213           (736,552)
      Increase in other intangibles                                                                         (963)            (8,450)
      Increase in other assets                                                                              --               (9,207)
      Increase (decrease) in accounts payable                                                           (367,461)           686,943
      Increase (decrease ) in accrued expenses and other current liabilities                            (118,712)           572,930
      Increase (decrease) in income taxes payable                                                        (14,300)            13,675
      Increase in deferred rent                                                                           30,090             19,668
      Increase in other liabilities                                                                         --               13,502
------------------------------------------------------------------------------------------------------------------------------------
        Net cash used in operating activities                                                         (3,271,778)        (6,678,840)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Purchase of property and equipment                                                                    (281,103)          (506,507)
  Purchase of trademarks                                                                                    --              (79,115)
------------------------------------------------------------------------------------------------------------------------------------
        Cash used in investing activities                                                               (281,103)          (585,622)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Advances from (repayments to) factor, net                                                           (1,796,746)         6,247,061
  Repayment of short-term note payable                                                                  (130,000)              --
  Principal payments under capital lease obligations                                                     (27,617)           (31,971)
  Principal payments on long-term note payable                                                          (333,333)          (333,333)
  Principal payments of long-term note payable trademark                                                    --             (427,308)
  Proceeds received from notes payable                                                                      --              801,085
  Redemption of redeemable preferred stock - Series A                                                   (500,000)              --
  Net repayment on bridge notes financing                                                               (227,000)              --
  Net proceeds from issuance of common stock                                                           4,724,513            975,981
  Net proceeds from issuance of preferred stock                                                        2,050,526               --
  Net proceeds from issuance of common stock and warrants                                                 36,000               --
  Proceeds from issuance of stock of consolidated subsidiary to
   minority interest                                                                                        --                2,404
  Cash dividend paid - preferred stock - Series A                                                        (80,396)              --
  Purchase of treasury stock                                                                             (18,053)           (11,623)
------------------------------------------------------------------------------------------------------------------------------------
        Net cash provided by financing activities                                                      3,697,894          7,222,296
------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes                                                                             --               21,407
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash                                                                          145,013            (20,759)
Cash at beginning of year                                                                                  8,010            153,023
------------------------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                                                  $   153,023        $   132,264
====================================================================================================================================
Supplemental  disclosures  of cash flow  information:  Cash paid during the year
 for:
  Interest                                                                                           $   580,174        $   638,983
====================================================================================================================================
  Income taxes                                                                                       $    27,036        $     2,408
====================================================================================================================================
</TABLE>

                                  See Notes to Consolidated Financial Statements

                                                                             F-7

<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPAL BUSINESS ACTIVITY:

Cable & Co. Worldwide, Inc. ("Cable"), which was incorporated November 10, 1994,
is a manufacturer,  designer,  importer and wholesaler of men's shoes. Sales are
made primarily to major  department  and specialty  stores located in the United
States.

The accompanying consolidated financial statements include the accounts of Cable
& Co. Worldwide Inc., its wholly owned  subsidiary Cable & Co.  Enterprises Ltd.
and its majority owned foreign subsidiary Cable & Company 1955 SPA (collectively
referred to as the "Company").  All intercompany  accounts and transactions have
been eliminated in consolidation. The operations of Cable & Company 1955 SPA are
included from April 3, 1997, the date of formation.

The Company  translates  assets and  liabilities  of the foreign  subsidiary  at
prevailing period-end rates of exchange,  and income and expense accounts at the
weighted-average rates during the period.  Translation  adjustments arising from
conversion  of the foreign  subsidiary's  financial  statements  at December 31,
1997, aggregating $21,407, are included in the stockholders' equity.

The  financial  statements  have been  prepared  in  conformity  with  generally
accepted accounting principles which require the use of estimates by management.

In 1995, the Company acquired the Cable & Company product line from Hongson Inc.
The  stockholders of the Company,  including the Company's  management,  entered
into a stockholders' agreement ("Stockholders' Agreement") with respect to their
shares  of  common  stock  at the  time of  this  acquisition.  Pursuant  to the
Stockholders' Agreement, the Company's management placed an aggregate of 320,256
shares of common stock in escrow.  In January 1996,  the Company  terminated the
Stockholders'  Agreement  and  released  all of the shares held in escrow.  As a
result of this release the Company has recorded a noncash compensatory charge in
the amount of $1,345,075.

On April 3, 1997, the Company formed an Italian  corporation,  Cable and Company
1955 SPA  ("CCSPA").  CCSPA  leases a  manufacturing  facility in  Montegranaro,
Italy, to manufacture the Company's  footwear bearing the Cable & Co. trademark.
The  Company  owns 99% of the  issued  and  outstanding  common  stock of CCSPA.
Alberto  Salvucci,  the Chairman of the Board and a stockholder  of the Company,
owns the remaining 1% of CCSPA. The total investment,  which was paid during the
year ended December 31, 1997, was $252,747.

In August  1997,  the  Company  purchased  all of the rights to the Bacco  Bucci
trademark  from D&D  Design  and  Details  Limited  ("D&D  Design"),  an  entity
controlled by Mr.  Salvucci.  The rights sold to the Company include  trademarks
registered in the United States, Canada, Italy, Austria, China, France, Germany,
Portugal, Russia, Spain, Switzerland, Hong Kong, India, Korea, Sri Lanka, Taiwan
and the  United  Kingdom  together  with any other  rights  owned by D&D  Design
whether or not registered  throughout the world.  Prior to the acquisition,  the
Company  held a license  for the rights to the Bacco Bucci  trademark  in North,
Central and South America.

The Company also acquired,  in many  countries  throughout the world outside the
Western Hemisphere,  all of the rights to the Cable & Co. trademark from Cable &
Co. S.R.L., an entity controlled by Alberto Salvucci.  Prior to the acquisition,
the Company owned the rights to the Cable & Co. trademark in the Western



                                                                             F-8
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

Hemisphere.  The rights sold to the Company include trademark registrations in
the following countries among others:  Austria, Belgium, France, Germany, India,
Russia, Italy, Netherlands, Spain, Sweden and Switzerland.  The rights also
include all of the rights owned by Cable & Co. S.R.L. in Africa, Asia Minor,
Australia, Europe and other parts of the world, except the United Kingdom and
Asia.

The cost of  acquiring  the  Bacco  Bucci  and  Cable & Co.  trademarks  totaled
approximately   $5,413,000.   The   trademarks   are  being   amortized  by  the
straight-line  method over 20 years.  The purchase price included a note payable
in the amount of approximately $2,639,000. The Company also issued to D&D Design
an aggregate of 11,973,411  shares of common stock. The Company has valued these
shares of common stock at approximately  $2,694,000.  Additionally,  the Company
incurred legal and other fees in connection  with the purchase of the trademarks
of approximately  $80,000. In addition, the Company has agreed to pay D&D Design
annual  royalties  of 7% of net sales  for a period of five  years for all goods
bearing  the Bacco  Bucci  trademark  sold  outside  North,  Central,  and South
America,  commencing  on the date the  Company  commences  using the Bacco Bucci
trademark in each country, but expiring no later than December 31, 2007.

At each balance sheet date the Company  evaluates the period of  amortization of
intangible  assets.  The factors used in evaluating  the period of  amortization
include: (i) current operating results, (ii) projected future operating results,
and (iii) any other material factors that affect the continuity of the business.

Revenue is recognized when merchandise is shipped.

Finished  goods  inventory is stated at the lower of cost  (first-in,  first-out
method)  or  market.   Raw  material  inventory  is  stated  at  lower  of  cost
(weighted-average method) or market.

Depreciation  of property and  equipment  is provided  for by the  straight-line
method over the estimated useful lives of the assets.  Amortization of leasehold
improvements is provided for by the  straight-line  method over the terms of the
respective leases.

Intangible  assets  consisting  of debt issue costs,  trademarks,  at cost,  and
organization  costs are amortized  using the  straight-line  method over 3 to 20
years.

Foreign currency transaction (losses) and gains of approximately  $(217,000) and
$131,000  for the years  ended  December  31, 1996 and 1997,  respectively,  are
included in cost of goods sold.

Advertising  costs are charged to  operations  as  incurred.  Total  advertising
expense  for the  years  ended  December  31,  1996 and  1997 was  approximately
$1,352,000 and $1,168,000, respectively, and is included in selling expenses.

In 1996,  the  Company  adopted  Statement  of  Financial  Accounting  Standards
("SFAS") No. 123,  Accounting for Stock-Based  Compensation.  In accordance with
the  provisions  of SFAS No. 123,  the  Company has elected to apply  Accounting
Principles  Board Opinion No. 25 and related  interpretations  in accounting for
its stock options issued to employees.


                                                                             F-9
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


In 1997, the Company adopted SFAS No. 128,  Earnings per Share.  The adoption of
this  statement  does not change  net loss per  common  share for the year ended
December   31,  1996.   Net  loss  per  common  share  is  computed   using  the
weighted-average number of shares outstanding.

In June 1997, the Financial  Accounting Standards Board (the "FASB") issued SFAS
No. 130, Reporting  Comprehensive  Income,  and SFAS No. 131,  Disclosures about
Segments of an Enterprise  and Related  Information.  In February 1998, the FASB
issued  SFAS  No.  132,   Employer's   Disclosures   about  Pensions  and  Other
Postretirement  Benefits.  The Company is required to adopt these  statements in
1998.  SFAS No. 130  establishes  new standards  for  reporting  and  displaying
comprehensive  income and its  components.  SFAS No. 131 requires  disclosure of
certain  information  regarding  operating  segments,   products  and  services,
geographic  areas  of  operation  and  major  customers.  SFAS No.  132  revises
employer's  disclosures about pensions and other  postretirement  benefit plans.
Adoption of these  statements is expected to have no  significant  impact on the
Company's consolidated financial position, results of operations or cash flows.

2.   INVENTORY:

Inventory consists of the following:

Raw materials                                                         $  228,445
Work-in-process                                                          105,730
Finished goods                                                         5,108,290
--------------------------------------------------------------------------------
                                                                      $5,442,465
================================================================================

3.   PREPAID EXPENSES AND OTHER CURRENT ASSETS:
                   

Prepaid expenses and other current assets consist of the following:

Barter credits                                                        $  207,258
Foreign taxes receivable                                                 487,183
Deferred offering costs                                                  184,820
Prepaid expenses                                                         387,258
--------------------------------------------------------------------------------
                                                                      $1,266,519
================================================================================



                                                                            F-10
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================



4.   PROPERTY AND EQUIPMENT:

Property and equipment, at cost, consists of the following:
                                                                      Estimated
                                                                     Useful Life
--------------------------------------------------------------------------------
Leasehold improvements                            $341,313         Term of lease
Furniture and fixtures                              87,928       6.5 to 10 years
Computer and office equipment                      650,486         4 to 10 years
Display booths                                     340,648              10 years
Shoe molds                                          37,638               3 years
Automobiles                                         13,885               5 years
Machinery and equipment                            202,329            12.5 years
--------------------------------------------------------------------------------
                                                1,674,227
Less accumulated depreciation and amortization   (454,991)
--------------------------------------------------------------------------------
                                               $1,219,236
================================================================================


Depreciation and amortization  expense amounted to $153,927 and $266,419 for the
years ended December 31, 1996 and 1997, respectively.

Property and equipment  includes assets acquired under capital leases  amounting
to $170,155 and related accumulated depreciation of $47,639.

Approximately  $216,000 of the Company's  property and equipment (net of $67,000
of accumulated depreciation) is located in Italy.

Accrued expenses and other current liabilities consist of the following:

5.   ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

Accrued inventory purchases$                                             412,287
Accrued professional fees                                                257,964
Accrued termination agreement costs                                      268,431
Accrued interest                                                          97,504
Other current liabilities                                                189,560
--------------------------------------------------------------------------------
                                                                      $1,225,746
================================================================================

6.   DUE TO FACTOR:

The Company  finances all accounts  receivable under an agreement with a factor.
Certain  preapproved  accounts  receivable are factored on a nonrecourse  basis.
Nonapproved  accounts  are  factored  with  recourse.  Under  the  terms of this
agreement,  the Company is advanced  funds against  receivables  assigned to the
factor  and  additional  funds  which  are   collateralized   by  inventory  and
substantially all other assets.  These advances may not exceed  $6,000,000.  The
factor is  responsible  for servicing the factored  receivables  and charges the
Company a fee on the net cash advances equal to the prime rate (8.5% at December
31,  1997) plus 1% to 1.5% per annum,  plus  additional  fees based on the gross
amount of receivables  serviced by the factor.  At December 31, 1997, the factor
advanced to the Company  $975,986 in excess of its credit line. In addition,  at
December 31,


                                                                            F-11
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


1997, the factor  advanced to the Company  $3,675,450 in excess of its borrowing
base.

The  factoring  agreement  contains  covenants  that require the Company to meet
certain  financial ratios and maintain certain levels of working capital and net
worth.

At December 31, 1997, the Company was not in compliance  with certain  covenants
and the Company has received a notice of default  from the factor.  In the event
that the factor  demands  payment of the  outstanding  obligations,  or does not
advance  additional  funds to the  Company,  substantial  doubt would exist with
regard to the Company's ability to continue as a going concern.

Due to factor consists of the following:

Outstanding accounts receivable assigned to factor 
   without recourse                                                 $ 1,489,768
Cash advances from factor                                            (8,465,754)
--------------------------------------------------------------------------------
                                                                    $ 6,975,986
================================================================================

The fair value of the amount due to factor  approximates the carrying amount due
to the short-term nature of the instrument.

7.   NOTES PAYABLE:

Notes payable consist of :

Installment note payable to factor with interest
at the prime rate plus 3% and is subject to the
same collateral and covenants as the factoring
agreement                                                               $166,667

Note payable to Mathers Associates, bearing interest at a rate of
10% per annum, due at the earlier of December 18, 1998 or the
Company's receipt of gross proceeds of $2,000,000 from a debt or
equity financing                                                         400,000

Two notes payable to a bank bearing interest at a rate of 7.5%           197,295

Two bank export loans bearing interest at a rate of 6.75%.  The
bank advances the Company 80% of its outstanding receivable
balance for specific invoices                                            203,790
--------------------------------------------------------------------------------
                                                                        $967,752
================================================================================

The  estimated  fair  values of the notes  payable  approximate  their  carrying
amounts due to the short-term nature of the instruments.


                                                                            F-12
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

8.   INSTALLMENT PAYABLE - TRADEMARK:

The installment payable - trademark  represents the amount payable to D&D Design
for the purchase of the Bacco Bucci and Cable & Co. trademarks. An interest rate
of 8.5% has  been  imputed  to  determine  the  present  value  of the  payable.
Payments, including imputed interest, are due as follows:

Year ending December 31,

            1998                                                $   350,000
            1999                                                    400,000
            2000                                                    500,000
            2001                                                    500,000
            2002                                                    500,000
            2003                                                    500,000
--------------------------------------------------------------------------------
                                                                 $2,750,000
================================================================================

The fair value of the installment payable approximates the carrying amount based
on borrowing rates available to the Company for similar loans.

9.   CAPITALIZED LEASE OBLIGATIONS:

The Company  acquired  equipment  under leases that have been  accounted  for as
capital leases.

Minimum future lease payments are as follows:


 Year ending December 31,
             1998                                                  $  49,314
             1999                                                     45,096
             2000                                                     27,522
--------------------------------------------------------------------------------
                                                                     121,932
Less amount representing interest                                     21,024
--------------------------------------------------------------------------------
Present value of minimum lease payments                              100,908
Current portion                                                       36,646
--------------------------------------------------------------------------------
   Long-term portion                                               $  64,262
================================================================================


Certain  leases are  guaranteed by a stockholder  and former  stockholder of the
Company. At December 31, 1997 guarantees  approximated  $69,000. The Company has
indemnified the former stockholder pursuant to a termination agreement (see Note
17).



                                                                            F-13
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

10.  COMMITMENTS AND CONTINGENCIES:

The Company  leases  office,  manufacturing,  warehouse and showroom  facilities
under noncancelable operating leases. The leases provide for escalation based on
increases in real estate  taxes and other  expenses.  Additionally,  the Company
leases equipment under noncancelable  operating leases. Future minimum aggregate
annual rental payments are as follows:

Year ending December 31,

            1998                                                   $   291,490
            1999                                                       291,488
            2000                                                       246,588
            2001                                                       156,696
            2002                                                       151,452
         Thereafter                                                    337,519
--------------------------------------------------------------------------------
                                                                    $1,475,233
================================================================================

Rent expense charged to operations  under the office,  manufacturing,  warehouse
and showroom leases amounts to approximately $187,000 and $197,000 for the years
ended December 31, 1996 and 1997, respectively.

Rent expense recognized annually differs from rent paid as a result of free rent
periods and  scheduled  rent  increases  provided for in the office and showroom
leases.  Accordingly,  the  Company  has  recorded  deferred  rent of $95,140 at
December  31,  1997,  which will be charged to  operations  over the term of the
leases.

The  Company  has a letter of credit  line  with the  factor up to a maximum  of
$750,000. At December 31, 1997, the Company has outstanding letters of credit in
the amount of $537,000,  $400,000 of which is serving as collateral  for foreign
currency  contracts  and  $137,000 of which is serving as  collateral  for lease
security deposits.

The  Company  has  foreign   exchange  lines  of  credit  with  three  financial
institutions  up to a maximum of  $6,000,000.  The Company  enters into  foreign
currency forward  contracts to manage foreign currency  exchange risk associated
with inventory purchases denominated in Italian lira. The contracts are recorded
at market value and any gains and losses are included in operations. At December
31,  1997,  the  Company  has  open  foreign  currency   contracts  to  purchase
9,490,979,375 Italian lire for $5,449,100 expiring at various dates from January
1, 1998 to September 1, 1998. These financial  instruments may give rise to off-
balance-sheet risk. Risks arise from potential  counterparty  nonperformance and
from changes in the market value of the underlying currency.

The Company has entered into an employment  agreement with its President through
June 30, 2002 that  provides for minimum  annual  salaries and  incentive  bonus
compensation  based upon the  performance  of the employee and the Company.  The
agreement also provides for severance due to termination without cause, in which
case the employee will receive  severance  payments until the later of two and a
half  years or June 30,  2002.  At  December  31,  1997,  the  total  commitment
excluding incentives was $500,000.


                                                                            F-14
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

11.  RETIREMENT PLAN:

The Company has a defined contribution plan under Section 401(k) of the Internal
Revenue Code,  wherein qualified  employees may contribute a percentage of their
pretax  eligible  compensation  to the  plan.  The  Company  may  make  matching
contributions  at  the  discretion  of  the  Board  of  Directors.   No  Company
contributions  were made to the plan for the years ended  December  31, 1996 and
1997.

Two officers of the Company serve as trustees of the plan.

12.  STOCKHOLDERS' EQUITY:

In January 1996, the Company entered into a three-year  international consulting
agreement with U.K. Hyde Park Consultants, Ltd. ("Hyde Park"). In addition, Hyde
Park  purchased  400,000  shares of common  stock and warrants to purchase up to
450,000  shares of common  stock for a note in the amount of  $40,000  which was
subsequently  paid in March 1996.  The  warrants  are  identical to the warrants
issued in conjunction with the March 28, 1996 private placement (see below).

The Company has valued  these  shares of common  stock and  warrants to purchase
shares of common stock at $1,725,000. The difference between this amount and the
repurchase  price  of  $40,000  was  being  recognized   ratably  as  a  noncash
compensatory  charge over the life of the  agreement.  In  September  1997,  the
Company determined that Hyde Park was no longer providing consulting services to
the Company under the terms of the agreement.  As a result, the Company expensed
the remaining balance of $741,340.

On January 26, 1996,  the Board of Directors  increased the number of authorized
shares  from  80,000  to  1,500,000  for  preferred  stock and from  120,000  to
10,000,000  for common stock.  In  conjunction  with the  increase,  the Company
effected a 26.688-for-1  stock split effective  January 26, 1996. All references
in the  consolidated  financial  statements  to number  of shares  and per share
amounts  have been  retroactively  restated to reflect the  increased  number of
shares of preferred and common stock authorized, issued and outstanding.

In February  1996, the Company issued 224,761 shares of common stock to existing
stockholders. In connection with the issuance, a compensation charge of $943,966
($4.20 per share) was recorded.

On March 28, 1996, the Company completed a private placement,  whereby it issued
36 units at a price of  $50,000  per  unit.  Each  unit  consisted  of a $49,000
promissory  note,  5,000  shares of common stock and a warrant to purchase up to
5,000 shares of common stock,  subject to adjustment,  as defined at an exercise
price of $7.20 per share. The promissory  notes,  aggregating  $1,764,000,  bore
interest  at an annual  rate of 11% and were due upon the  earlier  of 12 months
from date of issuance  or the  Company's  receipt of gross  proceeds of at least
$4,080,000  from the sale of its debt and/or  equity  securities  in a public or
private financing. The warrants are exercisable over a 3-year period, commencing
13 months from date of  issuance.  Upon the closing of the  Company's  IPO,  the
terms of the warrants were adjusted to be identical to the terms of the warrants
issued  in  conjunction  with the IPO (see  below).  Net  proceeds  received  of
approximately  $1,573,000 after deducting underwriting discounts and expenses of
approximately  $227,000 were used to repay a term loan and reduce the amount due
to factor.


                                                                            F-15
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

In connection  with the private  placement,  a discount of $738,000 was recorded
based upon the  allocation of the proceeds  between the bridge notes payable and
the common stock and warrants issued.  This amount was calculated by attributing
a value of $4.20  per  share of common  stock  and $.10 per  warrant,  less cash
received of $36,000. The discount has been fully amortized.

On June 5, 1996, 1,130,000 shares of the Company's common stock and common stock
purchase  warrants  were  sold to the  public,  of which  950,000  shares of the
Company's common stock and 1,130,000 common stock purchase warrants were sold by
the Company and 180,000  shares of the  Company's  common stock were sold by the
March 28, 1996 private  placement  investors.  The purchase  price was $6.00 per
common share and $.10 per warrant.  Each warrant entitles the holder to purchase
a share of the Company's common stock of $7.20 for a three-year period beginning
July 5, 1997.  The warrants are  redeemable at the Company's  discretion at $.10
per warrant,  subject to the closing bid price of the common stock. Net proceeds
to  the  Company  of  approximately  $3,785,000,  after  deducting  underwriting
discounts  and  expenses  of  approximately  $2,028,000,   were  used  to  repay
$1,764,000 in promissory  notes and related  accrued  interest of  approximately
$70,000, to redeem 43,327 shares of Series A redeemable  preferred stock, and to
pay related accrued dividends of approximately $80,000.

On July 10, 1996,  the  Underwriter  purchased  169,500  shares of the Company's
common  stock and 169,500  warrants at a price of $6.00 and $.10,  respectively.
Net  proceeds  to  the  Company  of  approximately  $900,000,   after  deducting
underwriting  discounts  and expenses of  approximately  $134,000,  were used to
reduce the amount due to the factor.

On November 20, 1996, the Company  completed a Regulation S offering  whereby it
issued 3,653  shares of the  Company's  preferred  stock Series B for a price of
$750 per share. Net proceeds to the Company of approximately  $2,051,000,  after
deducting  underwriting discounts and expenses of approximately  $689,000,  were
used to reduce the amount due to the factor.  In  addition,  the Company  issued
warrants to purchase  200,000  shares of common stock at a price of $3.00 to the
underwriter of the Regulation S offering. The warrants expire October 31, 2001.

In 1997,  the Company  increased  its  authorized  common stock from  10,000,000
shares to 50,000,000 shares.

During 1997, all of the 3,653 shares of preferred  stock Series B were converted
into 11,213,760 shares of the Company's common stock.

In July 1997,  the  Company  completed  a private  placement,  whereby it issued
13,690,000  shares of common stock at a price of $.10 per share. Net proceeds to
the Company of approximately  $976,000,  after deducting  underwriting discounts
and expenses of approximately  $393,000, were used to purchase the rights to the
Bacco  Bucci  trademark  as well as the  additional  rights to the Cable and Co.
trademark in other countries. The remaining funds were used to reduce the amount
due to the factor and to fund the Company's  working  capital  requirements.  In
addition,  the Company issued warrants to purchase 75,000 shares of common stock
at a price of $.60 and  75,000  shares  of  common  stock at a price of $.75 for
consulting  services in  connection  with the private  placement.  The  warrants
expire July 31, 2002.


                                                                            F-16
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

In May 1997, the Company entered into two one-year consulting  agreements for an
aggregate  of  1,875,000  shares of common  stock.  The Company has valued these
shares  of  common  stock at  $498,047.  The  value of these  shares  was  being
recognized  ratably  as a  noncash  compensatory  charge  over  the  term of the
agreements.  In  November  1997,  the  Company  amended  one of  the  consulting
agreements  effective  January  1, 1998 and  agreed to pay the sum of $7,500 per
month for a period of three  years and  issued a warrant to  purchase  1,000,000
shares  of  common  stock  at a  purchase  price  of $.15  per  share,  which is
exercisable  until  November 2002.  Additionally,  in December 1997, the Company
determined  that it was no longer  receiving  consulting  services  on the other
consulting agreement. As a result, the remaining unamortized balance of $207,520
was expensed.

In October  1997,  the Company  entered into an agreement as of July 21, 1997 to
terminate an employment  agreement  between the Company and David Albahari,  the
former President, Chief Executive Officer and a director of the Company. As part
of the  termination  agreement,  the  Company  issued  Mr.  Albahari  options to
purchase  901,756  shares of common stock at a purchase price of $.01 per share.
The  issuance of the  901,756  options was  recorded at the  intrinsic  value of
$309,979  which  approximated  the fair value.  In October  1997,  Mr.  Albahari
converted these options into shares of common stock.

In December 1997,  Mathers  Associates loaned the Company $400,000 (see Note 7).
In order to induce  Mathers  Associates to make the loan,  the Company agreed to
issue   790,807   shares  of  common   stock  to   Susquehanna   Holding   Corp.
("Susquehanna"),  a company  related to Mathers  Associates.  The  Company  also
agreed to issue to Susquehanna a warrant which entitles  Susquehanna to purchase
the number of shares of common stock equal to 1.75% of the Company's outstanding
securities  less 790,807  shares of common stock at a purchase price of $.01 per
share.  The warrant  expires on the earlier of December  15, 1999 or on the date
that  the  Company  consummates  debt or  equity  financings,  singly  or in the
aggregate  of at least  $12,500,000.  The  shares and the  warrant  were not yet
issued as of December 31, 1997.

During  January  1996,  the  Company  adopted  the 1996 Stock  Option  Plan (the
"Plan").  Under the Plan,  options to purchase  shares of the  Company's  common
stock are  granted to key  employees,  consultants  and  members of the Board of
Directors at the discretion of the Stock Option Committee. The Plan provides for
the  granting of options to purchase a maximum of 280,000  shares at an exercise
price to be determined by the Stock Option Committee.  At December 31, 1997, the
Company has not granted any options under the Plan.

13.  MAJOR CUSTOMERS:

One customer accounted for 18% of net sales for the year ended December 31, 1996
and two customers  accounted for  approximately 12% and 13% of net sales for the
year ended December 31, 1997.

14.  RELATED PARTY TRANSACTIONS:

Included in costs of goods sold are  commission  charges from Cable & Co. S.R.L.
and D&D Design, companies whose controlling stockholder is both a stockholder of
the Company and the Chairman of the Board.  These companies  provide the Company
with design,  production  and production  control  services.  Commissions  are a
percentage of purchases and amounted to approximately $550,000 and


                                                                            F-17
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

$727,000  for the years  ended  December  31, 1996 and 1997,  respectively.  The
amount due to these companies for commissions earned was $89,867 at December 31,
1997 and is included in accrued  expenses and other current  liabilities.  As of
December 31, 1997,  Cable & Co. S.R.L.  owed the Company $70,000 for advertising
fees.

D&D Design charged the Company $86,000 and $58,000 for fashion advisory services
for the years ended December 31, 1996 and 1997, respectively.  Additionally, D&D
Design  charged  the  Company  $112,000  for  licensing  fees for the year ended
December 31, 1996. These fees are included in selling expenses.

15.  INCOME TAXES:

The components of deferred  income taxes,  resulting from the differences in the
bases of assets and liabilities for income tax and financial reporting purposes,
and other items are as follows:


                                                      Current       Noncurrent
--------------------------------------------------------------------------------
Allowance for doubtful accounts and sales
 discounts                                         $  (211,000)          --
Charitable contribution carryforward                    16,000           --
Net operating loss carryforward                      4,195,000           --
Property and equipment                                    --      $   (77,000)
Goodwill                                                  --          (40,000)
Deferred rent                                             --           23,000
Valuation allowance                                 (4,000,000)          --
--------------------------------------------------------------------------------
                                                   $    - 0 -     $   (94,000)
================================================================================


The provision for income taxes consists of the following:

Year ended December 31,                                1996              1997
--------------------------------------------------------------------------------
 Current:
  Federal                                                 --                --
  State and local                                         --                --
  Foreign taxes                                           --             $18,000
--------------------------------------------------------------------------------
                                                          --              18,000
--------------------------------------------------------------------------------

Deferred:
  Federal                                              $21,000            34,000
  State and local                                        3,900             7,000
--------------------------------------------------------------------------------
                                                        24,900            41,000
--------------------------------------------------------------------------------

                                                       $24,900           $59,000
================================================================================


                                                                            F-18
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

The  difference  between  the  income  tax  provision  computed  at the  federal
statutory rate and the actual income tax provision is accounted for as follows:

Year ended December 31,                                 1996            1997
--------------------------------------------------------------------------------
Income tax benefit computed using statutory
 rate of 34%                                        $(2,527,000)    $(1,901,000)
Effect of nondeductible expenses                        488,700          64,000
Foreign taxes                                              --            18,000
Change in valuation allowance                         2,063,200       1,878,000
--------------------------------------------------------------------------------
                                                        $24,900         $59,000
================================================================================

16.  INSURANCE:

At December  31,1997,  the Company is the beneficiary of a term insurance policy
on the life of its Chairman of the Board in the aggregate amount of $2,000,000.

17.  TERMINATION AGREEMENTS:

In connection with the termination  agreement described in Note 12, Mr. Albahari
is to receive $250,000 in the period  commencing July 1, 1997 through  September
30, 1998, as well as reimbursement for certain legal and other expenses. As part
of the  termination  agreement,  Mr.  Albahari  has  agreed to a  noncompetition
agreement,  effective from July 1, 1997 through June 30, 1998. Additionally, the
Company issued Mr. Albahari  options to purchase  901,756 shares of common stock
at a purchase  price of $.01 per share.  The 901,756  options were recorded at a
value of $309,979.  In October 1997, Mr.  Albahari  converted these options into
common stock.

In December  1997,  the Company  entered into an  agreement  with a former sales
representative. As part of the sales representative's termination agreement, the
former  sales  representative  is to receive  $70,000  in the period  commencing
December 1, 1997 through June 30, 1998.

The total  nonrecurring  expense of $682,152  recognized in connection  with the
termination  agreements  during the year ended  December  31, 1997  includes (i)
$200,000 to David Albahari, which represents the total payments of $250,000 less
$50,000  allocated  to  the  noncompetition   agreement;  (ii)  $309,979,  which
represents the value of the 901,756  options to purchase shares of common stock;
(iii) $102,173 in legal and other expenses;  and (iv) $70,000,  which represents
the total cash payments to the former sales representative.

18.  GOING CONCERN:

As shown in the accompanying consolidated financial statements,  the Company has
incurred net losses of $7,485,553 and $5,650,695 during the years ended December
31, 1996 and 1997,  respectively.  At December 31, 1997,  the Company's  current
liabilities  exceeded its current assets by $3,411,034.  These factors create an
uncertainty  about  the  Company's  ability  to  continue  as a  going  concern.
Management  recognizes  that the Company  must  generate  additional  revenue or
reduce  operating  costs  and may need  additional  financing  to  enable  it to
continue  its  operations.  The Company is  reviewing  alternatives  for raising
additional  capital including the potential private placement  described in Note
19. However, no assurance can be given that the Company will achieve profitable


                                                                            F-19
<PAGE>


                                    CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

operations,  or that additional  financing,  if needed, can be obtained on terms
satisfactory  to the Company,  if at all, nor in an amount  sufficient to enable
the Company to continue operations.

19.  SUBSEQUENT EVENT:

The  Company  is  attempting  to raise  approximately  $4,000,000  in a  private
placement.  As of December  31,  1997,  the Company had  incurred  and  deferred
$184,820 of costs  related to this prepaid  private  placement.  These costs are
included in prepaid expenses and other current assets.

20.  FOREIGN OPERATIONS:


In 1997, the Company  operates  principally in two geographic  areas: the United
States and Italy. Following is a summary of information by area for 1997:


Net sales to unaffiliated customers:
  United States                                                     $13,558,410
  Italy                                                                 319,606
--------------------------------------------------------------------------------
      Net sales as reported in the accompanying consolidated
        statement of operations                                     $13,878,016
================================================================================

Intercompany sales:
  United States                                                            --
  Italy                                                              $1,998,175
--------------------------------------------------------------------------------
      Total intercompany sales                                       $1,998,175
================================================================================


Income (loss) from operations:
  United States                                                     $(4,219,886)
  Italy                                                                  34,807
--------------------------------------------------------------------------------
      Loss from operations as reported in the accompanying
        consolidated statement of operations                        $(4,185,079)
================================================================================

Identifiable assets:
  United States                                                     $14,403,445
  Italy                                                               1,366,926
--------------------------------------------------------------------------------
      Total assets as reported in the accompanying
       consolidated balance sheet                                   $15,770,371
================================================================================


Intercompany sales are accounted for at cost and are eliminated in consolidation
in the accompanying  consolidated  statement of operations.  Identifiable assets
are those that are identifiable with operations in each geographic area.


                                                                            F-20