|SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
Form 10-K


Annual Report Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934


For the fiscal year
ended December 31, 2002


Commission File No.
0-23379


I.C. ISAACS & COMPANY,
INC.(Exact name of registrant as specified in charter)
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|                                        | 
|--------------------------------------- | 
|Delaware                                | 
|(State or other jurisdiction of         | 
|incorporation or organization)          | 
|3840 Bank Street, Baltimore, Maryland   | 
|(Address of principal executive office) | 

|Registrants
telephone number, including area code: (410) 342-8200


Securities Registered
Pursuant to Section 12(b) of the Act:  None


Securities Registered
Pursuant to Section 12(g) of the Act:  Title of Class:


Common Stock, $.0001
par value per share


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


Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K. Yes   No X


Indicate
by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act). Yes   No X



As
of March 28, 2003, the aggregate market value of the outstanding shares of the
Registrants Common Stock held by non-affiliates was approximately $6,012,715
based on the average closing price of the Common Stock as reported by the OTC Bulletin
Board on March 28, 2003. Determination of affiliate status for this purpose is not a
determination of affiliate status for any other purpose.


As
of March 28, 2003, 11,134,657 shares of Common Stock were outstanding.


Document Incorporated
by Reference


Specified
 portions of the definitive Proxy Statement for the 2003 Annual Meeting of Stockholders
of I.C. Isaacs & Company,  Inc. to be held on June 11, 2003 are incorporated by
reference into Part III hereof.


1
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|I.C. ISAACS &
COMPANY, INC.


FORM 10-K


TABLE OF CONTENTS
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|           |  | Page                                                                                  | 
|---------- |  | ------------------------------------------------------------------------------------- | 
|           |  | PART I                                                                                | 
|ITEM 1.    |  | BUSINESS                                                                              | 
|ITEM 2.    |  | PROPERTIES                                                                            | 
|ITEM 3.    |  | LEGAL PROCEEDINGS                                                                     | 
|ITEM 4.    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   | 
|           |  | PART II                                                                               | 
|ITEM 5.    |  | MARKET FOR THE COMPANYS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                | 
|ITEM 6.    |  | SELECTED FINANCIAL DATA                                                               | 
|ITEM 7.    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 
|ITEM 8.    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           | 
|ITEM 9.    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  | 
|           |  | PART III                                                                              | 
|*ITEM 10.  |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY                                       | 
|*ITEM 11.  |  | EXECUTIVE COMPENSATION                                                                | 
|*ITEM 12.  |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        | 
|*ITEM 13.  |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        | 
|ITEM 14.   |  | CONTROLS AND PROCEDURES                                                               | 
|           |  | PART IV                                                                               | 
|ITEM 15.   |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                      | 
|           |  |                                                                                      
|SIGNATURES |  | 29                                                                                    | 

|
|

|* | Incorporated
by reference from the Registrants definitive Proxy Statement on Schedule 14A (the
Proxy Statement) for the 2003 Annual Meeting of Stockholders to be held June 11,
2003. The Proxy Statement will be filed not later than 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2
|-

|I.C.
Isaacs and I.G. Design are trademarks of the Company. The
          Company has filed a federal trademark application for the mark Urban
          Expedition (UBX). All other trademarks or service marks, including
          Girbaud and Marithé and Francois Girbaud,
          BOSS and Beverly Hills Polo Club appearing in this
          Annual Report on Form 10-K are the property of their respective owners and are
          not the property of the Company.




The
various companies that hold and license the Girbaud trademarks, and that engage in the
design and licensing of Girbaud branded apparel, as well as the affiliates and associates
of those companies, are hereinafter collectively referred to as Girbaud.


IMPORTANT INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS


This Annual Report on Form 10-K
contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Those statements include statements regarding the intent, belief or current
expectations of the Company and its management, including the Companys belief
regarding the prominence of branded, licensed apparel, in general, and the Girbaud brand,
in particular, in the Companys future, ,its expectations regarding the renewal of
its licenses for mens and womens sportswear and jeanswear by Girbaud, and its
expectations that substantially all of its net sales will come from sales of Girbaud
apparel, the Companys beliefs regarding the relationship with its employees, the
conditions of its facilities, number of manufacturers capable of supplying the Company
with products that meet the Companys quality standards, the Companys beliefs
regarding its ordering flexibility as a result of transferring production to Asia, and the
basis on which it competes for business, the Companys environmental obligations and
its expectations regarding the Companys product offerings,. Words such as
believes, anticipates, expects, intends,
plans, and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements. Such statements
are forward-looking statements which are subject to a variety of risks and uncertainties,
many of which are beyond the Companys control, which could cause actual results to
differ materially from those contemplated in such forward-looking statements, including in
particular the following risks and uncertainties; (i) changes in the marketplace for
the Companys products, including customer tastes, (ii) the introduction of new
products or pricing changes by the Companys competitors, (iii) changes in the
economy, and (iv) termination of one or more of its agreements for use of the Girbaud
brand name and images in the manufacture and sale of the Companys products. Existing
and prospective investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company undertakes
no obligation to update or revise the information contained in this Annual Report on Form
10-K, whether as a result of new information, future events or circumstances or otherwise.


3
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|PART I
|------

|ITEM 1. | BUSINESS
|------- | --------

|Introduction


I.C. Isaacs
& Company, Inc. (together with its predecessors and subsidiaries,           including
I.C. Isaacs & Company L.P., the Company) is a designer           and
marketer of branded jeanswear and sportswear. Founded in 1913, the Company
          offers collections of mens and womens jeanswear and sportswear
under           the Girbaud designer brand in the United States, Puerto Rico and Canada.
The           Girbaud brand is an internationally recognized designer label with a
distinct           European influence. The Company has positioned the Girbaud line with a
broad           assortment of products, styles and fabrications reflecting a contemporary
          European look. The Company markets a full collection of mens jeanswear
and           sportswear under the Girbaud brand, including a broad array of bottoms,
tops and           outerwear. In August 1998, the Company introduced a womens
sportswear           collection under the Girbaud brand, which also includes a wide
assortment of           bottoms, tops and outerwear. In May 2000, the Company acquired an
exclusive           license to market certain mens and womens jeanswear and
sportswear           under the Girbaud brand in Canada and began making shipments in
December 2000.           Net sales of Girbaud products accounted for 100% and 84.9% of
the Companys           net sales in 2002 and 2001, respectively.




Until
December 2001, the Company offered collections of sportswear for men and boys under the
Beverly Hills Polo Club brand in the United States, Puerto Rico and Europe. The Company
allowed these licenses to expire on December 31, 2001. Net sales of Beverly Hills Polo
Club sportswear accounted for 8.6% of the Companys net sales in 2001. The Company
also offered womens pants and jeans under various Company owned brand names as well
as under third party private labels for sale to major chain stores and catalogs. In 1999,
the Company introduced a collection of mens sportswear under the Company owned Urban
Expedition (UBX) brand in the United States and Europe. The Company also offered
collections of jeanswear and sportswear for young men, women and boys under the BOSS brand
in the United States and Puerto Rico. In the fourth quarter of 2000, the Company began
restructuring its product lines in an effort to focus on growth potential and eliminate
poorly performing lines. The Company terminated its license agreement for the design and
marketing of the BOSS brand of sportswear for men and boys in the United States in 2001
and ceased shipping products under the brand in October 2001. The Company discontinued
production of the womens Company-owned and private label lines and the Urban
Expedition (UBX) line in 2001. Substantially all remaining inventories of these products
were shipped during 2001. See Managements Discussion and Analysis.


Products


The
Companys jeanswear and sportswear collections under the Girbaud brand include a
broad range of product offerings for young men and women, including a variety of tops,
bottoms and outerwear. These collections are targeted to consumers who are seeking
quality, fashionable products at competitive prices. Girbaud is an internationally
recognized designer brand. The Company markets innovative European-inspired mens and
womens jeanswear and sportswear collections under the Girbaud label. The Girbaud
collections include full lines of bottoms consisting of jeans and casual pants in a
variety of fabrications, including denim, stretch denim, cotton twill and nylon, cotton
t-shirts, polo shirts, knit and woven tops, sweaters, outerwear and leather sportswear.
Reflecting contemporary European design, each of these collections is characterized by
innovative styling and fabrication and is targeted to consumers ages 16 to 50. Estimated
retail prices range from $24 to $30 for t-shirts, $50 to $90 for tops and bottoms, $60 to
$90 for sweaters and $80 to $300 for outerwear. The Company is positioning the
womens Girbaud collection as two separate collections, one for streetwear and the
other as a contemporary line.


Customers and Sales


The
Companys products are sold in over 3,600 specialty stores, specialty store chains
and department stores. The Company uses both sales representatives and distributors for
the sale of its products. Sales representatives include employees of the Company as well
as independent contractors. Each of the Companys distributors and non-employee sales
representatives has an agreement with the Company pursuant to which the distributor or
sales representative serves as the exclusive distributor or sales representative of
specified products of the Company within a specified territory. The Company does not have
long-term contracts with any of its customers. Instead, its customers purchase the
Companys products pursuant to purchase orders and are under no obligation to
continue to purchase the Companys products.


4
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|The
Company began marketing mens sportswear under the Girbaud brand in February 1998 and
introduced a womens sportswear collection under the Girbaud brand in the second
quarter of 1998. The Companys Girbaud mens products are sold to more than
2,700 stores in the United States and Puerto Rico, including major department stores such
as Bloomingdales, Macys East, Macys West, Burdines, Saks, Inc., Dayton Hudson
and Carson Pirie Scott, and many prominent specialty stores such as The Atrium in New York
and The Lark. The Companys Girbaud womens line is sold to more than 900
stores. None of the Companys customers accounted for 10% or more of sales in 2002 or
2001. The Companys Girbaud brand products are sold and marketed domestically under
the direction of an 11-person sales force headquartered in New York.


Design and Merchandising


The
Companys designers and merchandisers travel around the world to monitor emerging
fashion trends and search for styling inspiration and fabrics. These sources, together
with new styling and graphics developed by the Companys designers, serve as the
primary creative influences for the Companys product lines. In addition,
merchandisers and designers involved with the development of Girbaud products are provided
with the Girbaud collections from Europe twice a year and collaborate with Marithé
and François Girbaud and their staff in the development of the Companys
Girbaud product lines for sale in the United States. Merchandisers also regularly meet
with sales management to gain additional market insight and further refine the products to
be consistent with the needs of each of the Companys markets. The Companys
in-house design and product development is carried out by merchandising departments in New
York. Many of the Companys products are developed using computer-aided design
equipment, which allows designers to view and easily modify images of a new design. The
Company currently has 6 people on the design staff in New York City. Design expenditures
were approximately $1.1 million in 2001 and $1.2 million in 2002.


Advertising and Marketing


The
Company aggressively communicates and reinforces the brand and image of its Girbaud
products through creative and innovative advertising and marketing efforts. The
Companys advertising and marketing strategies are directed by its national sales
offices and developed in collaboration with its advertising agencies and with
Girbauds European offices and Paris advertising agency. The Companys
advertising strategy is geared toward its youthful and contemporary consumers, whose
lifestyles are influenced by music, sports and fashion. Its advertising campaigns have
evolved from trade magazines to a wide variety of media, including billboards, fashion
magazines, radio and special events. The Company spent approximately $2.0 million or 2.9%
of net sales on advertising in 2002. In 2001, the Companys expenditures for
advertising and marketing activities totaled $1.8 million or 2.2% of net sales. In 2003,
the Company will continue to utilize advertising media to promote its products, but
expects to do so at a substantially reduced level of spending.


The
Company has a multifaceted marketing campaign for its Girbaud brand, which includes print
advertisement, outdoor advertising, including billboards, point of sale materials and
promotions, and celebrity wardrobing. As a first tier designer brand, Girbaud also
presents international runway shows and appears in major trade shows. Recognizing that
point of sale brand presentation and images are highly effective, the Company also
provides an array of in-store signage, fixtures and product videos for its Girbaud
products.


Product Sourcing


General



During
2002, the Company used both domestic and foreign contractors for the production of its
products. Substantially all of the Companys manufacturing and sourcing in 2002 was
done by third parties through arrangements with independent contractors. Each of the
Companys independent contractors and independent buying agents has an agreement with
the Company pursuant to which it performs manufacturing or purchasing services for the
Company on a non-exclusive basis. The Company evaluates its contractors frequently and
believes that there are a number of manufacturers capable of producing products that meet
the Companys quality standards. The Company represents all or a significant portion
of many of its contractors production and has the ability to terminate its
arrangements with any of its contractors at any time. A change in suppliers, however,
could cause a delay in manufacturing and a possible loss of sales which could adversely
affect operating results.


5
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|Asia



Virtually
all of the Companys sportswear products other than t-shirts are produced by
approximately 15 different manufacturers in 6 countries in Asia. During 2002, three of the
Companys Asian contractors accounted for approximately 26%, 21% and 10% of the
Companys total unit production in 2002. The Company has well established
relationships with many of its contractors, although it does not have written agreements
with them. The Company retains independent buying agents in various countries in Asia to
assist in selecting and overseeing independent manufacturers, sourcing fabric, trim and
other materials and monitoring quotas. Independent buying agents also perform quality
control functions on behalf of the Company, including inspecting materials and
manufactured products prior to accepting delivery. The sourcing and merchandising staffs
in the Companys New York offices oversee Asian fabric and product development,
apparel manufacturing, price negotiation and quality control, as well as the research and
development of new Asian sources of supply. Asian production represented approximately 61%
of the Companys total unit production in 2002. Purchasing from Asian contractors
requires the Company to estimate sales and issue purchase orders for inventory well in
advance of receiving firm orders from its customers. A risk to the Company is that its
estimates may differ from actual orders. If this happens, the Company may miss sales
because it did not order enough, or it may have to sell excess inventory at reduced
prices.


The
Company seeks to achieve the most efficient means for the timely delivery of its high
quality products. With rare exceptions, the Company does not purchase fabrics but instead
negotiates a finished garment price from its contractors in Asia. The contractor must then
purchase the approved fabric as part of the package. All of the Companys products
manufactured abroad are paid for in United States dollars. Accordingly, the Company does
not engage in any currency hedging transactions.


United
States and Mexico



Until
2001, the Company utilized third party independent contractors in Mexico for production of
slacks, jeans shorts and skirts. During 2001, Mexican production represented approximately
13% of the Companys total production, however, the Company discontinued the use of
these independent contractors in Mexico and has shifted this production to Asia.


To
take advantage of the shorter production time associated with t-shirt products, the
Company purchases substantially all of its t-shirt blanks from suppliers in Mexico,
warehousing sufficient quantities at a location managed by its Milford, Delaware warehouse
facility. T-shirt blanks are sent to various independent contractors within the United
States to be screen printed, embroidered or both, before being sent back as a finished
product to fulfill orders. T-shirt production represented approximately 39% of the
Companys total unit production in 2002. During 2002, two of the Companys
domestic contractors accounted for approximately 19% and 16% of the Companys total
unit production in 2002.


Warehousing and
Distribution


The
Company services its United States customers utilizing the 70,000 square foot
Company-owned and operated distribution center in Milford, Delaware. The Company has
established a computerized Warehouse Management System with real-time internal
tracking information and the ability to provide its customers with electronically
transmitted Advance Shipping Notices. The accuracy of shipments is increased
by the ability to scan coded garments at the packing operation. This process also provides
for computerized routing and customer invoicing. The vast majority of shipments are
handled by UPS, common carriers or parcel post.


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|Quality Control


The
Companys quality control program is designed to ensure that all of the
Companys products meet its high quality standards. Frequent visits are made by the
Companys agents and product development staff to outside contractors to ensure
compliance with the Companys quality standards. Audits are also performed by quality
control personnel at the Milford, Delaware distribution center on all categories of
incoming merchandise.


All
garments produced for the Company in Asia must be produced in accordance with the
Companys specifications. The Companys import quality control program is
designed to ensure that the Companys products meet its high quality standards. The
Company monitors the quality of fabrics prior to the production of garments and inspects
prototypes of products before production runs are commenced. In some cases, the Company
requires its agents or manufacturers to submit fabric to an independent outside laboratory
for testing prior to production. The Company requires each agent to perform both in-line
and final quality control checks during and after production before the garments leave the
contractor. Personnel from the Companys New York office also visit Asia to conduct
inspections.


Backlog and Seasonality


The
Companys business is impacted by the general seasonal trends that are characteristic
of the apparel and retail industries. In the Companys segment of the apparel
industry, sales are generally higher in the first and third quarters. The Company
generally receives orders for its products three to five months prior to the time the
products are delivered to the stores. As of December 31, 2002, the Company had
unfilled orders of approximately $17 million, compared to approximately $24 million
of such orders as of December 31, 2001. The Company expects to fill substantially all of
these orders in 2003. The backlog of orders at any given time is affected by a number of
factors, including seasonality, weather conditions, scheduling of manufacturing and
shipment of products. All such orders are subject to cancellation for causes such as late
delivery. Accordingly, a comparison of backlogs of orders from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments.


Licenses and Other
Rights Agreements


Beverly
Hills Polo Club




In
the fall of 1993, the Company entered into license agreements for the use of the Beverly
Hills Polo Club brand name on mens sportswear in the United States and Puerto Rico.
License rights were expanded to include Europe in 1996.However, the company
decided not to renew those licenses and permitted them to expire on December 31, 2001.


Girbaud




In
November 1997, the Company entered into an exclusive license agreement (the
Girbaud Men's Agreement) with Girbaud Design, Inc.
and its affiliate Wurzburg Holding S.A. (Wurzburg) to
manufacture and market mens jeanswear, casualwear and outerwear under the Girbaud
brand and certain related trademarks (the Girbaud Marks) in all
channels of distribution in the United States, including Puerto Rico and the U.S. Virgin
Islands. In March 1998, the Girbaud Men's Agreement was amended and
restated to include active influenced sportswear as a licensed product category and to
name Latitude Licensing Corp. as the licensor (the Licensor).
Also in March 1998, the Company entered into an exclusive license agreement (the
Girbaud Womens Agreement and, together with the Girbaud
Mens Agreement, the Girbaud Agreements) with the Licensor
to manufacture and market womens jeanswear, casualwear and outerwear, including
active influenced sportswear, under the Girbaud Marks in all channels of distribution in
the United States, including Puerto Rico and the U.S. Virgin Islands. The Girbaud
Agreements include the right to manufacture the licensed products in a number of foreign
countries, and both had initial terms of two years.


Hugo
Boss




In
October 1999, the Company, Ambra Inc. (Ambra) and Hugo Boss A.G.
(Hugo Boss) entered into certain agreements including (i) a license agreement
(the BOSS License Agreement) granting the Company rights to manufacture and
sell apparel using the BOSS brand name and (ii) an agreement pursuant to which the Company
issued to Ambra an aggregate of 3.3 million shares of Series A Convertible Preferred
Stock, par value $.0001 per share, of the Company (the Preferred Stock) and
666,667 shares of the Companys common stock.


7
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|The
BOSS License Agreement had an initial term through December 31, 2003 and carried minimum
annual royalties of approximately $3.2 million in each of 2000 and 2001, $2.6 million in
2002 and $2.1 million in 2003.


Except
as set forth below, the Preferred Stock had all of the same preferences, rights and voting
powers as the common stock. The Preferred Stock was not entitled to vote on any matters to
be voted upon by the stockholders of the Company, except that the holders of the Preferred
Stock were entitled to vote as a separate class, and the vote of a majority of the
outstanding shares of Preferred Stock was required for the creation of an equity security
senior to the Preferred Stock or the amendment of the certificate of incorporation or
by-laws of the Company to the detriment of the holders of the Preferred Stock. The
Preferred Stock had a liquidation preference of $1.00 per share plus any declared but
unpaid dividends on the Preferred Stock. The Company could have redeemed, from March 15,
2001 to June 30, 2002, any or all of the Preferred Stock (i) at any time prior to July 1,
2002, at a redemption price of $1.00 per share (ii) at any time from July 1, 2002, through
December 31, 2002, for the greater of $1.00 per share or an amount equal to the market
value of the number of shares of common stock that the holder of the Preferred Stock would
have held had the shares of Preferred Stock to be redeemed been converted into common
stock immediately prior to such redemption. Upon the occurrence of an event of default
under the $7.2 million note issued by the Company to Ambra in connection with the License
Rights Termination Agreement, Ambra could have demanded a redemption of the Preferred
Stock at a redemption price of $1.00 per share. The Preferred Stock was convertible by
Ambra from January 1, 2003, through December 31, 2006, into (at Ambras election),
(i) a promissory note of the Company at an amount equal to the number of shares of
Preferred Stock converted multiplied by $1.00, carrying interest at a rate of 12% per
annum and payable over a term of 21 months or (ii) common stock of the Company at a 1:1
conversion ratio. For financial reporting purposes, the Preferred Stock was considered
redeemable Preferred Stock and was classified outside of stockholders equity.


In
March 2001, the Company, Ambra and Hugo Boss executed an agreement to terminate the
Companys rights under the BOSS License Agreement (the License Rights
Termination Agreement). Pursuant to the License Rights Termination Agreement, (i)
the Company issued to Ambra a subordinated secured promissory note (the Note)
of the Company in the principal amount of $7.2 million, with principal and interest at an
annual rate of 8% payable in twenty-four (24) quarterly installments in the amount of (a)
$205,500 each through December 31, 2001, (b) $420,000 each from March 31, 2002 through
September 30, 2006 and (c) $407,085 on December 31, 2006; (ii) the Companys rights
under the BOSS License Agreement (and the Companys obligation to pay any royalties
thereunder) were terminated; (iii) the Company agreed to sell or dispose of existing BOSS
inventory by October 31, 2001; and (iv) the Preferred Stock became (a) redeemable by the
Company until June 30, 2002 for $1.00 per share, (b) redeemable by the Company from July
1, 2002 through December 31, 2002 for the greater of $1.00 per share or an amount equal to
the market value of the number of shares of common stock which the holder of the Preferred
Stock would have held had the shares of Preferred Stock being redeemed been converted to
common stock immediately prior to such redemption; (c) redeemable by Ambra at any time
upon an event of default under the Note; and (d) convertible by Ambra from January 1, 2003
through December 31, 2006 into (at Ambras election): (x) a subordinated secured
promissory note of the Company in the amount equal to the number of shares of Preferred
Stock converted multiplied by $1.00, carrying an interest rate of 12% per annum and
payable over a term of twenty-one (21) months or (y) common stock of the Company at a 1:1
conversion ratio. The Company also executed a security agreement in favor of Ambra and
agreed to grant a mortgage or deed of trust on the Companys real estate in Milford,
Delaware and Baltimore, Maryland as security for the Companys obligations under the
Note.


Ambra-Girbaud
Transaction




On
May 6, 2002, Textile Investment International S.A. (Textile), an affiliate of
the Licensor, acquired the Preferred Stock, the 666,667 shares of common stock and the
Note from Ambra. Pursuant to the terms of a Framework Agreement (the Framework
Agreement) entered into on May 14, 2002 by the Company, Textile, the Licensor and
Wurzburg, the Company
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| |  | amended
the terms of the Preferred Stock so that the Preferred Stock became immediately
convertible, but only into common stock of the Company. In November 2002, Textile
converted all the Preferred Stock into 3.3 million shares of common stock of the Company,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8
|-

| |  | granted
Textile warrants to purchase 500,000 shares of the Companys Common Stock for $0.75 per
share,
| | - | ------------------------------------------------------------------------------------------------------

| |  | entered
into a Stockholders Agreement with Textile establishing certain terms and
conditions regarding the acquisition and disposition of the Companys securities as
well as certain corporate governance matters, and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | amended
the Girbaud licensing agreements for mens and womens apparel to
| | - | -------------------------------------------------------------------------

| |  | add
an additional option for the Company to extend the term by four additional years through
2011 and
| | - | -----------------------------------------------------------------------------------------------------

| |  | provide
for the payment to the Licensor of consulting fees of $125,000 per agreement for calendar
year 2002, and $150,000 per agreement for each remaining calendar year under the term of
each agreement (the Consultants Fees).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As
a result of those transactions, Textile and Wurzburg (which owns 500,000 shares of the
Companys common stock) own approximately 40% of the Companys common stock and,
as the Companys largest stockholders, they may designate five of the nine nominees
for election as directors of the Company.


The
Companys business is dependent upon its use of the Girbaud brand names and images,
which are in turn dependent upon the existence and continuation of certain licenses as
described below.


Girbaud
Domestic Licenses



Unless
extended in accordance with the options added to the Girbaud Agreements pursuant to the
Framework Agreement, the terms of the Girbaud Agreements will expire at the end of 2007.
The Girbaud Agreements generally allow the Company to use the Girbaud Marks on apparel
designed by or for the Company or based on designs and styles previously associated with
the Girbaud brand, subject to quality control by the Licensor over the final designs of
the products, marketing and advertising material and manufacturing premises. The Girbaud
Agreements provide that they may be terminated by the Licensor upon the occurrence of
certain events, including, but not limited to, a breach by the Company of certain
obligations under the agreements that remain uncured following certain specified grace
periods.


Under
the Girbaud Mens Agreement as amended the Company is required to make royalty
payments to the Licensor in an amount equal to 6.25% of the Companys net sales of
regular licensed merchandise and 3.0% in the case of certain irregular and closeout
licensed merchandise. The Company is obligated to pay the greater of actual royalties
earned or minimum guaranteed annual royalties of $3,000,000 through 2007. On a monthly
basis during the term, the Company is obligated to pay 8.3% of the minimum guaranteed
royalties for that year. On a quarterly basis during the term, the Company is required to
pay the amount that the actual royalties exceed the total minimum guaranteed royalties for
that quarter. The Company is required to spend the greater of an amount equal to 3% of
Girbaud mens net sales or $500,000 in advertising and related expenses promoting the
mens Girbaud brand products in each year through the term of the Girbaud mens
agreement.


Under
the Girbaud Womens Agreement as amended, the Company is required to make royalty
payments to the Licensor in an amount equal to 6.25% of net sales of regular licensed
merchandise and 3.0% of certain irregular and closeout licensed merchandise. The Company
is obligated to pay the greater of actual royalties earned or minimum guaranteed annual
royalties of $1,500,000 through 2007. On a monthly basis during the term, the Company is
obligated to pay 8.3% of the minimum guaranteed royalties for that year. On a yearly
basis, the Company is required to pay the amount that the actual royalties exceed the
total minimum guaranteed royalties for that year.


The
Company is required to spend the greater of an amount equal to 3% of Girbaud womens
net sales or $400,000 in advertising and related expenses promoting the womens
Girbaud brand products in each year through the term of the Girbaud Womens
Agreement. In addition, over the term of the Girbaud Womens Agreement the Company is
required to contribute $190,000 per year to the Licensors advertising and
promotional expenditures for the Girbaud brand.


The
Girbaud Womens Agreement initially required the Company to open a Girbaud flagship
store for the sale of the Companys Girbaud mens and womens lines and
other Girbaud licensed merchandise in New York City by the end of 1998. In
December 1998, the Girbaud Womens Agreement was amended to defer this
requirement for one year and to provide that the Company would spend an additional $1.8
million on enhanced sales and marketing in 1999. In August, 1999, the Company issued
500,000 shares of restricted common stock to the Licensor (which was subsequently
transferred to Wurzburg) in connection with an amendment of the Girbaud Womens
Agreement to further defer the obligation to open a Girbaud retail store. Under the new
agreement, if the Company had not signed a lease agreement for a Girbaud retail store by
July 31, 2002, it would become obligated to pay the Licensor an additional $500,000
in royalties. During 2001, the Company decided not to sign a lease agreement for a Girbaud
retail store and paid $175,000 of this royalty, the remainder of which was paid by July
31, 2002. The entire amount was expensed in the fourth quarter of 2001.


9
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
January 2000, the Company entered into a global sourcing agreement with G.I. Promotions, a
Girbaud affiliate, to act as a non-exclusive sourcing agent to licensees of the Girbaud
trademarks for the manufacture of Girbaud jeanswear and sportswear. The global sourcing
agreement extended until December 31, 2003 and provided that the Company shall net a
facilitation fee of 5.0% of the total FOB pricing for each order shipped to licensees
under the agreement. Also in January 2000, the Company entered into a license agreement
with Wurzburg. The license has a term of three years and provides that the Company shall
pay Wurzburg a royalty of 1.0% of the total FOB pricing for each order shipped to a
licensee under the global sourcing agreement. In August of 2002, the global sourcing
agreement was terminated by the parties effective October 1, 2002.


The
Company is obligated to pay a minimum of $5.6 million during 2003 in the form of minimum
royalty payments, advertising and promotional expenses pursuant to the Girbaud license
agreements. In 2003, the Company expects that substantially all of its net sales will come
from apparel associated with the Girbaud licenses.


Western
Glove Works




In
May 2000, the Company entered into an exclusive distribution agreement for Girbaud
mens and womens jeanswear and sportswear products in Canada. The Company sold
to Western Glove Works (Distributor) Girbaud products produced in North
America at cost plus 12.0%, which was less than its normal profit margins on sales of
comparable products to the Companys retail customers. For products purchased by the
Distributor from overseas, the Distributor paid a distributors fee equal to 6.75% of
net sales to the Company. Under the agreement, the Distributor paid a royalty fee equal to
6.25% of net sales to the Company, which in turn, paid the royalty to the Licensor. The
initial term of the agreement expired on December 31, 2001. Under the agreement, the
Distributor was entitled to renew the agreement for six additional one-year terms. The
Distributor renewed the agreement with the Company for an additional one-year term that
expired on December 31, 2002. However, the Distributor did not renew the agreement with
the Company for 2003. The minimum sales level for calendar year 2002 was
$2,000,000 (Canadian Dollars), which resulted in a minimum distribution fee payable to the
Company of $60,000 (Canadian Dollars). The minimum sales level for calendar year 2001 was
$1,600,000 (Canadian Dollars), which resulted in a minimum distribution fee payable to the
Company of $48,000 (Canadian Dollars).


Credit Control


The
Company manages its own credit and collection functions and has never used a factoring
service or outside credit insurance. The Company sells to approximately 2,300 accounts
throughout the United States and Puerto Rico. All of the functions necessary to service
this large volume of accounts are handled by the Companys in-house credit department
in Baltimore, Maryland. The Company extends credit to its customers. Accordingly, the
Company may have significant risk in collecting accounts receivable from its customers.
The Company has credit policies and procedures which it uses to minimize exposure to
credit losses. The Company currently employs three people in its credit department and
believes that managing its own credit gives it unique flexibility as to which customers
the Company should sell and how much business it should do with each. The Company obtains
and periodically updates information regarding the financial condition and credit
histories of customers. The Companys collection personnel evaluate this information
and, if appropriate, establish a line of credit. Credit personnel track payment activity
for each customer using customized computer software and directly contact customers with
receivable balances outstanding beyond 30 days. If these collection efforts are
unsuccessful, the Company may discontinue merchandise shipments until the outstanding
balance is paid. Ultimately, the Company may engage an outside collection organization to
collect past due accounts. Timely contact with customers has been effective in reducing
credit losses to an immaterial amount. In 2002 and 2001, the Companys credit losses
were $0.5 million and $1.0 million, respectively and the Companys actual credit
losses as a percentage of net sales were 0.8% and 1.2%, respectively.


10
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Competition


The
apparel industry is highly competitive and fragmented and is subject to rapidly changing
consumer demands and preferences. The Company believes that its continued success depends
in large part upon its ability to anticipate, gauge and respond to changing consumer
demands and fashion trends in a timely manner and upon the continued appeal to consumers
of the Girbaud brand. The Company competes with numerous apparel brands and distributors
(including Buffalo,Calvin Klein, Diesel, DKNY, Guess?, Nautica, Polo Jeans and Sean
John). Many of the Companys competitors have greater financial resources than
the Company. Although the level and nature of competition differ among its product
categories, the Company believes that it competes on the basis of its brand image, quality
of design and value pricing. The Company continued to experience intense competition in
2002 from many established and new competitors at both the specialty store and department
store channels of distribution. Under the Girbaud Agreements, certain third parties have
retained the right to produce, distribute, advertise and sell, and to authorize others to
produce, distribute, advertise and sell certain garments that are similar to some of the
Companys products. Any such production, distribution, advertisement or sale of such
garments by such licensor or another authorized party could have a material adverse effect
on the Companys financial condition or results of operations.


Former International
Operations


In
December, 2001, the Company sold I.C. Isaacs Europe, SL, its Spanish subsidiary
(Isaacs Europe), to a management group of Isaacs Europe in exchange for
repayment of $100,000 of intercompany debt and the assumption of liabilities. The Company
recorded a net charge of $1.2 million in the fourth quarter of 2001 relating to the
disposition of Isaacs Europe.


Management Information
Systems


The
Company believes that advanced information processing is essential to maintaining its
competitive position. The Companys systems provide, among other things,
comprehensive order processing, production, accounting and management information for the
marketing, selling, manufacturing, retailing and distribution functions of the
Companys business. The Companys software programs allow it to track, among
other things, orders, manufacturing schedules, inventory and sales of its products. The
programs include centralized management information systems, which provide the various
operating departments with financial, sales, inventory and distribution related
information. Via electronic data interchange, the Company is able to ship orders, from
inventory on hand, to certain customers within 24 to 72 hours from the time of order
receipt.


Employees


As
of March 28, 2003, the Company had approximately 100 full-time employees. The Company
is not a party to any labor agreements, and none of its employees is represented by a
labor union. The Company considers its relationship with its employees to be good and has
not experienced any material interruption of its operations due to labor disputes.


On
February 3, 2003, Robert Arnot resigned as a director, Chief Executive Officer and
President of the Company effective as of February 6, 2003. In connection with that
resignation, Staffan Ahrenberg, a Director of the Company, became Chairman of the Board of
Directors. The Company has also engaged the services of Robert Conologue as its Chief
Operating and Chief Financial Officer, and of Sandra Finkelstein as Senior Vice President
of Merchandising. Also in connection with this resignation, Daniel Gladstone, previously
the President of the Girbaud Division and a Director of the Company, became the Acting
Chief Executive Officer and was promoted as the President of the Company in March 2003.


11
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Environmental Matters


The
Company is subject to federal, state and local laws, regulations and ordinances that
(i) govern activities or operations that may have adverse environmental effects (such
as emissions to air, discharges to water, and the generation, handling, storage and
disposal of solid and hazardous wastes) or (ii) impose liability for the costs of
clean up or other remediation of contaminated property, including damages from spills,
disposals or other releases of hazardous substances or wastes, in certain circumstances
without regard to fault. Certain of the Companys operations routinely involve the
handling of chemicals and waste, some of which are or may become regulated as hazardous
substances. The Company has not incurred any significant expenditures or liabilities for
environmental matters. Although the Company believes that its environmental obligations
will not have a material adverse effect on its financial condition or results of
operations, environmental compliance matters are subject to inherent risks and
uncertainties.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 2. | PROPERTIES
|------- | ----------

|Certain
information concerning the Companys principal facilities is set forth below:
|-------------------------------------------------------------------------------------

|Location      |  | Leased orOwned |  | Use                                                       |  | Approximate Area inSquare Feet | 
|------------- |  | -------------- |  | --------------------------------------------------------- |  | ------------------------------ | 
|Baltimore, MD |  | Owned          |  | Administrative Headquarters and Office Facilities         |  | 40,000                         | 
|              |  |                | 
|New York, NY  |  | Leased         |  | Sales, Merchandising, Marketing and Sourcing Headquarters |  | 10,100                         | 
|              |  |                | 
|Milford, DE   |  | Owned          |  | Distribution Center                                       |  | 70,000                         | 

|The Company believes that its
existing facilities are well maintained and in good operating condition. See ITEM 1.
BusinessWarehousing and Distribution. On June 6, 2002, subject to the
Framework Agreement, the Company executed a security agreement in favor of Textile and
agreed to grant a second mortgage or deed of trust on the Companys real estate in
Milford, Delaware and Baltimore, Maryland as security for the Companys obligations
under a note payable to Textile. See Item 5. Market For The Companys Common
Equity And Related Stockholder Matters.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

|The
Company is not presently a party to any litigation.
|-------------------------------------------------------

|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

|During
the fourth quarter of 2002, there were no matters submitted to a vote of the
Companys stockholders.


12
|----------------------------------------------------------------------------------------------------------------

|PART II
|-------

|ITEM 5. | MARKET FOR THE COMPANYS COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS
|------- | ---------------------------------------------------------------------

|The
market for the Companys Common Stock is not an exchange but is the OTC Bulletin
Board, an established quotation service regulated by the National Association of
Securities Dealers. As of March 28, 2003, the Company had approximately 1,000 holders of
record of the Companys Common Stock.


Prior
to July 19, 2001, the Companys Common Stock was traded on the Nasdaq National Market
under the Symbol ISAC. On July 19, 2001, the Companys securities were
delisted from the NASDAQ National Market. Shares of the Companys Common Stock are
now traded on the OTC Bulletin Board under the ticker symbol ISAC.OB. The
reported last sale price of the Common Stock on the OTC Bulletin Board on March 28,
2003 was $0.54. The following table sets forth for the periods indicated the
high and low closing sale prices for the Common Stock reported by the Nasdaq National
Market and the OTC Bulletin Board:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Quarter Ended |  | High  |  | Low |  | High  |  | Low | 
| | ------------- |  | ----- |  | --- |  | ----- |  | --- | 
|
| | March 31      |  | $0.94 |  | *   |  | $0.44 |  | *   | 
| | June 30       |  | $1.00 |  | *   |  | $0.28 |  | *   | 
| | September 30  |  | $0.67 |  | *   |  | $0.25 |  | **  | 
| | December 31   |  | $0.80 |  | **  |  | $0.25 |  | **  | 

| | * | Denotes
closing sale price from the Nasdaq National Market.
| | - | -----------------------------------------------------------

| | ** | Denotes
closing sales price from the OTC Bulletin Board without dealer mark-ups, markdowns or
commissions and may not be representative of the actual transaction.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company anticipates that all earnings of the Company will be retained for the foreseeable
future for use in the operation of the Companys business. Any future determination
as to the payment of dividends will be at the discretion of the Companys Board of
Directors and will depend upon the Companys results of operations, financial
condition, restrictions in the Companys credit facilities and other factors deemed
relevant by the Board of Directors.


On
May 15, 1997, the Board of Directors of the Company and the Companys
stockholders adopted the 1997 Omnibus Stock Plan (the Plan). The purpose of
the Plan is to promote the long-term growth and profitability of the Company by providing
key people with incentives to improve stockholder value and contribute to the growth and
financial success of the Company, and by enabling the Company to attract, retain and
reward the best-available persons for positions of substantial responsibility. The maximum
number of shares of Common Stock that could be issued with respect to awards granted under
the Plan was 500,000. The Companys stockholders approved an increase in the shares
of Common Stock that may be issued with respect to awards granted under the Plan to an
aggregate of 1.1 million shares, at the 1999 annual meeting of stockholders and
approved an additional increase to an aggregate of 1.6 million shares at the 2002
annual meeting of stockholders. The Plan is administered by the Compensation Committee of
the Board of Directors. Participation in the Plan is open to all employees, officers,
directors and consultants of the Company or any of its affiliates, as may be selected by
the Compensation Committee from time to time. The Plan allows for stock options, stock
appreciation rights, stock awards, phantom stock awards and performance awards to be
granted. The Compensation Committee will determine the prices, vesting schedules,
expiration dates and other material conditions upon which such awards may be exercised.
Through December 31, 2002, the Company had granted stock options under the Plan
exercisable upon vesting for an aggregate of 1,306,250 stock options. The weighted average
exercise price of such options is $1.23 per share. Through December 31, 2002, none of
those stock options had been exercised. The issuance of such stock options was exempt from
the registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereunder. The Company previously filed a Registration Statement on
Form S-8 (the Form S-8) to register shares of Common Stock issuable
pursuant to awards granted under the Plan.


13
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
November 1999 and May 2000, the Company issued the Preferred Stock to Ambra. See
Business  Licenses and Other Rights Agreements  Boss. On May 6,
2002, Textile acquired the 666,6667 shares of common stock and the Note from Ambra. In
December 2002, Textile converted all the Preferred Stock into 3.3 million shares of Common
Stock of the Company. See, Business  Licenses and Other Rights Agreements
 Ambra-Girbaud Transaction. In September 2002, the Company, pursuant to the terms of
the Framework Agreement, granted Textile warrants to purchase 500,000 shares of the
Companys Common Stock for $0.75 per share. The warrants were valued using the
Black-Scholes option-pricing model and recorded as a preferred stock dividend at the time
of issuance.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

|The
selected financial data set forth below have been derived from the consolidated financial
statements of the Company and the related notes thereto. The statement of operations data
for the years ended December 31, 2000, 2001 and 2002 and the balance sheet data as of
December 31, 2001 and 2002 are derived from the consolidated financial statements of
the Company which have been audited by BDO Seidman, LLP, independent certified public
accountants, included elsewhere herein. The statement of operations data for the years
ended December 31, 1998 and 1999 and the balance sheet data as of December 31,
1998, 1999 and 2000 are derived from the consolidated financial statements of the Company,
which have been audited but are not contained herein. The following selected financial
data should be read in conjunction with the Companys consolidated financial
statements and the related notes thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations, which are included
elsewhere herein.




14
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                              | Year Ended December 31,
|------------------------------------------------------------- | -----------------------
|
|
|                                                              |                        
|Net sales                                                     |                        
|Cost of sales                                                 |                        
|                                                              |                        
|                                                              |                        
|Gross profit                                                  |                        
|Selling expenses                                              |                        
|License fees                                                  |                        
|Distribution and shipping expenses                            |                        
|General and administrative expenses                           |                        
|Termination of license agreement                              |                        
|Provision for severance                                       |                        
|Impairment of intangibles                                     |                        
|                                                              |                        
|                                                              |                        
|Operating loss                                                |                        
|Interest, net                                                 |                        
|Other income (expense)                                        |                        
|                                                              |                        
|                                                              |                        
|Loss from continuing operations before                        |                        
|income taxes                                                  |                        
|Income tax (provision)/benefit                                |                        
|                                                              |                        
|                                                              |                        
|Loss from continuing operations                               |                        
|                                                              |                        
|                                                              |                        
|Loss from operations of discontinued subsidiary               |                        
|Loss from sale of discontinued subsidiary                     |                        
|                                                              |                        
|                                                              |                        
|Loss from discontinued operations                             |                        
|                                                              |                        
|                                                              |                        
|Net loss                                                      |                        
|                                                              |                        
|                                                              |                        
|Preferred stock deemed dividend                               |                        
|                                                              |                        
|                                                              |                        
|Net loss attributable to common stockholders                  |                        
|                                                              |                        
|                                                              |                        
|Basic and diluted loss per share from continuing operations   |                        
|                                                              |                        
|Basic and diluted loss per share from discontinued operations |                        
|                                                              |                        
|Preferred stock deemed dividend                               |                        
|                                                              |                        
|Basic and diluted net loss per share                          |                        
|                                                              |                        
|Weighted average common shares outstanding                    |                        

|                           | As of December 31, |        
|-------------------------- | ------------------ | -------
|
|
|Working capital            |                    | $31,577
|Total assets               |                    | 59,046 
|Total debt                 |                    | 13,848 
|Redeemable preferred stock |                    |       
|Stockholders equity       |                    | 37,313 

|15
|--

|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|------- | -------------------------------------------------------------------------------------

|The
following discussion and analysis should be read in conjunction with the Selected
Financial Data and the Companys consolidated financial statements and the
related notes thereto, which are included elsewhere herein.


Overview


During
its first 77 years, the Company became one of the leading manufacturers of pants,
trousers and jeans in the United States. The Company was able to utilize its fabric
sourcing and manufacturing expertise to build a well known franchise in the mens and
womens bottoms segment of the apparel industry. In this period, the Companys
marketing efforts were typically driven by its manufacturing capabilities, and branding
was limited to Company-owned brands and third-party private labels.


In
the late 1980s, management made a decision to change the Companys marketing
focus from a manufacturing-driven to a brand-driven strategy. This fundamental shift
within the Company reflected senior managements belief that the American sportswear
market would be dominated by recognized brands with clearly established images. Management
also concluded that increasing market share would go to those companies that were
market-driven and able to service their customers with diversified manufacturing and
sourcing capabilities.


By
the end of the 1990s, the Company had completed its strategic repositioning from a
manufacturing-driven company to a marketing and brand-driven company. Through a strategy
of providing fashionable, branded merchandise, the Company has become a fashion influence
for youthful and contemporary consumers who purchase jeanswear and sportswear through
specialty and department stores.


Over
the past several years, the Company has shifted its focus from various brands to the
Girbaud brand exclusively. In 2000, the Company terminated its license for use of the BOSS
brand, and it did not renew its Beverly Hills Polo Club licensing agreementsin
theUnited States and Puerto Ricowhen those licenses expired on December
31, 2001. During 2002, the Company focused all of its resources on the Girbaud mens
and womens lines.The Companys brand-driven market strategy has been
evidenced by the increase of licensed, branded apparel as a percentage of the
Companys net sales. In 2002, all of the Companies net sales were from the Girbaud
brand. This compares to 84.9%, 8.6% and 2.4% of net sales for the Girbaud, Beverly Hills
Polo Club and BOSS brands in 2001, respectively and to 69.6%, 13.4% and 11.3% in 2000
respectively. The Company expects that licensed branded sportswear will determine its
product offerings. Concurrent with this strategy, the Company shifted its product mix from
predominately bottoms to a full array of sportswear, including tops and outerwear.


Significant Accounting
Policies and Estimates


The
Companys significant accounting policies are more fully described in its Summary of
Accounting Policies to the Companys consolidated financial statements. The
preparation of financial statements in conformity with accounting principles generally
accepted within the United States requires management to make estimates and assumptions in
certain circumstances that affect amounts reported in the accompanying financial
statements and related notes. In preparing these financial statements, management has made
its best estimates and judgments of certain amounts included in the financial statements,
giving due consideration to materiality. The Company does not believe there is a great
likelihood that materially different amounts would be reported related to the accounting
policies described below; however, application of these accounting policies involves the
exercise of judgments and the use of assumptions as to future uncertainties and, as a
result, actual results could differ from these estimates.


The
Company evaluates the adequacy of its allowance for doubtful accounts at the end of each
quarter. In performing this evaluation, the Company analyzes the payment history of its
significant past due accounts, subsequent cash collections on these accounts and
comparative accounts receivable aging statistics. Based on this information, along with
consideration of the general strength of the economy, the Company develops what it
considers to be a reasonable estimate of the uncollectible amounts included in accounts
receivable. This estimate involves significant judgement by the management of the Company.
Actual uncollectible amounts may differ from the Companys estimate.


16
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company estimates inventory markdowns based on customer orders sold below cost, to be
shipped in the following period and on the amount of similar unsold inventory at period
end. The Company analyzes recent sales and gross margins on unsold inventory in further
estimating inventory markdowns. These specific markdowns are reflected in cost of sales
and the related gross margins at the conclusion of the appropriate selling season. This
estimate involves significant judgement by the management of the Company. Actual gross
margins on sales of excess inventory may differ from the Companys estimate.


Historically,
the Company has recognized markdowns for specific unsold inventory in the second and
fourth quarters. These specific markdowns are reflected in cost of sales and the related
gross margins at the conclusion of the appropriate selling season.


Results of Operations
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | Year Ended December 31, |      
|----------------------------------- | ----------------------- | -----
|
|Net sales                           |                         | 100.0
|Cost of sales                       |                         | 69.9 
|                                    |                         |      
|Gross profit                        |                         | 30.1 
|                                    |                         |      
|Selling expenses                    |                         | 15.1 
|License fees                        |                         | 8.7  
|Distribution and shipping expenses  |                         | 3.3  
|General and administrative expenses |                         | 7.5  
|Termination of licensing agreement  |                         | 8.4  
|Provision for severance             |                         | 0.4  
|Impairment of intangibles           |                         | 0.8  
|                                    |                         |      
|Operating loss                      |                         | (14.1
|                                    |                         |      

|Year Ended
December 31, 2002 Compared to Year Ended December 31, 2001


Net Sales.


Net
sales decreased 20.0% to $65.8 million in 2002 from $82.3 million in 2001. The
Company believes that the decrease was primarily due to the discontinuance of the BOSS,
Beverly Hills Polo Club and Company-owned and private label brands, net sales of which
represented $12.4 million in 2001, the sluggish retail environment and a weaker than
anticipated consumer response to the Girbaud fall product offering. Net sales of Girbaud
mens sportswear decreased $1.7 million or 2.9% to $56.2 million. Net sales
of Girbaud womens sportswear decreased $2.5 million or 20.7% to
$9.6 million. The Company is positioning the womens Girbaud collection as two
separate collections, one for streetwear and the other as a contemporary line. While this
positioning has had a negative impact on 2002 sales, the Company believes this
repositioning will improve future growth of the line.


Gross Profit.


Gross
profit decreased 11.8% to $24.0 million in 2002 from $27.2 million in 2001.
Gross profit as a percentage of net sales increased to 36.5% from 33.0% over the same
period. The increase in gross profit as a percentage of net sales was primarily due to the
sales of Girbaud jeanswear and sportswear at higher margins in 2002 compared to 2001 net
sales that included sales of the discontinued product lines of BOSS and Beverly Hills Polo
Club sportswear. In an effort to decrease the inventory level and to generate cash for
first quarter working capital needs, the Company generated significant sales early in 2003
to a mass retailer at gross profit margins significantly below the margins on goods that
are sold to department and specialty stores. To properly reflect inventory at its net
realizable value, the Company had an inventory writedown of $1.8 million at
December 31, 2002, compared to an inventory writedown of $0.3 million at
December 31, 2001, which adversely affected the overall gross margin in 2002. To help
identify inventory shortages as well as excess inventory, the Company monitors inventory
levels by product category on a weekly basis. Personnel look at recent sales data and
order backlog to help identify slow moving inventory items. Further, sales managers
continually discuss product turnover and sales forecasts with sales personnel to aid in
identifying product shortages and overages. Based on the information available, the
Company believes the inventory writedowns were appropriate at December 31, 2002 and
2001, respectively.


17
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Selling, Distribution,
General and Administrative Expenses.


Selling,
distribution, general and administrative (SG&A) expenses increased 2.6% to
$23.3 million in 2002 from $22.7 million in 2001. As a percentage of net sales, SG&A
expenses increased to 35.4% from 27.6% over the same period due to reduced net sales
levels, higher selling expenses and general and administrative expenses offset by lower
distribution and shipping expenses. Selling expenses increased 11.3% to $13.8 million from
$12.4 million due to an increases in consulting fees associated with the Framework
Agreement, sample purchases and merchandise allowances for chargebacks offset by a
decrease in commission expense associated with reduced net sales levels. Distribution and
shipping expenses decreased 20.0% to $2.4 million in 2002 from $3.0 million in 2001 due to
decreased personnel at the Companys distribution facility to correspond with the
decrease in merchandise shipments as a result of decreased sales. General and
administrative expenses increased 1.5% to $6.7 million in 2002 from $6.6 million in 2001
due to increases in professional, consulting and other fees associated with the Framework
Agreement offset by a decrease in salaries and bad debt expense. The provision for
severance decreased 42.9% in 2002 to $0.4 million from $0.7 million in 2001.


License Fees.


License fees decreased 3.8% to
$5.0 million in 2002 from $5.2 million in 2001. As a percentage of net sales,
license fees increased to 7.6% from 6.3%. The increase in license fees as a percentage of
net sales is primarily due to the decrease in net sales levels of the womens Girbaud
line without a corresponding decrease in minimum guaranteed annual royalties of $1,500,000
in 2002. The Company is obligated to pay the greater of actual royalties earned on net
sales of the womens Girbaud product offering or minimum guaranteed annual royalties
of $1,500,000 through 2007. In February 2003, Latitude and the Company agreed to reduce the
2003 minimum guaranteed royalty payments by $450,000. See Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources
- Credit Facilities.


Operating Loss.


Operating
loss increased to $4.3 million in 2002 from $0.7 million in 2001. This deterioration
is due to a decrease in net sales and the related gross profit coupled with an increase in
certain operating expenses.


Interest Expense.


Interest
expense decreased 46.2% to $0.7 million in 2002 from $1.3 million in 2001 as a result of
lower borrowings on the revolving line of credit during the first half of 2002. Interest
income earned in 2002 and 2001 was insignificant.


Income Taxes.


The
Company has estimated its annual effective tax rate at 0% based on its estimate of pre-tax
loss for 2002. As of December 31, 2002, the Company has net operating loss carryforwards
of approximately $45.2 million, which begin to expire in 2013, for income tax reporting
purposes for which no income tax benefit has been recorded due to the uncertainty over the
level of future taxable income.


18
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year Ended
December 31, 2001 Compared to Year Ended December 31, 2000


Net Sales.


Net
sales decreased 14.2% to $82.3 million in 2001 from $95.9 million in 2000. The
decrease was primarily due to continued declines in the BOSS, Beverly Hills Polo Club and
Company-owned and private label brands as a result of the Companys decision to
discontinue the sale of these lines. The decrease in net sales was not the result of any
significant reduction in the prices charged for the Companys continuing products.
This decrease was partially offset by an increase of net sales in both the mens and
womens Girbaud lines. Net sales of Girbaud mens sportswear increased
$0.3 million or 0.5% to $57.9 million. Net sales of Girbaud womens
sportswear increased $1.9 million or 18.6% to $12.1 million. Due to the
termination of the Companys rights under the BOSS License Agreement, net sales of
BOSS sportswear decreased $9.0 million or 81.8% to $2.0 million. Net sales of
Beverly Hills Club sportswear decreased $4.9 million or 40.8% to $7.1 million. Net
sales of Company-owned brands and private label brands decreased $0.2 million or 5.9% to
$3.2 million in 2001. The Company began shipping its Urban Expedition (UBX) line in the
first quarter of 2000 and shipped $2.1 million in 2000. During 2001, the Company
discontinued its Urban Expedition (UBX) line as sales were insignificant for the year.


Gross Profit.


Gross
profit decreased 5.6% to $27.2 million in 2001 from $28.8 million in 2000. Gross
profit as a percentage of net sales increased to 33.0% from 30.1% over the same period.
The increase in gross profit as a percentage of net sales was primarily due to increased
sales of Girbaud jeanswear and sportswear at higher margins than those realized on sales
of BOSS and Beverly Hills Polo Club sportswear. In an effort to continue to decrease
inventory levels and to generate cash, a significant amount of sales were made 2000 to a
mass retailer at gross profit margins significantly below the margins on goods that are
sold to department and specialty stores. This adversely affected the overall gross margin.
However, the level of these sales in 2001 was less than in 2000. To properly reflect
unsold inventory at its net realizable value, the Company had an inventory valuation
allowance of $0.3 million at December 31, 2001, compared to an inventory
valuation allowance of $1.0 million at December 31, 2000. To help identify inventory
shortages as well as excess inventory, the Company monitors inventory levels by product
category on a weekly basis. Personnel look at recent sales data and order backlog to help
identify slow moving inventory items. Further, sales managers continually discuss product
turnover and sales forecasts with sales personnel to aid in identifying product shortages
and overages. Based on the information available, the Company believes the inventory
valuation provisions were appropriate at December 31, 2001 and 2000, respectively.


Selling, Distribution,
General and Administrative Expenses.


Selling,
distribution, general and administrative (SG&A) expenses decreased 10.3%
to $22.7 million in 2001 from $25.3 million in 2000. As a percentage of net sales,
SG&A expenses increased to 27.5% from 26.4% over the same period. The increase in
SG&A as a percentage of net sales in a period of decreasing expenses was due to the
decrease in net sales. Selling expenses decreased 14.5% to $12.4 million from $14.5
million due to decreased commissions to the Companys salespersons. Distribution and
shipping expenses decreased to $3.0 million in 2001 from $3.2 million in 2000 due to
decreased personnel at the Companys distribution facility to correspond with the
decrease in merchandise shipments. General and administrative expenses decreased 8.3% to
$6.6 million in 2001 from 7.2 million in 2000. The decrease is attributable primarily to
lower amortization expense resulting from the write-off of goodwill and deferred royalty
expense in the fourth quarter of 2000. The provision for severance increased 75% in 2001
to $0.7 million from $0.4 million in 2000. The Company recorded an impairment of
intangibles for $0.7 million in 2000 related to the goodwill associated with the
Company-owned womens private label line.


19
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|License Fees.


License
fees decreased 37.3% to $5.2 million in 2001 from $8.3 million in 2000. As a
percentage of net sales, license fees decreased to 6.3% from 8.7%. The decrease in license
fees as a percentage of net sales is primarily due to the elimination of the minimum
royalties under the BOSS License Agreement, which had been in effect for all of 2000.


Termination of License
Agreement.


In
connection with the termination of its rights under the BOSS License Agreement, the
Company recorded a note payable of $7.2 million and wrote off the remaining deferred
royalty expense of $0.7 million and other BOSS related assets of $0.2 million as a charge
against earnings totaling $8.1 million in the fourth quarter of 2000.


Operating Loss.


Operating
loss decreased 94.9% to $0.7 million in 2001 from $13.6 million in 2000. The improved
performance is due to higher gross margins coupled with a reduction in operating expenses
as well as the expenses associated with the termination of the BOSS license agreement in
2000 as explained above.


Interest Expense.


Interest
expense of $1.3 million remained unchanged in 2001. Interest income earned in 2001
and 2000 was insignificant.


Income Taxes.


The Company recorded an income tax
benefit of $48,000 in 2000 related to an overaccrual of state taxes in 1999.


Liquidity and Capital
Resources


The
Company has relied primarily on asset based borrowings, trade credit and internally
generated funds to finance its operations. The Companys working capital decreased
significantly during 2002 compared to 2001. During 2002, the Company reduced its accounts
receivable $1.0 million while inventory increased $1.3 during this same period. As of
December 31, 2002, the Company had cash, including temporary investments, of
$0.6 million and working capital of $6.2 million compared to $0.8 million and
$11.2 million, respectively, as of December 31, 2001. A decrease in demand for
the Companys products could have a material adverse effect on the Companys
working capital.


Operating Cash Flow.


Cash
used in operations totaled $5.0 million in 2002 compared to cash provided by operations of
$8.6 million in 2001. Negative operating cash flow in 2002 is due primarily to the
net loss and the increase in inventory. Cash used in investing activities during 2002 was
insignificant, totaling $0.1 million. Cash provided by financing activities totaled
$4.9 million in 2002 resulting primarily from increased borrowing on the revolving
line of credit and an increase in checks issued against future deposits.


Inventories
increased $1.4 million from December 31, 2001 to December 31, 2002, compared to
a decrease of $8.7 million from December 31, 2000 to December 31, 2001. The
increase in 2002 was the result of purchasing inventory for sales that did not materialize
in the fall of 2002, which was a result of the sluggish retail environment and a weaker
than anticipated consumer response to the Girbaud fall product offering. The decrease in
2001 was the result of a $2.3 million reduction in inventory of discontinued lines related
to a decrease in quantities purchased to meet sales levels, a decrease of $3.3 million in
Girbaud inventory, and a decrease of raw material inventory as the Company completed the
move from being a manufacturer to a marketer of apparel. To properly reflect unsold
inventory at its net realizable value, the Company had an inventory valuation allowance of
$1.8 million at December 31, 2002, compared to $0.3 million at December 31,
2001.


20
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Credit Facilities


The
Company has an asset-based revolving line of credit (the Credit Agreement)
with Congress Financial Corporation (Congress). In December 2002, the Credit
Agreement was amended to extend the term through December 31, 2004. The amended Credit
Agreement provides that the Company may borrow up to 80.0% of net eligible accounts
receivable and a portion of inventory, as defined in the Credit Agreement. Borrowings
under the Credit Agreement may not exceed $20.0 million including outstanding letters of
credit which are limited to $6.0 million from May 1 to September 30 of each year and $4.0
million for the remainder of each year, and bear interest at the lenders prime rate
of interest plus 1.0% (effectively 5.25.% at December 31, 2002). Outstanding letters of
credit approximated $1.9 million at December 31, 2002. In connection with the amended
Credit Agreement in December 2002, the Company agreed to pay Congress a financing fee of
$250,000, one half of which was paid at the time of closing and the other half (which was
originally scheduled to be paid in May 2003), was paid by the Company in February 2003.
This financing fee will be amortized over 24 months beginning January 2003. Under the
terms of the Credit Agreement, and as further amended in March 2002 and again in December
2002, the Company is required to maintain minimum levels of working capital and tangible
net worth. The Company was in violation of the working capital and the net worth covenants
at December 31, 2002. In March 2003, the Credit Agreement was further amended to waive the
December 2002 covenant violations and to change the interest rate to Congress prime
rate plus 2.0%. The Company has agreed to pay $75,000 in connection with this amendment.
In connection with the Companys efforts to obtain that waiver, and to comply with
its covenants, the Licensor and the Company agreed, in February 2003 to:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | defer the December 2002 and January 2003 royalty payments of $250,000 each under the
Girbaud Mens Agreement to October and November 2003 respectively;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | defer the December 2002 royalty payment of $125,000 under the Girbaud Womens
Agreement to October 2003;
| | - | --------------------------------------------------------------------------------------------------------

| |  | reduce the 2003 minimum guaranteed annual royalty payments by $450,000 to $1,050,000
by paying $25,000 in each of the months of April and May, 2003; $125,000 in each of
the months of June, July, August, September, October and December, 2003; and $250,000
in November, 2003;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | defer payment of approximately $94,000 of Consultants Fees which became due in
December 2002 under the Girbaud Mens and Womens Agreements and pay $30,000 of
that amount in February 2003 and the balance in August 2003; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | reduce the Consultants Fees payable in 2003 from $300,000 to $100,000 and waive
payment of approximately $97,000 that the Company owed for samples provided by Girbaud.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|There
can be no assurances that the Company will not be in violation of the Credit Agreement
covenants during the remainder of 2003 or thereafter.


The
Company extends credit to its customers. Accordingly, the Company may have significant
risk in collecting accounts receivable from its customers. The Company has credit policies
and procedures which it uses to minimize exposure to credit losses. The Companys
collection personnel regularly contact customers with receivable balances outstanding
beyond 30 days to expedite collection. If these collection efforts are unsuccessful, the
Company may discontinue merchandise shipments until the outstanding balance is paid.
Ultimately, the Company may engage an outside collection organization to collect past due
accounts. Timely contact with customers has been effective in reducing credit losses. In
2002 and 2001, the Companys credit losses were $0.5 million and $1.0 million,
respectively and the Companys actual credit losses as a percentage of net sales were
0.8% and 1.2%, respectively.


21
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The Company has the following
contractual obligations and commercial commitments as ofDecember 31, 2002:


Schedule of
contractual obligations:
|-----------------------------------------------------------------------------------------------------------------------------------------------

|                                   | Payments Due By Period |              
|---------------------------------- | ---------------------- | -------------
|
|Revolving line of credit           |                        | $   5,030,453
|Financing fee                      |                        | 125,000      
|Long term debt                     |                        | 6,557,908    
|Operating leases                   |                        | 557,437      
|Girbaud license obligations *      |                        | 22,050,000   
|Consulting obligations *           |                        | 1,300,000    
|                                   |                        |              
|Total contractual cash obligations |                        | $ 35,620,798 
|                                   |                        |              

|(*) | Adjusted
to account for the deferrals, reductions and waivers of the Consultants Fees, royalty
and other payment obligations      mentioned above
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|Schedule of commercial
commitments:
|-----------------------------------

|                              | Amount of Commitment Expiration Per Period |              
|----------------------------- | ------------------------------------------ | -------------
|
|Line of credit  ** (including |                                            | $  20,000,000
|letters of credit)            |                                           
|                              |                                            |              
|Total commercial commitments  |                                            | $  20,000,000
|                              |                                            |              

|(**) | At
December 31, 2002, the Company had $5.0 million of borrowings under its revolving line of
credit and outstanding letters of credit of approximately $1.9 million under the Credit
Agreement.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company believes that current levels of cash and cash equivalents ($0.6 million at
December 31, 2002) together with cash from operations and funds available under its
Agreement, will be sufficient to meet its capital requirements for the next 12 months.


Backlog and Seasonality


The
Companys business is impacted by the general seasonal trends that are characteristic
of the apparel and retail industries. In the Companys segment of the apparel
industry, sales are generally higher in the first and third quarters. Historically, the
Company has taken greater markdowns in the second and fourth quarters. The Company
generally receives orders for its products three to five months prior to the time the
products are delivered to stores. As of December 31, 2002, the Company had unfilled
orders of approximately $17 million, compared to $24 million of such orders as of
December 31, 2001. The backlog of orders at any given time is affected by a number of
factors, including seasonality, weather conditions, scheduling of manufacturing and
shipment of products. As the time of the shipment of products may vary from year to year,
the results for any particular quarter may not be indicative of the results for the full
year. All such orders are subject to cancellation such as late delivery.


22
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Inflation


The
Company does not believe that the relatively moderate rates of inflation experienced in
the United States over the last year have had a significant effect on its net sales or
profitability. Although higher rates of inflation have been experienced in a number of
foreign countries in which the Companys products are manufactured, the Company does
not believe that they have had a material effect on the Companys net sales or
profitability.


Recent Accounting
Pronouncements


In
April 2002, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No.145, Rescission of SFAS
Nos. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections. SFAS No. 4 required
all gains and losses from the extinguishment of debt to be reported as extraordinary items
and SFAS No. 64 related to the same matter. SFAS No. 145 requires gains and losses from
certain debt extinguishment not to be reported as extraordinary items when the use of debt
extinguishment is part of a risk management strategy. SFAS No. 44 was issued to establish
transitional requirement for motor carriers. Those transitions are completed; therefore
SFAS No. 145 rescinds SFAS No. 44. SFAS No. 145 also amends SFAS No. 13 requiring
sale-leaseback accounting for certain lease modifications. SFAS No.145 is effective for
fiscal years beginning after May 15, 2002. The provisions relating to sale-leaseback
accounting are effective for transactions after May 15, 2002. The adoption of SFAS No. 145
is not expected to have a material impact on the Companys financial position or
results of operations.


In
June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than at the date
of commitment to an exit or disposal plan. Examples of costs covered by the standard
include lease termination cost and certain employee severance costs that are associated
with a restructuring, discontinued operation, plant closing, or other exit or disposal
activity. Previous accounting guidance provided by EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring) is replaced by this Statement.
Statement 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. Management does not anticipate that the adoption of this
Statement will have a significant effect on the Companys financial statements.


In
December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No. 123
Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value method of accounting for
stock-based compensation and requires pro forma disclosures of the effect on net income
and earnings per share had the fair value method been used to be included in annual and
interim reports and disclosure of the effect of the transition method used if the
accounting method was changed, among other things. SFAS No. 148 is effective for annual
reports of fiscal years beginning after December 15, 2002 and interim reports beginning
after December 15, 2002. The Company plans to continue using the intrinsic value method of
accounting for stock-based compensation and therefore the new rule will have no effect on
the Companys financial condition or results of operations. The Company adopted the
new standard related to disclosure effective December 15, 2002.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 7-A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|--------- | ----------------------------------------------------------

|The
Companys principal market risk results from changes in floating interest rates on
short-term debt. The Company does not use interest rate swap agreements to mitigate the
risk of adverse changes in the prime interest rate. However, the impact of a 100 basis
point change in interest rates affecting the Companys short-term debt would not be
material to the net loss, cash flow or working capital. The Company does not hold
long-term interest sensitive assets and therefore is not exposed to interest rate
fluctuations for its assets. The Company does not hold or purchase any derivative
financial instruments for trading purposes.



23
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

|The
consolidated financial statements of the Company and the report of independent certified
public accountants thereon are set forth on pages 35 through 55 hereof.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

|None.


24
|----------

|PART III
|--------

|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
|-------- | -----------------------------------------------

|The
information appearing in the Companys Definitive Proxy Statement prepared in
connection with the 2002 Annual Meeting of Stockholders to be held on June 11,
2003 (the Proxy Statement) under the captions Proposal 1: Election of
Three Class II Directors, Principal Executive Officers of the Company Who Are
Not Also Directors and Section 16(a) Beneficial Ownership Reporting
Compliance are incorporated herein by reference. The Proxy Statement will be filed
not later than 120 days after the end of the fiscal year covered by this annual report on
Form 10-K.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

|The
information appearing in the Proxy Statement under the caption Executive
Compensation is incorporated herein by reference.
|--------------------------------------------------------------------------------------------------------------------------------

|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------

|The
information appearing in the Proxy Statement under the caption Security Ownership Of
Certain Beneficial Owners And Management is incorporated herein by reference.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

|The
information appearing in the Proxy Statement under the caption Certain Relationships
And Related Transactions is incorporated herein by reference.
|--------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 14. | CONTROLS AND PROCEDURES
|-------- | -----------------------

|The Company maintains disclosure
controls and procedures that are designed
|--------------------------------------------------------------------------

| |  | to
ensure that information required to be disclosed in the Companys Exchange Act reports
| | - | -----------------------------------------------------------------------------------------

| |  | is
recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms,
| | - | ---------------------------------------------------------------------------------------------------------------

| |  | is
accumulated and communicated to the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | with
the objective of providing reasonable assurance that
| | - | ---------------------------------------------------------

| |  | the
Companys transactions are properly authorized;
| | - | ---------------------------------------------------

| |  | the
Companys assets are safeguarded against unauthorized or improper use; and
| | - | ------------------------------------------------------------------------------

| |  | the
Companys transactions are properly recorded and reported, all to permit the
preparation of the Companys financial statements in conformity with generally
accepted accounting principles.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
designing and evaluating the Companys disclosure controls and procedures, the
Companys management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired
control objectives, and that management must apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.


Within
90 days prior to the date of this report, the Company conducted an evaluation, under the
supervision and with the participation of the Companys management, including the
Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Companys disclosure controls and procedures.
Among other matters, the Company sought in the Companys evaluation to determine
whether there were any significant deficiencies or material weaknesses in the
Companys disclosure controls and procedures, or whether the Company had identified
any acts of fraud involving personnel who have a significant role in the implementation of
those controls and procedures.


25
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Based
upon that evaluation, the Companys CEO and CFO have concluded that, subject to the
limitations described above, the Companys disclosure controls and procedures are
effective to ensure that material information relating to the Company and its consolidated
subsidiary is made known to management, including the CEO and CFO, particularly during the
period when the Companys periodic reports are being prepared, and that the
Companys disclosure controls and procedures are effective to provide reasonable
assurance that the Companys financial statements are fairly presented in conformity
with generally accepted accounting principles.


There
have been no significant changes in the Companys disclosure controls and procedures
or in other factors that could significantly affect them subsequent to the date when the
Company completed the Companys evaluation.


26
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART IV
|-------

|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
|-------- | ----------------------------------------------------------------

|(a)1. Financial
Statements. The following financial statements, related notes and the           Report of
Independent Auditors, are included in response to Item 8 hereof:


Index to Consolidated
Financial Statements
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                     | Page |   
|---------------------------------------------------------------------------------------------------- | ---- | --
|Report of Independent Certified Public Accountants                                                   |      | 34
|Consolidated Balance Sheets at December 31, 2001 and 2002                                            |      | 35
|Consolidated Statements of Operations for the years ended December 31, 2000, 2001 and 2002           |      | 36
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2000, 2001 and 2002 |      | 37
|Consolidated Statements of Cash Flows for the years ended December31, 2000, 2001 and 2002            |      | 38
|Summary of Accounting Policies                                                                       |      | 39
|Notes to Consolidated Financial Statements                                                           |      | 43

|(a)2. Financial
Statements Schedules. The following is a list of all financial           statements
schedules filed herewith:


Schedule
II-Valuation and Qualifying Accounts


Schedules
other than those listed above have been omitted because they are not required or are not
applicable, or the required information has been included in the Consolidated Financial
Statements or the Notes thereto.


(a)3. Exhibits
(numbered in accordance with Item 601 of Regulation S-K). The following           is a
list of Exhibits filed herewith:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.05 |  | Second
Certificate of Amendment to Certificate of Designation, Number, Voting Powers,
Preferences and Rights of the Series of Preferred stock of the Company Designated as
Series A Convertible Preferred Stock (a copy of which was filed with the Commission on
November 14, 2002 as Exhibit 3.05 to the Companys Quarterly Report on Form 10-Q,
and is hereby incorporated herein by this reference).
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.02 |  | Warrant
No. 1 issued by the Company to Investment International S.A. (Textile) for
the purchase of 300,000 shares of Common Stock (a copy of which was filed with the
Commission on November 14, 2002 as Exhibit 4.02 to the Companys Quarterly Report on
Form 10-Q, and is hereby incorporated herein by this reference).
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.03 |  | Warrant
No. 2 issued by the Issuer to Textile for the purchase of 200,000 shares of Common Stock
(a copy of which was filed with the Commission on November 14, 2002 as Exhibit 4.03 to
the Companys Quarterly Report on Form 10-Q, and is hereby incorporated herein by
this reference).
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.96 |  | Framework
Agreement dated as of May 14, 2002 between the Company, I.C. Isaacs &Company L.P.,
Textile, Latitude Licensing Corp. (Latitude), and Wurzburg S.A. (Wurzburg)
(a copy of which was filed with the Commission on May 21, 2002 as Exhibit 10.96 to the
Companys Current Report on Form 8-K, and is hereby incorporated herein by this
reference).
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.97 |  | Voting
Agreement dated as of May 14, 2002 by and among the Company, Textile, Wurzburg and
certain stockholders of the Company (a copy of which was filed with the Commission on May
21, 2002 as Exhibit 10.97 to the Companys Current Report on Form 8-K, and is hereby
incorporated herein by this reference).
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.101 |  | The
Stockholders Agreement dated as of October 3, 2002 by and among the Issuer, Würzburg
and Textile (a copy of which was filed with the Commission on November 14, 2002 as
Exhibit 10.101 to the Companys Quarterly Report on Form 10-Q, and is hereby
incorporated herein by this reference).
| | ------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.102 |  | Amendment
No. 4 dated October 2, 2002 to the Trademark License and Technical Assistance Agreement
dated January 15, 2002 by and between Latitude Licensing Corp. and I.C. Isaacs & Company,
L.P. (a copy of which was filed with the Commission on November 14, 2002 as Exhibit
10.102 to the Companys Quarterly Report on Form 10-Q, and is hereby incorporated
herein by this reference).
| | ------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.103 |  | Amendment
No. 6 dated October 2, 2002 to the Trademark  License and Technical  Assistance
 Agreement for            Womens  Collections  dated October 2, 2002 by and between
 Latitude  Licensing  Corp. and I.C. Isaacs &           Company,  L.P. (a copy of which
was filed with the  Commission on November 14, 2002 as Exhibit 10.103 to            the
Companys Quarterly Report on Form 10-Q, and is hereby incorporated herein by this
reference).
| | ------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.104 |  | Global
Sourcing Arrangement Termination Agreement dated October 1, 2002 by and between G.I.
Promotion and I.C. Isaacs & Company, L.P. (a copy of which was filed with the
Commission on November 14, 2002 as Exhibit 10.104 to the Companys Quarterly Report
on Form 10-Q, and is hereby incorporated herein by this reference).
| | ------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.105 |  | Twenty-Fifth
Amendment to Credit Agreement between the Company, I.C. Isaacs &Company, L.P. and
Congress Financial Corporation dated November 8, 2002 (a copy of which was filed with the
Commission on November 14, 2002 as Exhibit 10.105 to the Companys Quarterly Report
on Form 10-Q, and is hereby incorporated herein by this reference).
| | ------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.106 |  | Separation
Agreement and General Release dated January 24, 2003 between Robert J. Arnot, the
Company and I.C. Isaacs & Company L.P. (a copy of which was filed with the
Commission on February 5, 2003 as Exhibit 10.106 to the Companys Current Report on
Form 8-K, and is hereby incorporated herein by this reference)
| | ------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.107 |  | Code
of Ethics and Business Conduct
| | ------ |  | -----------------------------------

| | 10.108 |  | Amended and
Restated Loan and Security Agreement dated December 20, 2002 by and between I.C. Isaacs
& Company, L.P., and Congress Financial Corporation.
| | ------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.109 |  | Amendment No. 1
and Waiver to Amended and Restated Loan and Security Agreement by and between I.C. Isaacs
& Company, L.P., and Congress Financial Corporation.
| | ------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.110 |  | Amendment no. 7,
dated March 31, 2003 to the Trademark License and Technical Assistance Agreement for Women's
Collections between Latitude Licensing Corp. and I.C. Isaacs & Company L.P.
| | ------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.111 |  | Amendment no. 5
dated March 31, 2003 to the Trademark License and Technical Assistance Agreement dated the
1st day of November 1997 by and between Latitude Licensing Corp. and I.C. Isaacs & Company
L.P.
| | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 23.01 |  | Consent
of BDO Seidman, LLP
| | ----- |  | ---------------------------

| | 99.01 |  | Certification
Pursuant to Section 1350 of chapter 63 of title 18 of the United States Code
| | ----- |  | ------------------------------------------------------------------------------------------

|(b) Reports on Form 8-K:
|------------------------

| | On
February 5, 2003, the Company filed a Current Report on Form 8-K to announce that on
February 3, 2003, Mr. Robert J. Arnot resigned as a director, Chief Executive Officer and
President of the Company effective as of February 6, 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|28
|--

|SIGNATURES


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

| |  | I.C. ISAACS & COMPANY, INC.(REGISTRANT)By:________/s/_Daniel Gladstone_________                        Daniel Gladstone 
            Acting Chief Executive Officer 
                    Date: April 4, 2003
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Signature                                                | Title | Date                                                  
|-------------------------------------------------------- | ----- | ------------------------------------------------------
|                                                        
|________________________/s/_Daniel Gladstone__________   |       | Acting Chief Executive Officer, President and Director
|Daniel Gladstone                                         |       | (Principal Executive Officer)                         
|                                                        
|_______________________/s/_Robert Conologue__________    |       | Chief Operating and Chief Financial Officer (Principal
|Robert Conologue                                         |       | Financial and Accounting Officer)                     
|                                                        
|______________________/s/_Staffan Ahrenberg___________   |       | Director (Chairman of the Board)                      
|Staffan Ahrenberg                                        |       |                                                       
|                                                        
|________________________/s/ Olivier Bachellerie_________ |       | Director                                              
|Olivier Bachellerie                                      |       |                                                       
|                                                        
|___________________________/s/ Rene Faltz____________    |       | Director                                              
|Rene Faltz                                               |       |                                                       
|                                                        
|__________________________/s/_Neal J. Fox____________    |       | Director                                              
|Neal J. Fox                                              |       |                                                       
|                                                        
|__________________________/s/ Jon Hechler____________    |       | Director                                              
|Jon Hechler                                              |       |                                                       
|                                                        
|________________________/s/_Roland Loubet____________    |       | Director                                              
|Roland Loubet                                            |       |                                                       
|                                                        
|_________________________/s/ Robert S. Stec____________  |       | Director                                              
|Robert S. Stec                                           |       |                                                       

|29
|--

|Certification Pursuant
toSection 302 of the Sarbanes-Oxley Act of 2002


I, Daniel Gladstone,
certify that:
|-----------------------------------------------------------------------------------------------------------

| | 1. | I
have reviewed this annual report on Form 10-K of I.C. Isaacs & Company,
          Inc.;
| | -- | -----------------------------------------------------------------------------------------

| | 2. | Based
on my knowledge, this annual report does not contain any untrue statement           of a
material fact or omit to state a material fact necessary to make the           statements
made, in light of the circumstances under which such statements were           made, not
misleading with respect to the period covered by this annual report;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based
on my knowledge, the financial statements, and other financial           information
included in this annual report, fairly present in all material           respects the
financial condition, results of operations and cash flows of the           registrant as
of, and for, the periods presented in this annual report;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The
registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a)       
designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this annual report is being prepared;
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)       
evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this annual           report (the
Evaluation Date); and
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c)       
presented
in this annual report our conclusions about the effectiveness of the           disclosure
controls and procedures based on our evaluation as of the Evaluation           Date;
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The
registrants other certifying officers and I have disclosed, based on           our
most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a)       
all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)       
any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | The
registrants other certifying officers and I have indicated in this           annual
report whether or not there were significant changes in internal controls           or in
other factors that could significantly affect internal controls subsequent           to
the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: April 4, 2003



/s/_Daniel Gladstone                        
Daniel Gladstone, Acting CEO


30
|------------------------------------------------------------------------------------------------------

|Certification Pursuant
toSection 302 of the Sarbanes-Oxley Act of 2002 (Continued)


I, Robert Conologue,
certify that:
|-----------------------------------------------------------------------------------------------------------------------

| | 1. | I
have reviewed this annual report on Form 10-K of I.C. Isaacs & Company,
          Inc.;
| | -- | -----------------------------------------------------------------------------------------

| | 2. | Based
on my knowledge, this annual report does not contain any untrue statement           of a
material fact or omit to state a material fact necessary to make the           statements
made, in light of the circumstances under which such statements were           made, not
misleading with respect to the period covered by this annual report;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based
on my knowledge, the financial statements, and other financial           information
included in this annual report, fairly present in all material           respects the
financial condition, results of operations and cash flows of the           registrant as
of, and for, the periods presented in this annual report;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The
registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a)       
designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this annual report is being prepared;
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)       
evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this annual           report (the
Evaluation Date); and
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c)       
presented
in this annual report our conclusions about the effectiveness of the           disclosure
controls and procedures based on our evaluation as of the Evaluation           Date;
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The
registrants other certifying officers and I have disclosed, based on           our
most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a)       
all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)       
any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | The
registrants other certifying officers and I have indicated in this           annual
report whether or not there were significant changes in internal controls           or in
other factors that could significantly affect internal controls subsequent           to
the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: April 4, 2003



/s/_Robert Conologue                            
Robert Conologue, COO and CFO


31
|-----------------------------------------------------------------------------------------------------------

|Report of Independent
Certified Public Accountantson Financial Statement Schedules


I.C. Isaacs & Company, Inc.


The
audits referred to in our report to I.C. Isaacs & Company, Inc. dated February 28,
2003, which is contained in Item 8 of this Form 10-K, include the audit of the financial
statement schedule listed in the accompanying index for each of the three years in the
period ended December 31, 2002. This financial statement schedule is the responsibility of
the Companys management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.


In
our opinion, such schedule presents fairly, in all material respects, the information set
forth therein.


BDO SEIDMAN, LLP


Bethesda, Maryland
February 28, 2003


32
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|SCHEDULE II I. C. Isaacs &
Company, Inc.Valuation and Qualifying Accounts
|-------------------------------------------------------------------------

|Description                             | BalanceBeginning ofthe Year |          | Charged toCosts andExpenses |             | Deduction |             | Balance at Endof Year |          
|--------------------------------------- | --------------------------- | -------- | --------------------------- | ----------- | --------- | ----------- | --------------------- | ---------
|                                       
|Year Ended December 31, 2000            |                             |          |                             |             |           |             |                       |          
|Allowance for doubtful accounts         |                             | $725,000 |                             | $   837,000 |           | $  (932,000 | )                     | $ 630,000
|Reserve for sales returns and discounts |                             | 153,000  |                             | 6,005,000   |           | (5,928,000  | )                     | 230,000  
|Year Ended December 31, 2001            |                            
|Allowance for doubtful accounts         |                             | 630,000  |                             | 880,000     |           | (1,110,000  | )  (1)                | 400,000  
|Reserve for sales returns and discounts |                             | 230,000  |                             | 4,803,000   |           | (4,835,000  | )                     | 198,000  
|Year Ended December 31, 2002            |                            
|Allowance for doubtful accounts         |                             | 400,000  |                             | 315,000     |           | (470,000    | )                     | 245,000  
|Reserve for sales returns and discounts |                             | 198,000  |                             | 3,672,000   |           | (3,744,000  | )                     | 126,000  

|(1) | This
amount includes a $90,000 reduction in the allowance for doubtful accounts
               due to the sale of the common stock of Isaacs Europe in the fourth quarter
of                2001.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|33
|--

|Report of Independent
Certified Public Accountants


To the Board of Directors
and StockholdersI.C. Isaacs & Company, Inc.Baltimore, Maryland


We
have audited the accompanying consolidated balance sheets of I.C. Isaacs &
Company, Inc. and subsidiaries as of December 31, 2001 and 2002 and the related
consolidated statements of operations, stockholders equity and cash flows for each
of the three years in the period ended December 31, 2002. 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 auditing standards generally accepted in the
United States of America. 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 I.C. Isaacs & Company, Inc.
and subsidiaries at December 31, 2001 and 2002 and the results of their operations
and their cash flows for each of the three years in the period ended December 31,
2002 in conformity with accounting principles generally accepted in the United States of
America.


BDO SEIDMAN, LLP


Bethesda, Maryland
February 28, 2003


34
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|I.C. Isaacs &
Company, Inc.Consolidated Balance Sheets
|------------------------------------------------------

|                                                                            | December 31, |               
|--------------------------------------------------------------------------- | ------------ | --------------
|
|Assets                                                                      |              |               
|Current                                                                     |             
|Cash, including temporary investments of $170,000 and $82,000               |              | $      826,812
|Accounts receivable, less allowance for doubtful                            |             
|accounts of $400,000 and $245,000 (Note 3)                                  |              | 9,337,333     
|Inventories (Notes 1 and 3)                                                 |              | 5,070,802     
|Prepaid expenses and other                                                  |              | 423,062       
|Refundable income taxes                                                     |              | 31,192        
|                                                                            |              |               
|                                                                            |              |               
|Total current assets                                                        |              | 15,689,201    
|Property, plant and equipment, at cost, less accumulated depreciation and   |             
|amortization (Notes 2)                                                      |              | 2,521,696     
|Trademark and licenses, less accumulated amortization of $965,818 and       |             
|$1,295,122 (Note 9)                                                         |              | 384,182       
|Other assets (Note 10)                                                      |              | 3,737,804     
|                                                                            |              |               
|                                                                            |              | $ 22,332,883  
|                                                                            |              |               
|                                                                            |              |               
|Liabilities and Stockholders Equity                                        |             
|Current                                                                     |             
|Checks issued against future deposits                                       |              | $      348,856
|Current maturities of revolving line of credit (Note 3)                     |              |              
|Current maturities of long-term debt (Note 3)                               |              | 1,160,134     
|Accounts payable                                                            |              | 1,090,453     
|Accrued expenses and other current liabilities (Note 4)                     |              | 1,936,150     
|                                                                            |              |               
|Total current liabilities                                                   |              | 4,535,593     
|                                                                            |              |               
|Long-term debt (Note 3)                                                     |              | 5,680,953     
|                                                                            |              |               
|Redeemable preferred stock (Notes 6 and 9)                                  |              | 3,300,000     
|                                                                            |              |               
|Commitments and contingencies (Notes 3, 9 and 10)                           |             
|                                                                            |              |               
|Stockholders Equity(Notes 6, 7 and 9)                                      |             
|Preferred stock; $.0001 par value; 5,000,000 shares authorized, none        |             
|outstanding                                                                 |              |              
|Common stock; $.0001 par value; 50,000,000 shares authorized; 9,011,366 and |             
|12,311,366 shares issued; 7,834,657 and 11,134,657 shares outstanding       |              | 901           
|Additional paid-in capital                                                  |              | 39,674,931    
|Accumulated deficit                                                         |              | (28,536,624   
|Treasury stock, at cost (1,176,709 shares)                                  |              | (2,322,871    
|                                                                            |              |               
|                                                                            |              |               
|Total stockholders equity                                                  |              | 8,816,337     
|                                                                            |              |               
|                                                                            |              | $ 22,332,883  
|                                                                            |              |               

|See
accompanying summary of accounting policies and notes to consolidated financial
statements.


35
|----------------------------------------------------------------------------------------------------

|I.C. Isaacs &
Company, Inc.Consolidated Statements of Operations
|----------------------------------------------------------------

|                                                       | Years Ended December 31, |                   
|------------------------------------------------------ | ------------------------ | ------------------
|
|Net sales                                              |                          | $ 95,861,375      
|Cost of sales                                          |                          | 67,031,379        
|                                                       |                          |                   
|                                                       |                          |                   
|Gross profit                                           |                          | 28,829,996        
|                                                       |                          |                   
|                                                       |                          |                   
|Operating Expenses                                     |                         
|Selling                                                |                          | 14,464,154        
|License fees (Note 9)                                  |                          | 8,343,310         
|Distribution and shipping                              |                          | 3,191,673         
|General and administrative                             |                          | 7,228,876         
|Termination of license agreement (Note 9)              |                          | 8,067,908         
|Provision for severance (Note 9)                       |                          | 385,314           
|Impairment of intangibles (Note 9)                     |                          | 743,590           
|                                                       |                          |                   
|                                                       |                          |                   
|Total operating expenses                               |                          | 42,424,825        
|                                                       |                          |                   
|                                                       |                          |                   
|Operating loss                                         |                          | (13,594,829       
|                                                       |                          |                   
|                                                       |                          |                   
|Other income (expense)                                 |                         
|Interest, net of interest income of $18,668, $2,805    |                         
|and $955                                               |                          | (1,337,151        
|Other, net                                             |                          | 139,637           
|                                                       |                          |                   
|                                                       |                          |                   
|Total other expense                                    |                          | (1,197,514        
|                                                       |                          |                   
|                                                       |                          |                   
|Loss from continuing operations before income taxes    |                          | (14,792,343       
|Income tax benefit (Note 5)                            |                          | 48,000            
|                                                       |                          |                   
|                                                       |                          |                   
|Loss from continuing operations                        |                          | (14,744,343       
|                                                       |                          |                   
|                                                       |                          |                   
|Discontinued operations (Note 8)                       |                         
|Loss from operations of discontinued subsidiary        |                          | (502,987          
|Loss from sale of discontinued subsidiary              |                          |                  
|                                                       |                          |                   
|                                                       |                          |                   
|Loss from discontinued operations                      |                          | (502,987          
|                                                       |                          |                   
|                                                       |                          |                   
|Net loss                                               |                          | (15,247,330       
|                                                       |                          |                   
|                                                       |                          |                   
|Preferred stock deemed dividend                        |                          |                  
|                                                       |                          |                   
|                                                       |                          |                   
|Net loss attributable to common stockholders           |                          | $(15,247,330      
|                                                       |                          |                   
|                                                       |                          |                   
|Basic and diluted net loss per share from continuing   |                          |                   
|operations                                             |                          | $            (1.93
|                                                       |                          |                   
|Basic and diluted net loss per share from discontinued |                         
|operations                                             |                          | (0.07             
|                                                       |                          |                   
|Basic and diluted net loss per share from preferred    |                         
|stock deemed dividend                                  |                          |                  
|                                                       |                          |                   
|Basic and diluted net loss per share                   |                          | $            (2.00
|Weighted average common shares outstanding             |                          | 7,638,792         

|See
accompanying summary of accounting policies and notes to consolidated financial
statements.


36
|----------------------------------------------------------------------------------------------------

|I.C. Isaacs &
Company, Inc.Consolidated Statements of Stockholders Equity
|--------------------------------------------------------------------------

|                                      | Preferred Stock |   | Common Stock |  
|------------------------------------- | --------------- | - | ------------ | -
|
|Balance, at December 31, 1999         |                 |  |              | 
|Net loss                              |                 |  |              | 
|Issuance of common    stock           |                 |  |              | 
|                                      |                 |   |              |  
|                                      |                 |   |              |  
|Balance, at December 31, 2000         |                 |  |              | 
|Net loss                              |                 |  |              | 
|Purchase of treasury    stock         |                 |  |              | 
|                                      |                 |   |              |  
|                                      |                 |   |              |  
|Balance, at December 31, 2001         |                 |  |              | 
|Net loss                              |                 |  |              | 
|Conversion of Series A                |                
|Preferred Stock                       |                 |  |              | 
|Officers compensation                |                
|contribution                          |                 |  |              | 
|Deemed dividend in    connection with |                
|preferred stock                       |                 |  |              | 
|                                      |                 |   |              |  
|                                      |                 |   |              |  
|Balance, at December 31, 2002         |                 |  |              | 
|                                      |                 |   |              |  

|See
accompanying summary of accounting policies and notes to consolidated financial
statements.


37
|----------------------------------------------------------------------------------------------------

|I.C. Isaacs &
Company, Inc.Consolidated Statements of Cash Flows
|----------------------------------------------------------------

|                                                                    | Years Ended December 31, |                
|------------------------------------------------------------------- | ------------------------ | ---------------
|
|Operating Activities                                                |                          |                
|Net loss                                                            |                          | $ (15,247,330  
|Adjustments to reconcile net loss to net cash provided by (used in) |                         
|operating activities                                                |                         
|Provision for doubtful accounts                                     |                          | 837,275        
|Write off of accounts receivable                                    |                          | (932,275       
|Provision for sales returns and discounts                           |                          | 6,004,743      
|Sales returns and discounts                                         |                          | (5,927,743     
|Depreciation and amortization                                       |                          | 1,770,751      
|Impairment of intangibles                                           |                          | 743,590        
|(Gain) loss on sale of assets                                       |                          | (135,364       
|Officers compensation contribution                                 |                          |               
|Termination of license agreement                                    |                          | 8,067,908      
|Compensation expense on stock options                               |                          | 10,500         
|Loss on sale of subsidiary                                          |                          |               
|(Increase) decrease in assets                                       |                         
|Accounts receivable                                                 |                          | (2,649,577     
|Inventories                                                         |                          | 3,893,984      
|Prepaid expenses and other                                          |                          | (98,904        
|Refundable income taxes                                             |                          | 13,443         
|Other assets                                                        |                          | (25,887        
|Increase (decrease) in liabilities                                  |                         
|Accounts payable                                                    |                          | (788,451       
|Accrued expenses and other current liabilities                      |                          | 306,158        
|                                                                    |                          |                
|Cash provided by (used in) operating activities                     |                          | (4,157,179     
|                                                                    |                          |                
|Investing Activities                                                |                         
|Proceeds from sale of assets                                        |                          | 366,402        
|Capital expenditures                                                |                          | (1,068,308     
|                                                                    |                          |                
|Cash used in investing activities                                   |                          | (701,906       
|                                                                    |                          |                
|Financing Activities                                                |                         
|Checks issued against future deposits                               |                          | 551,255        
|Purchase of treasury stock                                          |                          |               
|Principal proceeds from (payments on) revolving line of credit      |                          | 3,968,639      
|Principal payments on long-term debt                                |                          | (6,258         
|Deferred financing costs                                            |                          |               
|                                                                    |                          |                
|Cash provided by (used in) financing activities                     |                          | 4,513,636      
|                                                                    |                          |                
|Decrease in cash and cash equivalents                               |                          | (345,449       
|Cash and Cash Equivalents, at beginning of year                     |                          | 1,193,093      
|                                                                    |                          |                
|Cash and Cash Equivalents, at end of year                           |                          | $       847,644
|                                                                    |                          |                

|See
accompanying summary of accounting policies and notes to consolidated financial
statements.


38
|----------------------------------------------------------------------------------------------------

|I.C. Isaacs &
Company, Inc.Summary of Accounting Policies


Basis of Presentation


The
consolidated financial statements include the accounts of I. C. Isaacs & Company, Inc.
(ICI), I.C. Isaacs Europe, S.L. (Isaacs Europe), I.C. Isaacs &
Company, L.P. (the Partnership), Isaacs Design, Inc. (Design) and
I.C. Isaacs Far East Ltd. (collectively the Company). The Company sold the
common stock of Isaacs Europe, SL in December 2001. I.C. Isaacs Far East Ltd. did not have
any significant revenue or expenses in 2000, 2001 and 2002. All intercompany balances and
transactions have been eliminated.


Business Description


I.C.
Isaacs & Company, Inc. (together with its predecessors and subsidiaries,
          including I.C. Isaacs & Company L.P., the Company) is a
designer           and marketer of branded jeanswear and sportswear. The Company, which
operates in           one business segment, designs and markets branded jeanswear and
sportswear. The           Company offers collections of jeanswear and sportswear for men
and women under           the Marithé and François Girbaud brand in the
United States,           Puerto Rico and Canada. The Girbaud brand is an internationally
recognized           designer label with a distinct European influence. The Company has
positioned           the Girbaud line with a broad assortment of products, styles and
fabrications           reflecting a contemporary European look. The Company markets a
full collection           of mens jeanswear and sportswear under the Girbaud brand,
including a           broad array of bottoms, tops and outerwear. In August 1998, the
Company           introduced a womens sportswear collection under the Girbaud
brand, which           also includes a wide assortment of bottoms, tops and outerwear. In
May 2000, the           Company acquired an exclusive license to market certain mens
and           womens jeanswear and sportswear under the Girbaud brand in Canada and
          began making shipments in December 2000.




Until
December 2001, the Company offered collections of sportswear for men and boys under the
Beverly Hills Polo Club brand in the United States, Puerto Rico and Europe. Net sales of
Beverly Hills Polo Club sportswear accounted for 8.6% of the Companys net sales in
2001. The Company also offered womens pants and jeans under various Company owned
brand names as well as under third party private labels for sale to major chain stores and
catalogs. In 1999, the Company introduced a collection of mens sportswear under the
Company owned Urban Expedition (UBX) brand in the United States and Europe. The Company
also offered collections of jeanswear and sportswear for young men, women and boys under
the BOSS brand in the United States and Puerto Rico. In the fourth quarter of 2000, the
Company began restructuring its product lines in an effort to focus on growth potential
and eliminate poorly performing lines. The Company terminated its license agreement for
the design and marketing of the BOSS brand of sportswear for men and boys in the United
States in 2000. The Company discontinued production of the womens Company-owned and
private label lines and the Urban Expedition (UBX) line in 2001.


On
December 20, 2001, the Board of Directors voted to sell all of the outstanding common
stock of I.C. Isaacs Europe, SL, its Spanish subsidiary (Isaacs Europe).
Subsequently, the Company sold 100% of the outstanding common stock of Isaacs Europe to a
management group of Isaacs Europe in exchange for repayment of $100,000 of intercompany
debt and the assumption of liabilities. The Company recorded a net charge of $1.2 million
in the fourth quarter of 2001 relating to the disposition of Isaacs Europe. In November
2001, the Company disclosed its intent not to renew its licensing agreements with Beverly
Hills Polo Club in the United States and Europe. Both of these licenses expired on
December 31, 2001.


Risks and Uncertainties


The
apparel industry is highly competitive. The Company competes with many companies,
including larger, well capitalized companies which have sought to increase market share
through massive consumer advertising and price reductions. The Company continues to
experience increased competition from many established and new competitors at both the
department store and specialty store channels of distribution. The Company continues to
redesign its jeanswear and sportswear lines in an effort to be competitive and compatible
with changing consumer tastes. Also, the Company has developed and implemented new
marketing initiatives to promote its Girbaud brand. A risk to the Company is that such a
strategy may lead to continued pressure on profit margins. In the past several years, many
of the Companys competitors have switched much of their apparel manufacturing from
the United States to foreign locations such as Mexico, the Dominican Republic and
throughout Asia. As competitors lower production costs, it gives them greater flexibility
to lower prices. Over the last several years, the Company also switched its production to
contractors outside the United States to reduce costs. Since 2001, the Company has
imported substantially all of its inventory, excluding t-shirts, as finished goods from
contractors in Asia. This shift in purchasing requires the Company to estimate sales and
issue purchase orders for inventory well in advance of receiving firm orders from its
customers. A risk to the Company is that its sales estimates may differ from actual
orders. If this happens, the Company may miss sales because it did not order enough
inventory, or it may have to sell excess inventory at reduced prices. The Company faces
other risks inherent in the apparel industry. These risks include changes in fashion
trends and related consumer acceptance and the continuing consolidation in the retail
segment of the apparel industry. The Companys ability, or inability, to manage these
risk factors could influence future financial and operating results.


39
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Use of Estimates


The
preparation of financial statements in accordance with generally accepted accounting
principles requires management to make certain estimates and assumptions, particularly
regarding valuation of accounts receivable and inventory, recognition of liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.


Concentration of Credit
Risk


Financial
instruments which potentially expose the Company to concentrations of credit risk consist
primarily of trade accounts receivable. The Companys customer base is not
concentrated in any specific geographic region, but is concentrated in the retail
industry. For the years ended December 31, 2000, 2001 and 2002, sales to one customer were
$5,528,436, $4,361,417 and $5,302,278. These amounts constitute 5.7%, 5.3% and 8.1% of
total sales, respectively. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical trends
and other information. The Companys actual credit losses as a percentage of net
sales were 1.0%, 1.2% and 0.8% for the years ended December 31, 2000, 2001and 2002,
respectively.


The
Company is also subject to concentrations of credit risk with respect to its cash and cash
equivalents, which it minimizes by placing these funds with high-quality institutions. The
Company is exposed to credit losses in the event of nonperformance by the counterparties
to letter of credit agreements, but it does not expect any financial institutions to fail
to meet their obligation given their high credit rating.


Inventories


Inventories
are stated at the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method.


Property, Plant and
Equipment


Property,
plant and equipment are stated at cost. Depreciation is computed over the estimated useful
lives of the assets by both straight-line and accelerated methods. Leasehold improvements
are amortized using the straight-line method over the life of the lease.


Trademark and Licenses


Included
in trademark and licenses is the cost of certain licenses which allow the Company to
produce and market certain branded apparel. The Company capitalized the cost of obtaining
the trademark and licenses, with the cost being amortized on a straight-line basis over
the initial term of the trademark or license. The Company accrues royalty expense related
to the licenses at the greater of the specified percentage of sales or the minimum
guaranteed royalty set forth in the license agreements.


Asset Impairment


The
Company periodically evaluates the carrying value of long-lived assets when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset is
separately identifiable and is less than the carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair market value
of the long-lived asset. Fair market value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Prior to 2000, the
Company had recorded goodwill based on the excess of purchase price over net assets
acquired. In the fourth quarter of 2000, the Company decided to discontinue production of
the womens Company-owned and private label lines. Accordingly, management determined
the goodwill associated with these lines had been impaired and recorded a write down of
$743,590 in the quarter ended December 31, 2000.


40
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Stock Options


The
Company has adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation (SFAS
123), but applies the intrinsic value method set forth in Accounting Principles
Board Opinion No. 25 for stock options granted to employees. The Company expenses the fair
value of stock options granted to nonemployees.


Revenue Recognition


Sales
are recognized upon shipment of products. Allowances for estimated returns are provided
when sales are recorded.


Advertising Costs


Advertising
costs, included in selling expenses, are expensed as incurred and were $1,993,754,
$1,767,647 and $1,975,405 for the years ended December 31, 2000, 2001 and 2002
respectively.


Cash Equivalents


For
purposes of the statements of cash flows, all temporary investments purchased with a
maturity of three months or less are considered to be cash equivalents.


Income Taxes


The
Company accounts for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109). Under
SFAS 109, deferred taxes are determined using the liability method which requires the
recognition of deferred tax assets and liabilities based on differences between the
financial statement and the income tax basis using presently enacted tax rates.


Fair Value of Financial
Instruments


Financial
instruments of the Company include long-term debt. Based upon current borrowing rates
available to the Company, estimated fair values of these financial instruments approximate
their recorded amounts.


Earnings Per Share


Earnings
per share is based on the weighted average number of shares of common stock and dilutive
common stock equivalents outstanding. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of an entity. Basic
and diluted earnings per share are the same during 2000, 2001 and 2002 because the impact
of dilutive securities is anti-dilutive. There were outstanding employee stock options of
1,020,250, 1,086,250 and 1,306,250 at December 31, 2000, 2001 and 2002, respectively.
These stock options were excluded from the computation of earnings per share for their
inclusion would have been anti-dilutive.


41
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Recent Accounting
Pronouncements


In
April 2002, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 145, Rescission of SFAS
Nos. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections. SFAS No. 4 required
all gains and losses from the extinguishment of debt to be reported as extraordinary items
and SFAS No. 64 related to the same matter. SFAS No. 145 requires gains and losses from
certain debt extinguishment not to be reported as extraordinary items when the use of debt
extinguishment is part of a risk management strategy. SFAS No. 44 was issued to establish
transitional requirement for motor carriers. Those transitions are completed; therefore
SFAS No. 145 rescinds SFAS No. 44. SFAS No. 145 also amends SFAS No. 13 requiring
sale-leaseback accounting for certain lease modifications. SFAS No.145 is effective for
fiscal years beginning after May 15, 2002. The provisions relating to sale-leaseback
accounting are effective for transactions after May 15, 2002. The adoption of SFAS No. 145
is not expected to have a material impact on the Companys financial position or
results of operations.


In
June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than at the date
of commitment to an exit or disposal plan. Examples of costs covered by the standard
include lease termination cost and certain employee severance costs that are associated
with a restructuring, discontinued operation, plant closing, or other exit or disposal
activity. Previous accounting guidance provided by EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring) is replaced by this Statement.
Statement 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. Management does not anticipate that the adoption of this
Statement will have a significant effect on the Companys financial statements.


In
December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No. 123
Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value method of accounting for
stock-based compensation and requires pro forma disclosures of the effect on net income
and earnings per share had the fair value method been used to be included in annual and
interim reports and disclosure of the effect of the transition method used if the
accounting method was changed, among other things. SFAS No. 148 is effective for annual
reports of fiscal years beginning after December 15, 2002 and interim reports beginning
after December 15, 2002. The Company plans to continue using the intrinsic value method of
accounting for stock-based compensation and therefore the new rule will have no effect on
the Companys financial condition or results of operations. The Company adopted the
new standard related to disclosure effective December 15, 2002.


42
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|I.C. Isaacs &
Company, Inc.Notes to Consolidated Financial Statements


1. Inventories


Inventories
consist of the following:
|------------------------------------------------------------------------------------------------------------------------------

| |                 | December 31, |            
| | --------------- | ------------ | -----------
|
| | Raw materials   |              | $   763,233
| | Work-in-process |              | 489,551    
| | Finished goods  |              | 3,818,018  
| |                 |              |            
| |                 |              | $5,070,802 
| |                 |              |            

|2. Property, Plant and
Equipment


Property,
plant and equipment consists of the following:
|-------------------------------------------------------------------------------------------

| |                                                | December 31, |               | EstimatedUseful |              
| | ---------------------------------------------- | ------------ | ------------- | --------------- | -------------
|
|
| | Land                                           |              | $     714,304 |                 | $     691,205
| | Buildings and improvements                     |              | 4,144,261     |                 | 1,403,719    
| | Machinery, equipment and fixtures              |              | 7,041,339     |                 | 6,789,665    
| | Other                                          |              | 1,427,176     |                 | 1,239,200    
| |                                                |              |               |                 |              
| |                                                |              | 13,327,080    |                 | 10,123,789   
| | Less accumulated depreciation and amortization |              | 10,805,384    |                 | 8,342,918    
| |                                                |              |               |                 |              
| |                                                |              | $  2,521,696  |                 | $  1,780,871 
| |                                                |              |               |                 |              

|3. Long-term Debt


Long-term debt consists of the
following:
|-------------------------------------------------------------

| |                                                     | December 31, |               
| | --------------------------------------------------- | ------------ | --------------
|
| | Revolving line of credit (a)                        |              | $            
| | Notes payable (b)                                   |              | 6,841,087     
| |                                                     |              |               
| | Total                                               |              | 6,841,087     
| | Less current maturities of revolving line of credit |              |              
| | Less current maturities of long-term debt           |              | 1,160,134     
| |                                                     |              |               
| |                                                     |              | $5,680,953    
| |                                                     |              |               

|(a) | The
Company has an asset-based revolving line of credit (the Credit
               Agreement) with Congress Financial Corporation (Congress).
In                December 2002, the Credit Agreement was amended to extend the term
through                December 31, 2004. The amended Credit Agreement provides that the
Company may                borrow up to 80.0% of net eligible accounts receivable and a
portion of                inventory, as defined in the Credit Agreement. Borrowings under
the Credit                Agreement may not exceed $20.0 million including outstanding
letters of credit                which are limited to $6.0 million from May 1 to
September 30 of each year and                $4.0 million for the remainder of each year,
and bear interest at the                lenders prime rate of interest plus 1.0%
(effectively 5.25% at December                31, 2002). Outstanding letters of credit
approximated $1.9 million at December                31, 2002. In connection with
amending the agreement in December 2002, the                Company has agreed to pay
Congress a financing fee of $250,000, one half of                which was paid at the
time of closing and the other half was paid by the Company                in February
2003. This financing fee will be amortized over 24 months beginning
               January 2003. Under the terms of the Credit Agreement the Company is
required to                maintain minimum levels of working capital and tangible net
worth. The Company                was in violation of the working capital and the net
worth covenants at December                31, 2002. In March 2003, the Credit Agreement
was further amended to waive the                December 2002 covenant violations and to
change the interest rate to                Congress prime rate plus 2.0%.The
Company has agreed to pay $75,000 in                connection with this amendment. There
can be no assurances that the Company will                not be in violation of these
covenants during the remainder of 2003 or                thereafter. Average short-term
borrowings and the related interest rates are as                follows:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|43
|--

| |                                           | Year Ended December 31, |               
| | ----------------------------------------- | ----------------------- | --------------
|
| | Borrowings under revolving line of credit |                         |              
| | Weighted average interest rate            |                         | 8.6           
| | Maximum month-end balance during year     |                         | $  10,021,581 
| | Average month-end balance during year     |                         | $    6,781,314

|(b) | In
March 2001, the Company issued a $7,200,000 note payable (Note)
               to Ambra, Inc. (Ambra) as consideration for the termination of
its                rights and royalty obligations under the Companys license for
use of the                BOSS brand name. The Note, which bore interest at 8.0% per
annum with interest                and principal payable quarterly through December 31,
2006, was subordinated to                the rights of Congress under the Agreement and
was collateralized by a second                security interest in the Companys
assets.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On May
6, 2002, Textile Investment International S.A. (Textile), an affiliate of the
licensor to the Company of the Girbaud brand, acquired the Note from Ambra. On May 21,
2002, Textile exchanged the Note for an amended and restated note (the Replacement
Note), which deferred principal payments, reduced principal payments payable in
2002 by 50% and principal payments payable in 2003 by 25%, and extended the maturity date
by one year, until 2007. The Replacement Note is subordinated to the rights of Congress
under the Agreement. Due to certain availability requirements of the Credit Agreement not
being met, the December 2002 Note payment has not been made. At December 31, 2002,
long-term debt maturities are as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |      | 
| | ---- | 
| | 2003 | 
| | 2004 | 
| | 2005 | 
| | 2006 | 
| | 2007 | 
| |      | 
| |      | 
| |      | 

|44
|--

|4. Accrued Expenses


Accrued
expenses consist of the following:
|----------------------------------------------------------------

| |                           | December 31, |            
| | ------------------------- | ------------ | -----------
|
| | Severance benefits        |              | $   526,611
| | Royalties                 |              | 107,061    
| | Selling bonuses           |              | 460,000    
| | Accrued professional fees |              | 50,000     
| | Accrued interest          |              | --         
| | Financing fees            |              | --         
| | Insurance premium payable |              | --         
| | Accrued compensation      |              | 87,707     
| | Customer credit balances  |              | 215,805    
| | Payroll tax withholdings  |              | 56,381     
| | Property taxes            |              | 86,585     
| | Sales commissions payable |              | --         
| | License obligation        |              | 325,000    
| | Other                     |              | 21,000     
| |                           |              |            
| |                           |              | $1,936,150 
| |                           |              |            

|5. Income Taxes


The
income tax benefit consists of the following:
|-------------------------------------------------------------------

|                | Year Ended December 31, |             
|--------------- | ----------------------- | ------------
|
|Current         |                         |             
|Federal         |                         | $          
|State and local |                         | (48,000     
|                |                         |             
|                |                         | (48,000     
|Deferred        |                         |            
|                |                         |             
|                |                         | $  (48,000  
|                |                         |             

|Deferred
income taxes reflect the net effects of temporary differences between the carrying amounts
of assets and liabilities for financial and income tax reporting purposes. The Company has
net operating loss carry forwards for income tax reporting purposes of approximately
$45,163,000 for which no income tax benefit has been recorded due to the uncertainty over
the generation of taxable income in 2003. These net operating loss carryforwards begin to
expire in 2013.


45
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|December 31, |                                  
|------------ | ---------------------------------
|            
|            
|             | Net operating loss carry forwards
|             | Depreciation and amortization    
|             | Allowance for doubtful accounts  
|             | Inventory valuation              
|             | Accrued severance                
|             | Contribution carryovers          
|             | Other                            
|             |                                  
|             |                                  
|             | Valuation allowance              
|             |                                  
|             | Net deferred tax asset           
|             |                                  

|A
reconciliation between the statutory and effective tax rates is as follows:
|-----------------------------------------------------------------------------

| |                                               | Year Ended December 31, |      
| | --------------------------------------------- | ----------------------- | -----
|
|
| | Federal statutory rate                        |                         | (35.0
| | State and local taxes, net of federal benefit |                         | (4.0 
| | Nondeductible entertainment expense           |                         | 1.0  
| | Nondeductible goodwill amortization           |                         | 13.7 
| | Net operating losses not currently available  |                         | 23.6 
| |                                               |                         |      
| |                                               |                         | (0.7 
| |                                               |                         |      

|6. Stockholders
Equity


In
June 1998, the Companys Board of Directors authorized a stock repurchase program.
Under this program the Company may repurchase up to $4,000,000 of its common stock. From
inception of the stock repurchase program through December 31, 2002, the Company purchased
1,652,011 shares at a cost of $3,308,003. In August 1999, the Company issued 500,000
shares of restricted common stock out of its treasury shares, in connection with an
amendment of the Girbaud womens license agreement. In November 1999, the Company
issued 2,000,000 shares of restricted Series A Redeemable Convertible Preferred Stock
having an estimated fair market value of $2,000,000 in connection with a restructuring of
the licensing arrangement for the use of the BOSS trademark. Also in connection with such
restructuring, in May 2000, the Company issued an additional 1,300,000 restricted shares
of the same series of redeemable convertible preferred stock having an estimated fair
market value of $1,300,000 and 666,667 shares of restricted common stock, which had an
aggregate value of $1,000,000 based on the market price of $1.50 at the time the
parties agreed to the transaction. The common stock issued in connection with the
licensing arrangement is subject to certain piggyback registration rights and, beginning
December 15, 2000, certain demand registration rights.


On
May 6, 2002, Textile acquired from Ambra 3.3 million shares of the Companys Series A
Convertible Preferred Stock (the Preferred Stock), 666,667 shares of the
Companys Common Stock and a subordinated secured promissory note issued by the
Company to Ambra in March 2001 in the original principal amount of $7.2 million (the
Note). The Preferred Stock held by Ambra was to become convertible into either
3.3 million shares of Common Stock of the Company or a $3.3 million promissory note of the
Company in 2003. Pursuant to the terms of the Framework Agreement entered into on May 14,
2002 (the Framework Agreement), between the Company, Textile and Textile
affiliates Latitude Licensing Corp. and Wurzburg Holding S.A. (Wurzburg), the
Company amended the terms of the Preferred Stock so that the Preferred Stock was
immediately convertible, but only into Common Stock of the Company. In November 2002,
Textile converted all the Preferred Stock into 3.3 million shares of Common Stock of the
Company.


46
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company has also (i) granted Textile warrants to purchase 500,000 shares of the
Companys Common Stock for $0.75 per share, (ii) entered into a Stockholders
Agreement with Textile establishing certain terms and conditions regarding the acquisition
and disposition of the Companys securities as well as certain corporate governance
matters, and (iii) amended the Girbaud licensing agreement for mens and womens
apparel to add an additional option for the Company to extend the term by four additional
years through 2011. The Company determined the aggregate value of these warrants on the
date of grant to approximate $596,000, based on the Black-Scholes valuation model, with
the following weighted average assumptions: dividend yield of 0%, expected volatility of
75%, risk free interest rate of 3.59% and expected term of 9 years. This amount had been
recorded as a deemed dividend in the statements of operations and stockholders
equity.


7. Stock Options


In
May 1997, the Company adopted the 1997 Omnibus Stock Plan (the Plan). Under
the 1997 Omnibus Stock Plan, as amended in 1999 and 2002, the Company may grant qualified
and nonqualified stock options, stock appreciation rights, restricted stock or performance
awards, payable in cash or shares of common stock, to selected employees. The Company has
reserved 1,600,000 shares of common stock for issuance under the 1997 Omnibus Stock Plan.
Options vest at the end of the second year and expire 10 years from the date of grant and
upon termination of employment.


The
following table relates to options activity in 2000, 2001 and 2002 under the Plan:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                          | Number ofshares |           | Weighted averageexercise priceper share |       
| | ---------------------------------------- | --------------- | --------- | --------------------------------------- | ------
| | Options outstanding at December 31, 1999 |                 | 996,250   |                                         | $1.537
| | Granted                                  |                 | 45,000    |                                         | 1.320 
| | Cancelled                                |                 | (21,000   | )                                       | 1.976 
| |                                          |                 |           |                                        
| | Options outstanding at December 31, 2000 |                 | 1,020,250 |                                         | 1.519 
| | Granted                                  |                 | 66,000    |                                         | 0.810 
| |                                          |                 |           |                                        
| | Options outstanding at December 31, 2001 |                 | 1,086,250 |                                         | 1.470 
| | Granted                                  |                 | 220,000   |                                         | 0.58  
| |                                          |                 |           |                                        
| | Options outstanding at December 31, 2002 |                 | 1,306,250 |                                         | 1.226 
| |                                          |                 |           |                                        
| | Options exercisable at December 31, 2002 |                 | 1,030,250 |                                         | $1.519
| |                                          |                 |           |                                        

|A
summary of stock options outstanding and exercisable as of December 31, 2002 is as
follows:
|---------------------------------------------------------------------------------------------

| | Options outstanding  |  | Options exercisable
| | -------------------- |  | -------------------
|
| | $  0.30 to $    0.58 |  | 220,000            
| | $  0.90 to $  2.125  |  | 1,086,250          
| |                      |  |                    

|For stock
options granted to employees, the Company has estimated the fair value of each option
granted using the Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 6.70%, 5.93% and 3.96%, expected volatility of 65%, 75% and
75%, expected option life of 7.5, 4.5 and 9 years and no dividend payment expected for
2000, 2001 and 2002, respectively. Using these assumptions, the fair value of the stock
options granted is $0.51, $0.39 and $0.47 for 2000, 2001 and 2002, respectively. There
were no adjustments made in calculating the fair value to account for vesting provisions
or for non-transferability or risk of forfeiture. The weighted average remaining life for
options outstanding at December 31, 2002 is 7 years. If the Company had elected to
recognize compensation expense based on the fair value at the grant dates, consistent with
the method prescribed by SFAS No. 123, net loss per share would have been changed to the
pro forma amount indicated below:


47
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                            | Year Ended December 31, |                  
|----------------------------------------------------------- | ----------------------- | -----------------
|
|
|Net loss attributable to common stockholders, as reported   |                         | $  (15,247,330   
|                                                            |                         |                  
|Less: Stock based employee compensation expense included    |                        
|in reported net income                                      |                         | 10,500           
|Add: Total stock-based employee compensation expense        |                        
|determined under the fair value based method for all awards |                         | (407,427         
|                                                            |                         |                  
|Pro forma net loss attributable to common stockholders      |                         | $  (15,644,257   
|                                                            |                         |                  
|                                                            |                         |                  
|Basic and diluted loss per common share, as reported        |                         | $           (2.00
|                                                            |                         |                  
|Basic and diluted loss per common share, pro forma          |                         | $           (2.05
|                                                            |                         |                  

|8. Discontinued
Operations


On
December 20, 2001, the Board of Directors voted to sell all of the outstanding common
stock of Isaacs Europe. Subsequently, the Company sold 100% of the outstanding common
stock of Isaacs Europe to a management group of Isaacs Europe in exchange for repayment of
$100,000 of intercompany debt and the assumption of liabilities.


The
Company had concluded, from the inception of Isaacs Europe, that it did not meet the
criteria for segment reporting under either Statement of Financial Accounting Standards
No. 14 Financial Reporting for Segments of a Business Enterprise or Statement
of Financial Accounting Standards No. 131 Disclosures about Segments of an
Enterprise and Related Information. However, in June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 144
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144) which changed the criteria for reporting disposals as discontinued operations
in the financial statements. The Company has reviewed the provisions of SFAS 144 and has
determined that the sale of Isaacs Europe meets the two conditions necessary for
presentation as discontinued operations. Those conditions are (a) the operations and cash
flow of the component have been or will be eliminated from the ongoing operations of the
entity as a result of the disposal transaction and (b) the entity will not have any
significant continuing involvement in the operations of the component after the disposal
transaction.


The
sale of Isaacs Europe was effective on December 31, 2001 and as such the consolidated
balance sheet of the Company at December 31, 2001 does not include the assets or
liabilities of the disposal group. The Company recorded a loss from operations of Isaacs
Europe of $1,309,610 for the year ended December 31, 2001. The Company recorded a loss on
the sale of Isaacs Europe of $1,182,281. The loss on the sale of Isaacs Europe does not
include the consideration of $100,000 as the ultimate collection of the amount is
uncertain. Accordingly, the Company will record this consideration when received. Revenues
from Isaacs Europe were insignificant since its inception.


48
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. Commitments and
Contingencies


The
Company rents real and personal property under leases expiring at various dates through
2007. Certain of the leases stipulate payment of real estate taxes and other occupancy
expenses. Minimum annual rental commitments under noncancellable operating leases in
effect at December 31, 2002 are summarized as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |      | Trucks &Machinery |             | Showrooms &Office Space |            | Computer &OfficeEquipment |              | Total |           
| | ---- | ----------------- | ----------- | ----------------------- | ---------- | ------------------------- | ------------ | ----- | ----------
| | 2003 |                   | $    48,114 |                         | $  421,350 |                           | $      6,502 |       | $  475,966
| | 2004 |                   | 16,524      |                         |           |                           | 6,502        |       | 23,026    
| | 2005 |                   | 16,524      |                         |           |                           | 6,502        |       | 23,026    
| | 2006 |                   | 16,524      |                         |           |                           | 6,502        |       | 23,026    
| | 2007 |                   | 12,393      |                         |           |                           |             |       | 12,393    
| |      |                   |             |                         |            |                           |              |       |           
| |      |                   | $  110,079  |                         | $  421,350 |                           | $    26,008  |       | $  557,437
| |      |                   |             |                         |            |                           |              |       |           

|Total
rent expense is as follows:
|---------------------------------

|                  | Year Ended December 31, |            
|----------------- | ----------------------- | -----------
|
|Minimum rentals   |                         | $   556,875
|Other lease costs |                         | 594,234    
|                  |                         |            
|                  |                         | $1,151,109 
|                  |                         |            

|In
November 1997, the Company, Ambra and Hugo Boss AG (Hugo Boss) executed
certain agreements including an agreement whereby the Company borrowed $11,250,000 from
Ambra to finance the acquisition of certain BOSS trademark rights. This obligation was
evidenced by a note scheduled to mature on December 31, 2007, which bore interest at 10%
per annum, payable quarterly, with principal payable in full upon maturity. As part of the
same transaction, the Company sold its foreign BOSS trademark rights and related assets to
Ambra and entered into a foreign rights manufacturing agreement (the Foreign Rights
Agreement) with Ambra, which allowed the Company to manufacture apparel in certain
foreign countries for sale in the United States using the BOSS brand and image in exchange
for an annual royalty payment. The Company retained ownership of its domestic BOSS
trademark rights subject to a concurrent use agreement with Hugo Boss (the
Concurrent Use Agreement).


On
October 22, 1999, the Company, Ambra and Hugo Boss entered into an agreement to
restructure the licensing arrangement for the use of the BOSS trademark. Pursuant to this
agreement, the Company transferred to Ambra substantially all of its rights in the marks
containing the term BOSS throughout the world and agreed to issue, on November
6, 1999, 2,000,000 shares of a newly designated Series A Convertible Preferred Stock
having an estimated fair market value of $2,000,000 in exchange for the cancellation of
the $11,250,000 note. In the same agreement, the Company, Ambra and Hugo Boss agreed to
terminate the Foreign Rights Agreement, the Concurrent Use Agreement and an option on the
part of Ambra to purchase the Companys domestic BOSS trademark rights, which was
originally entered into in November 1997. The Company, Ambra and Hugo Boss also agreed to
enter into a license agreement granting the Company rights to use various trademarks
including the word BOSS in the manufacture and domestic sale of specified
types of apparel. Except for the initial term and the minimum annual royalties, the
Companys rights under the new license agreement are substantially similar to those
it previously had. As consideration, together with the royalties discussed below, for the
new license agreement, the Company issued to Ambra, on April 30, 2000, 1,300,000 shares of
the same series of convertible preferred stock having an estimated fair market value of
$1,300,000 and 666,667 shares of common stock, which had an aggregate value of $1,000,000
based on the market price of $1.50 at the time the parties agreed to the transaction. The
license agreement extended through December 31, 2003, with renewal options, at the option
of the Company, through December 31, 2007.


49
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
October 2000, the Board of Directors authorized the appropriate officers of the Company to
negotiate a termination of the license agreement for the use of the BOSS trademark (the
License Agreement). In March 2001, the Company, Ambra and Hugo Boss executed
the BOSS Termination Agreement. Pursuant to the BOSS Termination Agreement, the Company
issued to Ambra a note payable in the amount of $7,200,000. In connection with the BOSS
Termination Agreement, the Company recorded the note payable and wrote off the remaining
deferred royalty expense of $706,315 and other BOSS related assets of $161,593 as a charge
against earnings totaling $8,067,908 in the fourth quarter of 2000. The note bore interest
at 8.0% with interest and principal payable quarterly through December 31, 2006. The
Company complied with the October 31, 2001 deadline to discontinue the manufacture and
sale of BOSS apparel. In connection with the BOSS Termination Agreement, the Series A
Convertible Preferred Stock held by Ambra, having an estimated value of $3,300,000, could
have been redeemed for cash by the Company through December 31, 2002;thereafter it may be
converted into a promissory note from the Company or Common Stock at the sole discretion
of Ambra (see Note 6). Total license fees on BOSS sportswear sales amounted to $3,240,000
for the year ended December 31, 2000. The percentage of BOSS sportswear sales to total
sales was 11.3% and 2.4% for the years ended December 31, 2000 and 2001, respectively. As
further discussed in Note 6, on May 6, 2002 Textile acquired from Ambra the 3.3 million
shares of the Companys Series A Convertible Preferred Stock (the Preferred
Stock), 666,667 shares of the Companys Common Stock and the subordinated
secured promissory note discussed above.


The
Company has entered into an exclusive license agreement with Latitude Licensing Corp, to
manufacture and market mens jeanswear, casual wear, outerwear and active influenced
sportswear under the Girbaud brand and certain related trademarks in the United States,
Puerto Rico, the U.S. Virgin Islands and Canada. In June 2002, the Company notified
Latitude of its intention to extend the agreement through 2007. Under the agreement as
amended, the Company is required to make royalty payments to the licensor in an amount
equal to 6.25% of net sales or regular licensed merchandise and 3.0% of certain irregular
and closeout licensed merchandise. The Company is obligated to pay the greater of actual
royalties earned or minimum guaranteed annual royalties of $3,000,000 through 2007. In
February 2003, Latitude and the Company agreed to defer the December 2002 and January 2003
royalty payments of $250,000 each to October and November 2003, respectively. The Company
is required to spend the greater of an amount equal to 3% of Girbaud mens net sales
or $500,000 in advertising and related expenses promoting the mens Girbaud brand
products in each year through the term of the Girbaud mens agreement.


The
Company has entered into an exclusive license agreement with Latitude Licensing Corp, to
manufacture and market womens jeanswear, casual wear, and active influenced
sportswear under the Girbaud brand and certain related trademarks in the United States,
Puerto Rico, and the U.S. Virgin Islands. In June 2002, the Company notified Latitude of
its intention to extend the agreement through 2007. Under the agreement as amended, the
Company is required to make royalty payments to the licensor in an amount equal to 6.25%
of net sales or regular licensed merchandise and 3.0% of certain irregular and closeout
licensed merchandise. The Company is obligated to pay the greater of actual royalties
earned or minimum guaranteed annual royalties of $1,500,000 through 2007. In February
2003, Latitude and the Company agreed to defer the December 2002 royalty payment of $125,000 to
October 2003 and to reduce the 2003 minimum guaranteed royality payments by
$450,000 to $1,050,000. The Company is required to spend the greater of an amount equal
to 3% of Girbaud womens net sales or $400,000 in advertising and related expenses
promoting the womens Girbaud brand products in each year through the term of the
Girbaud womens agreement. In addition, while the agreement is in effect the Company
is required to pay $190,000 per year to the licensor for advertising and promotional
expenditures related to the Girbaud brand. The Company has the following contractual
obligations as of December 31, 2002:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Schedule of contractual obligations: | Payments Due By Period
|------------------------------------ | ----------------------
|
|Girbaud license obligations *        |                       
|Consulting obligations *             |                       
|                                     |                       
|Total contractual obligations        |                       
|                                     |                       

|(*) | Adjusted
to account for the deferrals, reductions and waivers of the                Consultants Fees
and royalty obligations mentioned above.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|50
|--

|Robert J. Arnot, former
Chairman of the Board, Chief Executive Officer and President of the
Company and Daniel Gladstone, President of the Girbaud Division of
the Company, each entered into a consulting agreement with Latitude beginning May 17, 2002
and terminating on December 31, 2005 or when the consultant is no longer employed by the
Company, whichever occurs first. Under the terms of the consulting agreements, each will
serve on an advisory committee to assist in developing global strategy and a plan for the
Marithe and Francois Girbaud brand and will attend regular meetings of the committee. If
the committee is not established or is disbanded, each will be required to meet in Europe
with representatives of Latitude from time to time. As compensation, each is to receive an
annual consulting fee of $100,000, except for the year 2002, for which the consulting fee
was to be $66,000. During 2002, Latitude paid Messrs. Arnot and Gladstone $44,000 each and
the consulting agreements were terminated. While not paid by the Company, the Company
concluded that consulting services performed by these two senior executives will
ultimately benefit its operations and accordingly recorded the amounts received by these
officers as consulting expense and contributed capital.


In
January 2000, the Company entered into a global sourcing agreement with G.I. Promotions, a
Girbaud affiliate, to act as a non-exclusive sourcing agent to licensees of the
Marithé & François Girbaud trademark for the manufacture of Girbaud
jeanswear and sportswear. The global sourcing agreement extended until December 31,
2003 and provided that the Company shall net a facilitation fee of 5.0% of the total FOB
pricing for each order shipped to licensees under this agreement. Also in January 2000,
the Company entered into a license agreement with Wurzburg Holding S.A.
(Wurzburg). The license has a term of three years and provides that the
Company shall pay Wurzburg a royalty of 1.0% of the total FOB pricing for each order
shipped to a licensee under the global sourcing agreement. In August of 2002, the global
sourcing agreement was terminated by the parties effective October 1, 2002.


In
May 2000, the Company entered into an exclusive distribution agreement for Girbaud
mens and womens jeanswear and sportswear products in Canada. The Company will
sell to Western Glove Works (Distributor) Girbaud products produced in North
America at cost plus 12.0%, which is less than its normal profit margins on sales of
comparable products to the Companys retail customers. For products purchased by the
Distributor from overseas, the Distributor will pay a distributors fee equal to
6.75% of net sales to the Company. Under the agreement, the Distributor will pay a royalty
fee equal to 6.25% of net sales to the Company, which will in turn pay the royalty to
Latitude Licensing Corp. The initial term of the agreement expired on December 31, 2001.
Under the agreement, the Distributor may renew the agreement for six additional one-year
terms. The Distributor renewed the agreement with the Company for an additional one-year
term that expired on December 31, 2002. However, the Distributor did not renew the agreement
with the Company for 2003. The minimum sales level for calendar year 2002 is
$2,000,000 (Canadian Dollars), which results in a minimum distribution fee payable to the
Company of $60,000 (Canadian Dollars). The minimum sales level for calendar year 2001 and
2002 was $1,600,000 and $2,000,000 (Canadian Dollars), respectively, which resulted in a
minimum distribution fee payable to the Company of $48,000 and $60,000 (Canadian Dollars)
for calendar years 2001 and 2002, respectively. There was no minimum sales levels or
distribution fees for calendar year 2000.


On
August 15, 1996, Isaacs Europe entered into retail and wholesale license agreements
(collectively, the International Agreements) for use of the Beverly Hills Polo
Club trademark in Europe. The International Agreements, as amended, provide certain
exclusive rights to use the Beverly Hills Polo Club trademark for mens sportswear in
all countries in Europe for an initial term of three years ending December 31, 1999,
renewable at the Companys option, provided the Company is not in breach thereof at
the time the renewal notice is given, through five consecutive extensions ending
December 31, 2007. This Agreement was amended July 31, 2000 to reduce certain royalty
payments and increased the amount the Company is required to spend in advertising the BHPC
line. For the period beginning January 1, 2000 and ending June 30, 2000, no
guaranteed minimum annual royalties or guaranteed net shipment volumes applied; for the
period beginning July 1, 2000 and ending December 31, 2000, the royalty rate was
3.0% of wholesale sales of BHPC products including purchases of BHPC products by Beverly
Hills Polo Club retail stores in Europe (Wholesale Purchases) and no
guaranteed annual royalties applied; for the period beginning January 1, 2001 and
ending December 31, 2001, the royalty rate shall be 3.0% of Wholesale Purchases, and
the guaranteed annual royalty was $120,000; for the period beginning January 1, 2002
and ending December 31, 2004, the royalty rate shall be 3.0% of Wholesale Purchases,
the guaranteed annual royalty shall be $120,000 and the Company shall be subject to the
guaranteed net shipment volumes in effect immediately prior to the amendment dated
March 1, 1999. For the period beginning January 1, 2000 and ending
December 31, 2001, the Company was required to spend an amount equal to 4.0% of
Wholesale Purchases in advertising the BHPC line. The Company allowed the license to
expire on December 31, 2001. In addition, the Company sold the subsidiary headquartered in
Spain, effective December 31, 2001 (see Note 8).


51
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company is party to employment agreements with several officers as well as consulting
agreements which provide for specified levels of compensation and certain other benefits.
The agreements also provide for severance payments from the termination date through the
expiration date under certain circumstances.


In
December 2002, Robert J Arnot and the Board of Directors agreed that he would not continue
to serve as Chief Executive Officer and President. On February 3, 2003, Mr. Arnot resigned
as a director, Chief Executive Officer and President of the Company effective as of
February 6, 2003. In connection with his resignation, Mr. Arnot agreed to terminate his
employment agreement and enter into a separation agreement. The separation agreement
provides that Mr. Arnot will serve as a paid consultant to the Company between February 6,
2003 and May 2, 2003 and thereafter will receive severance payments until December 15,
2003. The Company recognized severance expense of $400,000 in December 2002.


10. Retirement Plan


The
Company sponsors a defined benefit pension plan that covers substantially all employees
with more than one year of service. The Companys policy is to fund pension costs
accrued. Contributions to the plan reflect benefits attributed to employees service
to date, as well as service expected to be earned in the future. The benefits are based on
the number of years of service and the employees compensation during the three
consecutive complete years of service prior to or including the year of termination of
employment. Plan assets consist primarily of common stocks, fixed income securities and
cash. The latest available actuarial valuation is as of December 31, 2002.


Pension
expense for 2000, 2001 and 2002 was approximately $409,000, $190,000 and $244,000
respectively, and includes the following components:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Years Ended December 31,                     | 
| | -------------------------------------------- | 
|
| | Service cost of current period               | 
| | Interest on the above service cost           | 
| |                                              | 
| |                                              | 
| | Interest on the projected benefit obligation | 
| | Expected return on plan assets               | 
| | Amortization of prior service cost           | 
| | Amortization of transition amount            | 
| | Amortization of loss                         | 
| |                                              | 
| | Pension cost                                 | 
| |                                              | 

|The following table sets forth the
Plans funded status and amounts recognized at December 31, 2000, 2001 and 2002:
|-------------------------------------------------------------------------------------------------------------------

|                                                                       | Years Ended December 31, |           
|---------------------------------------------------------------------- | ------------------------ | ----------
|
|
|Vested benefits                                                        |                          | $6,323,000
|Nonvested benefits                                                     |                          | 116,000   
|                                                                       |                          |           
|Accumulated benefit obligation                                         |                          | 6,439,000 
|Effect of anticipated future compensation levels and other events      |                          | 707,000   
|                                                                       |                          |           
|Projected benefit obligation                                           |                          | 7,146,000 
|                                                                       |                          |           
|Fair value of assets held in the plan                                  |                          | 7,297,000 
|                                                                       |                          |           
|(Excess)/deficit of projected benefit obligation over plan assets      |                          | 151,000   
|Unrecognized net loss from past experience different from that assumed |                          | 2,569,000 
|Unrecognized prior service cost                                        |                          | 154,000   
|                                                                       |                          |           
|Net prepaid periodic pension cost                                      |                          | $2,874,000
|                                                                       |                          |           

|52
|--

|With
respect to the above table, the weighted average discount rate used to measure the
projected benefit obligation was 7.5% for 2000, 2001 and 2002; the rate of increase in
future compensation levels is 3%; and the expected long-term rate of return on assets is
8%. The net prepaid periodic pension cost is included in other assets in the accompanying
consolidated balance sheets.


11. Supplemental
Disclosures of Cash Flow Information


Cash
paid during the year for interest amounted to $1,093,284, $1,309,956 and $463,457 for
2000, 2001and 2002, respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2000                                                     |  | 2001             |  | 2002 | 
| | -------------------------------------------------------- |  | ---------------- |  | ---- | 
| | Conversion of redeemable preferred stock to common stock |  | $               |  | $   | 
| | Officers compensation contribution                      |  |                 |  |     | 
| | Deemed dividend in connection with preferred stock       |  |                 |  |     | 
| | Issuance of redeemable preferred stock                   |  | 1,300,000        |  |     | 
| | Issuance of common stock in settlement of BOSS liability |  | 1,000,000        |  |     | 

|12. Quarterly Financial
Data (Unaudited)


Summarized quarterly financial data
for 2002 and 2001 is as follows:
|---------------------------------------------------------------------------------------------------------------

|                                                      | Quarter |            
|----------------------------------------------------- | ------- | -----------
|
|Net sales                                             |         | $20,156,508
|Gross profit                                          |         | 8,470,246  
|Net income (loss) attributable to common stockholders |         | 1,642,307  
|Basic and diluted earnings (loss) per share           |         | 0.21       
|                                                      |         |            

|                                                 | Quarter |            
|------------------------------------------------ | ------- | -----------
|
|Net sales                                        |         | $23,939,924
|Gross profit                                     |         | 7,884,429  
|Income (loss) from continuing operations         |         | 633,098    
|Income (loss) from discontinued operations       |         | 6,171      
|Net income (loss)                                |         | 639,269    
|Basic and diluted earnings (loss) per share from |        
|continuing operations                            |         | 0.08       
|Basic and diluted earnings (loss) per share from |        
|discontinued operations                          |         | 0.00       
|Basic and diluted earnings (loss) per share      |         | 0.08       
|                                                 |         |            
|                                                 |         |            

|1. | The
fourth quarter of 2001 includes a charge of $1.2 million for the
                    discontinued operations of Isaacs Europe. (See Note 8). All prior
quarters have                     been restated.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Earnings
per share calculations for each of the quarters are based on the
                    weighted average shares outstanding for each period. The sum of the
quarters may                     not necessarily be equal to the full year earnings per
share amounts.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | During
the fourth quarter of 2001, the Company sold Isaacs Europe and recorded a
                    charge against earnings of $1,182,281, which had the effect of
increasing the                     net loss by or $0.28 per share. During the fourth
quarter of 2002, the Company                     wrote down its inventory by
approximately $1.8 million, which had the effect of                     increasing the
net loss per share by $0.20.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|53
|--

|Exhibit 10.107


I.C. ISAACS &
COMPANY, INC.CODE OF ETHICS AND BUSINESS CONDUCT


Statement of General
Policy


This
Code of Ethics and Business Conduct (the Code) has been adopted to provide
guiding principles to the principal executive officer, the principal financial officer,
and the principal accounting officer or controller of IC ISAACS & COMPANY, INC. (the
Company), in the performance of their duties. It is strongly recommended,
however, that all directors and employees of the Company comply with the Code in the
performance of their duties. The Code should be read in conjunction with the
Companys other policies that govern the conduct of such officers, including the
Statement of Company Policy Regarding Securities Trading and the Memorandum to Directors,
Executive Officers and Key Employees of the Company covering pre-clearance, broker
interface procedures and blackout periods (collectively, the Companys Insider
Trading Policy).


The
basic principal that governs all of our officers, directors and employees is that the
Companys business should be carried on with loyalty to the interest of our
stockholders, customers, suppliers, fellow employees, strategic partners and other
business associates. The philosophy and operating style of the Companys management
are essential to the establishment of a proper corporate environment for the conduct of
the Companys business. In furtherance of the foregoing, no principal executive
officer, principal financial officer, or principal accounting officer or controller, or
persons performing similar functions shall: (a) employ any device, scheme or artifice to
defraud the Company or any Business Associate (as defined below); or (b) engage in any
act, practice or course of conduct that operates or would operate as a fraud or deceit
upon the Company or any Business Associate.


The
Company is committed to a high standard of business conduct. This means conducting
business in accordance with the spirit and letter of applicable laws and regulations and
in accordance with ethical business practices. This Code, which applies to all Insiders
(as defined below) and their Family Members (as defined below), is intended to help in
this endeavor by providing a statement of the fundamental principles that govern the
conduct of the Companys business. In addition, all Insiders and their Family Members
are responsible for complying with all applicable laws and regulations.


Definition of Terms Used
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Business
Associate means any supplier of services or materials, customer, consultant,
professional advisor, lessor of space or goods, tenant, licensor, licensee or partner of
the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Company
includes I.C.  ISAACS & COMPANY, INC. and each of its subsidiaries.
| | -----------------------------------------------------------------------------

| | Insidermeans
the principal executive officer, principal financial officer, and principal accounting
officer or controller of the Company, or persons performing similar functions.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Family
Members means as to a specific Insider, his or her Immediate Family Members and any
company, partnership, limited liability company, trust or other entity that is directly
or indirectly controlled by that Insider or by any Immediate Family Member of that
Insider.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Immediate
Family Member includes the spouse (or life partner) and children of an Insider and
any relative (by blood or marriage) of that Insider or spouse (or life partner) residing
in the same household as such Insider.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Compliance
Officer shall mean _____________________________.
| | --------------------------------------------------------------

|54
|--

|Transactions with the
Business Associates


In
adhering to the foregoing basic principles, none of our Insiders or their Family Members
must profit, directly or indirectly, due to position in, or relationship to an Insider
having a position in, the Company to the detriment, or at the expense, of the Company or
any Business Associate. No Insider shall take for his or her own advantage any corporate
opportunity for profit, which he or she learns about in his or her position with the
Company.


Insiders
and their Family Members are encouraged to patronize our Business Associates. However, no
Insider or Family Member shall sell to, or purchase from, a Business Associate any goods
or services except in the ordinary course of the Business Associates business. No
Insider or Family Member shall borrow money or other property from a person known by the
Insider to be a Business Associate, unless that Business Associate is regularly engaged in
the business of lending money or such other property, and the loan and the terms thereof
are in the ordinary course of the Business Associates business.


No
Insider shall, directly or indirectly, make any payment or take any action with respect to
any government official, agent or representative of the United States, any State or
jurisdiction of the United States or of any foreign country without the prior consent of
the Compliance Officer. No Insider shall make any payment or take any action in violation
of the U.S. Foreign Corrupt Practices Act.


Non-Disclosure of
Information


No
Insider or Family Member shall discuss with, or inform others about, any actual or
contemplated business transaction by a Business Associate or the Company except in the
performance of the Insiders employment duties or in an official capacity and then
only for the benefit of the Business Associate or the Company, as appropriate, and in no
event for personal gain or for the benefit of any other third party.


No
Insider or Family Member shall give any information to any third party about any business
transaction of the Company or its Business Associates that are proposed or in process
unless expressly authorized to do so by the Compliance Officer.


Preferential Treatment
and Gifts


No
Insider shall seek or accept for his or her self or for any Family Member any favors,
preferential treatment, special benefits, special documents, gifts or other consideration
as a result of such Insiders association with a Business Associate or the Company,
except -those usual and normal benefits directly provided by a Business Associate or the
Company. The foregoing, however, does not prohibit receipt of gifts of nominal value.


Conflicts of Interest


An
Insider shall maintain a high degree of integrity in the conduct of the Companys
business and maintain independent judgment. Each Insider must avoid any activity or
personal interest that creates, or appears to create, a conflict between his or her
interests and the interests of the Company. A conflict of interest arises any time such a
person has a duty or interest that may conflict, directly or indirectly, with the proper
and impartial fulfillment of such persons duties, responsibilities or obligations to
the Company. Conflicts of interest include, by way of example, a person:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | making
an investment that may affect his or her business decisions on behalf of the Company;
| | - | --------------------------------------------------------------------------------------------

| |  | owning
a meaningful financial interest in, or being employed by, an organization that competes
with the Company;
| | - | ----------------------------------------------------------------------------------------------------------------

| |  | owning
a meaningful financial interest in, or being employed by, an organization that does, or
seeks to do, business with                   the Company;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------

|55
|--

| |  | making
a material decision on a matter on behalf of the Company where such persons
self-interests may reasonably call the appropriateness of the decision into question;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | being
employed by or accepting compensation from any other person or entity as a result of
business activity or prospective business activity affecting the Company.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|An
officer or employee who becomes aware of any Insiders personal interest (including
ones own) that is, or may be viewed as, in conflict with that of the Company or a
Business Associate should promptly present the situation and the nature of the possible
conflict to the Compliance Officer or, if timely disclosure to the Compliance Officer is
impracticable, to the Board of Directors for appropriate consideration. A director of the
Company that becomes aware of any Insiders conflict of interest should bring the
matter to the attention of the Audit Committee or, if timely disclosure to the Audit
Committee is impracticable, the Board of Directors of the Company. The Insider shall
refrain from further action until the situation has been consented to in writing by the
Compliance Officer, the Audit Committee, or Board of Directors, as the case may be.


No
Insider or Family Member shall personally benefit, directly or indirectly, from any
Company purchase or sale, or derive any other personal gain from any other Company
activity, except when the transaction has been fully disclosed to and approved in writing
by the Audit Committee.


No
Insider or Family Member shall have any meaningful personal business or financial interest
in any Business Associate or Competitor of the Company, without proper consent in writing
by the Audit Committee. For these purposes, holding 5% or less of the outstanding equity
interests of a Business Associate or competitor whose equity interests are publicly traded
shall not be deemed meaningful.


No
Insider shall hold any position with (including as a member of the board of directors or
other governing body) or perform services for a Business Associate or a competitor of the
Company, without proper consent in writing by the Audit Committee.


No
Insider shall provide any services to other business enterprises which reasonably could be
deemed to adversely affect the proper performance of his or her work for the Company or
which might jeopardize the interests of the Company, including serving as a director,
officer, consultant or advisor of another business, without prior consent in writing by
the Audit Committee under this Code.


No
Insider shall direct, or seek to direct, any Company business with any business enterprise
in which the Insider or his or her Family Member has a meaningful ownership position or
serves in a leadership capacity, without proper consent in writing by the Audit Committee
under this Code.


Prior
to the adoption of the Code, the Board of Directors of the company approved (i) a
Consulting Agreement between Latitude Licensing Corp., the licensor to the Company
(Latitude), and Daniel Gladstone, dated April 22, 2002, which provides for the
performance of consulting services for Latitude and receipt of consulting fees from
Latitude by Mr. Gladstone (the Gladstone Consulting Agreement); and (ii) a
Consulting Agreement between Latitude and Robert J.Arnot, dated April 22, 2002, ,
which provides for the performance of consulting services for Latitude and receipt of
consulting fees from Latitude by Mr. Arnot (the Arnot Consulting Agreement and
together with the Gladstone Consulting Agreement, the Consulting Agreements).
No additional disclosure to, or approval by, the Compliance Officer, the Audit Committee,
or the Board of Directors for the Consulting Agreements and/or the services and fees
contemplated thereby shall be required under the Code.


Personal Securities
Transactions


It
is in the best interest of the Company and its Business Associates that no Insider
knowingly take advantage of a corporate opportunity for personal benefit or takes action
inconsistent with such Insiders obligations to the Business Associates in his
capacity as a Company representative. To that end, the Company has adopted the
Companys Insider Trading Policy (a copy of which is attached hereto as Annex 1 and
incorporated herein by this reference). The Companys Insider Trading Policy applies
to all Insiders and their Family Members.


56
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|Guarding Corporate
Assets


Insiders
have a duty to safeguard Company assets, including its physical premises and equipment,
records, customer information and Company trademarks, trade secrets and other intellectual
property. Company assets shall be used for Company business only. Without specific
authorization, no Insider or Family Member may take, loan, sell, damage or dispose of
Company property or use, or allow others to use, Company property for any non-Company
purposes.


Corporate Books and
Records


Insiders
must ensure that all Company documents are completed accurately, truthfully, in a timely
manner and properly authorized.


Financial
activities and transactions must be recorded in compliance with all applicable laws and
accounting practices and in accordance with the generally accepted accounting principles
designated by the Company. The making of false or misleading entries, records or
documentation is strictly prohibited.


Insiders
may never create a false or misleading report under the Companys name. In addition,
no payments or established accounts shall be used for any purpose other than as described
by their supporting documentation. No undisclosed funds or assets may be established.


No
Insider may take any action to defraud, influence, coerce, manipulate or mislead any other
Insider or any outside auditor or lawyer for the Company for the purpose of rendering the
books, records or financial statements of the Company incorrect Co,,) or misleading.


Errors,
or possible errors or misstatements in the Companys books and records must be
brought to the attention of the Compliance Officer promptly upon discovery thereof The
Compliance Officer shall promptly inform the Chief Financial Officer of any such error or
misstatement.


All
employees and officers are expected to cooperate fully with the Companys internal
auditors and outside auditors. No employee or officer shall impede or interfere with the
financial statement audit process.


Compliance with Law


All
Insiders shall comply with applicable governmental laws, rules and regulations. Any
Insider who becomes aware of a potential breach by another Insider of such laws, rules or
regulations shall bring the matter to the attention of the Board of Directors of the
Company immediately.


Document Retention


The
Company seeks to comply fully with all laws and regulations relating to the .retention and
preservation of records. All Insiders shall comply fully with the Companys policies
regarding the retention and preservation of records. Under no circumstances may Company
records be destroyed selectively or maintained outside Company premises or designated
storage facilities.


If
the existence of a subpoena or impending government investigation becomes known to an
Insider, he or she must immediately contact the Compliance Officer. Insiders must retain
all records and documents that may be responsive to a subpoena or pertain to an
investigation. Any questions regarding whether a record or document pertains to an
investigation or may be responsive to a subpoena should be resolved by the Compliance
Officer before the record or document is disposed of Insiders shall strictly adhere to the
directions of the Compliance Officer in handling such records or documents.



57
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|Compliance with Internal
Controls and Disclosure Controls


The
Company has adopted a system of internal controls that must be strictly adhered to by all
Insiders in providing financial and business transaction information to and within the
Company. The internal controls are the backbone of the integrity of the Companys
financial records and financial statements.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Each Insider
shall promptly report to the Compliance Officer any actual or suspected breaches or
violations of the Companys internal controls that come to the attention of the
Insider. The Compliance Officer shall promptly bring the matter to the attention of the
Disclosure Committee.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Each Insider
shall promptly report to the Compliance Officer any fraudulent or questionable
transactions or occurrences, whether actual or suspected, that come to the attention of
the Insider. Potentially fraudulent or questionable transactions or occurrences include,
without limitation, embezzlement, forgery or alteration of checks and other documents,
theft, misappropriation or conversion to personal use of Company assets, falsification of
records, and the reporting of the financial condition of the Company contrary to
generally accepted accounting principles. The Compliance Officer shall promptly bring the
matter to the attention of the Disclosure Committee.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Each Insider
is encouraged to bring to the attention of the Disclosure Committee or any Disclosure
Officer, as provided under the Companys Disclosure Controls and Procedures Policy,
any changes that the Insider believes may improve the Companys system of internal
controls.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company has adopted a system of disclosure controls and procedures pursuant to -its
Disclosure Controls and Procedures Policy to assure that all important information
regarding the business and prospects of the Company is brought to the attention of the
Chief Executive Officer and Chief Financial Officer of the Company. The accuracy and
timeliness of compliance is critical to this system of disclosure controls and necessary
to enable those officers to provide the financial statement and periodic report
certifications required by federal law.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Each Insider
shall strictly adhere to the system of disclosure controls and procedures of the Company
as set forth in the Companys Disclosure Controls and Procedures Policy.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Each
Insider shall promptly report in accordance with the Companys Disclosure Controls
and Procedures Policy any significant event or occurrence (whether positive or negative)
that arises in the course of the Insiders duties and responsibilities. Events or
occurrences include those that affect or may affect the Company or its Business
Associates, competitors or industry. General economic conditions need not be reported.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Each
Insider shall be candid in discussing matters concerning internal controls and business
disclosures with the Companys management, internal auditors, outside auditors,
outside counsel and directors. Factual information is important. Opinions and observations
are strongly encouraged.


Implementation of the
Code


While
each Insider is individually responsible forcompliance with the Code, he or she
does not do so in a vacuum. The Company has the following resources, people and processes
in place to answer questions and guide Insiders through difficult decisions.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Compliance
Officer Responsibility. _____________ has been designated the Compliance Officer and
shall report directly to the Companys Disclosure Committee, as created pursuant to
the Companys Disclosure Controls and Procedures Policy, the Audit Committee and the
Board of Directors, as may be determined to be appropriate. The Compliance Officer is
responsible foroverseeing, interpreting and monitoring compliance with the Code.
The Compliance Officer shall report periodically to the Companys Disclosure
Committee and Audit Committee regarding all aspects of administering and enforcing of the
Code.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|58
|--

| | (b)
Reporting Violations. If an Insider knows of or suspects a violation of
               applicable law or regulations, this Code or any of the Companys
other                policies, he or she must immediately report that information to the
Compliance                Officer, the Disclosure Committee, or the Audit Committee
of the Board of                Directors of the Company. No Insider who reports an actual
or suspected                violations in good faith will be subject to any retaliation
whatsoever.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c)
Investigations of Violations. Reported violations will be promptly \
               investigated and treated confidentially to the extent possible. It is
imperative                that the person reporting the violation not conduct a
preliminary investigation                of his or her own. Investigations of alleged
violations may involve complex                legal issues. Persons who act on their own
may compromise the integrity of an                investigation and adversely affect both
themselves and the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Enforcement


The
Compliance Officer will take such action he or she deems appropriate with respect to any
Insider who violates, or whose Family Member violates, any provision of this Code, and
will inform the Audit Committee of all material violations. Any alleged violation by the
Compliance Officer will be presented promptly to the Audit Committee forits
consideration and such action as the Audit Committee, in its sole judgment, shall deem
warranted.


The
Compliance Officer will keep records of all reports created under this Code and of all
action taken under this Code. All such records will be maintained in such manner and
forsuch periods as are required under applicable Federal and state law, as well as
the Companys document retention policy.


Condition of Employment
or Service


All Insiders shall conduct themselves
at all times in the best interests of the Company. Compliance with this Code shall be a
condition of employment and of continued employment with the Company, and conduct not in
accordance with this Code shall constitute grounds for disciplinary action, including,
without limitation, termination of employment.


This Code is not an employment
contract nor is it intended to be an all inclusive policy statement on the part of the
Company. The Board of Directors Company reserves the right to provide the final
interpretation of the policies it contains and to revise those policies as deemed
necessary or appropriate.


**********


I
acknowledge that I have read this Code of Ethics and Business Conduct (a copy of which
has been supplied to me and which I will retain for future reference) and agree to
comply in all respects with the terms and provisions hereof I also acknowledge that this
Code of Ethics and Business Conduct may be modified or supplemented from time to time, and
I agree to comply with those modifications and supplements, as well.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | __________________________________
                      Print Name
| |  | -------------------------------------------------------------------
| |  | __________________________________
                      Signature 

|Date: ____________________________




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