**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**Form 10-K**

 

**Annual Report Pursuant to Section 13 or15(d) of**

**the Securities Exchange Act of 1934**

** **

**For the fiscal year ended December 31,2001**

** **

**Commission File No. 0-23379**

 

**I.C. ISAACS & COMPANY, INC.**

(Exact name of registrantas specified in charter)

 

| **Delaware**                                                                 |   | **52-1377061**                     |
|------------------------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)             |   | (IRS employer  identification no.) |
| **3840 Bank Street, Baltimore,  Maryland**                                   |   | **21224-2522**                     |
| (Address of principal  executive office)                                     |   | (Zip code)                         |
|                                                                         |
| Registrant’s telephone  number, including area code: **(410) 342-8200** |

 

Securities RegisteredPursuant to Section 12(b) of the Act:

**None**

 

Securities RegisteredPursuant to Section 12(g) of the Act:

Title of Class:

 

**Common Stock, $.0001 par value per share**

 

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.Yes   ý  No   o

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K. o

 

As ofMarch 28, 2002, the aggregate market value of the outstanding shares ofthe Registrant’s Common Stock held by non-affiliates was approximately$3,539,096 based on the average closing price of the Common Stock as reportedby the OTC Bulletin Board on March 28, 2002. Determination of affiliatestatus for this purpose is not a determination of affiliate status for anyother purpose.

 

As ofMarch 28, 2002, 7,864,657 shares of Common Stock were outstanding.

 

**Document Incorporated by Reference**

 

Specified portions of the definitive Proxy Statement for the 2002Annual Meeting of Stockholders of I.C. Isaacs & Company, Inc. to be held onJune 6, 2002 are incorporated by reference into Part III hereof.

 

 

 

**I.C. ISAACS & COMPANY, INC.**

 

**FORM 10–K**

 

**TABLE OF CONTENTS**

 
|       | **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  7-A. | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 |   |
| 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                                             |   |
|       | **PART IV**                                                                                 |   |
| ITEM  14.  | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                           |   |
|       |                                                                                        |   |
| SIGNATURES |                                                                                        |

 

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*                                         Incorporated by reference from theRegistrant’s definitive Proxy Statement on Form 14A (the “Proxy Statement”) forthe 2002 Annual Meeting of Stockholders to be held June 6, 2002. The ProxyStatement will be filed not later than 120 days after the end of the fiscalyear covered by this Annual Report on Form 10-K.

 

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“I.C. Isaacs” and“I.G. Design” are trademarks of the Company. All other trademarks or service marks, including “Girbaud” and “Marithéand Francois Girbaud” (collectively, “Girbaud”), “BOSS” and “Beverly Hills PoloClub” appearing in this Annual Report on Form 10-K are the property of theirrespective owners and are not the property of the Company.

 

**IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS**

 

*This Annual Report on Form 10-Kcontains forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended. Those statements include statements regarding theintent, belief or current expectations of the Company and its management,including the Company’s belief regarding the prominence of branded, licensedapparel, in general, and the Girbaud brand, in particular, in the Company’sfuture, the Company’s intent with respect to opening the Girbaud flagshipstore, its expectations regarding the renewal of its licenses for men’s andwomen’s sportswear and jeanswear by Girbaud, and its expectations thatsubstantially all of its net sales will come from sales of Girbaud apparel, theCompany’s beliefs regarding the relationship with its employees, the conditionsof its facilities, number of manufacturers capable of supplying the Companywith products that meet the Company’s quality standards, the Company’s beliefsregarding its ordering flexibility as a result of transferring production toAsia, and the basis on which it competes for business, the Company’senvironmental obligations and its expectations regarding the Company’s productoffering.  Words such as “believes,”“anticipates,” “expects,” “intends,” “plans,” and similar expressions areintended to identify forward-looking statements but are not the exclusive meansof identifying such statements. Such statements are forward-looking statementswhich are subject to a variety of risks and uncertainties, many of which arebeyond the Company’s control, which could cause actual results to differmaterially from those contemplated in such forward-looking statements,including in particular the risks and uncertainties described under “RiskFactors” in the Company’s Prospectus, which include, among other things (i) changesin the marketplace for the Company’s products, including customer tastes,(ii) the introduction of new products or pricing changes by the Company’scompetitors, (iii) changes in the economy, and (iv) termination ofone or more of its agreements for use of the Girbaud brand name and images inthe manufacture and sale of the Company’s products. Existing and prospectiveinvestors are cautioned not to place undue reliance on these forward-lookingstatements, which speak only as of the date hereof. The Company undertakes noobligation to update or revise the information contained in this Annual Reporton Form 10-K, whether as a result of new information, future events orcircumstances or otherwise.*

 

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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 brandedjeanswear and sportswear. Founded in 1913, the Company offers collections ofmen’s and women’s jeanswear and sportswear under the Girbaud designer brand inthe United States, Puerto Rico and Canada. In November 1997, the Companyacquired an exclusive license to manufacture and market certain men’s jeanswearand sportswear under the Girbaud brand in the United States and Puerto Rico. InMarch 1998, the Company acquired an exclusive license to manufacture and marketcertain women’s jeanswear and sportswear under the Girbaud brand in the UnitedStates and Puerto Rico. The Girbaud brand is an internationally recognizeddesigner label with a distinct  Europeaninfluence. The Company has positioned the Girbaud line with a broad assortmentof products, styles and fabrications reflecting a contemporary European look.The Company markets a full collection of men’s jeanswear and sportswear underthe Girbaud brand, including a broad array of bottoms, tops and outerwear. InAugust 1998, the Company introduced a women’s sportswear collection under theGirbaud brand, which also includes a wide assortment of bottoms, tops andouterwear. In May 2000, the Company acquired an exclusive license to marketcertain men’s and women’s jeanswear and sportswear under the Girbaud brand inCanada and began making shipments in December 2000. Net sales of Girbaudproducts accounted for 84.9% and 69.6% of the Company’s net sales in 2001 and2000, respectively. Based on its performance in 2001 and 2000, the Companybelieves that the Girbaud brand has established itself as the dominant brand inthe Company’s future.

 

Until December 2001,the Company offered collections of sportswear for men and boys under theBeverly Hills Polo Club brand in the United States, Puerto Rico and Europe.Under the Beverly Hills Polo Club licensing agreements in the United States andPuerto Rico, the Company was required to notify the licensor by June 30, 2001of the Company’s intention to renew the licenses for both men’s and boys’sportswear. The Company did not notify the licensor and has allowed both ofthese licenses to expire on December 31, 2001. Net sales of Beverly Hills PoloClub sportswear accounted for 8.6% and 13.4% of the Company’s net sales in 2001and 2000, respectively. The Company also offered women’s pants and jeans undervarious Company owned brand names as well as under third party private labelsfor sale to major chain stores and catalogs. In 1999, the Company introduced acollection of men’s sportswear under the Company owned Urban Expedition (UBX)brand in the United States and Europe. The Company also offered collections ofjeanswear and sportswear for young men, women and boys under the BOSS brand inthe United States and Puerto Rico. In the fourth quarter of 2000, the Companybegan restructuring its product lines in an effort to focus on growth potentialand eliminate poorly performing lines. The Company terminated its licenseagreement for the design and marketing of the BOSS brand of sportswear for menand boys in the United States in 2001 and ceased shipping products under thebrand in October 2001. The Company discontinued production of the women’sCompany-owned and private label lines and the Urban Expedition (UBX) line in 2001. Substantially all remaininginventories of these products were shipped during 2001. See “Management’sDiscussion and Analysis”.

 

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

 

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**Products**

 

The Company’s jeanswearand sportswear collections under the Girbaud brand include a broad range ofproduct offerings for young men and women, including a variety of tops, bottomsand outerwear. These collections are targeted to consumers who are seekingquality, fashionable products at competitive prices. Girbaud is aninternationally recognized designer brand. The Company markets innovativeEuropean-inspired men’s and women’s jeanswear and sportswear collections underthe Girbaud label. The Girbaud collections include full lines of bottomsconsisting of jeans and casual pants in a variety of fabrications, includingdenim, stretch denim, cotton twill and nylon, cotton t-shirts, polo shirts,knit and woven tops, sweaters, outerwear and leather sportswear. Reflecting contemporaryEuropean design, each of these collections is characterized by innovativestyling and fabrication and is targeted to consumers ages 16 to 50. Estimatedretail prices range from $24 to $30 for t-shirts, $50 to $90 for tops andbottoms, $60 to $90 for sweaters and $80 to $300 for outerwear.

 

**Customers and Sales**

 

The Company’sproducts are sold in over 2,300 specialty stores, specialty store chains anddepartment stores.  The Company usesboth sales representatives and distributors for the sale of its products. Salesrepresentatives include employees of the Company as well as independentcontractors. Each of the Company’s distributors and non-employee salesrepresentatives has an agreement with the Company pursuant to which thedistributor or sales representative serves as the exclusive distributor orsales representative of specified products of the Company within a specifiedterritory. The Company does not have long-term contracts with any of itscustomers. Instead, its customers purchase the Company’s products pursuant topurchase orders and are under no obligation to continue to purchase theCompany’s products.

 

The Company beganmarketing men’s sportswear under the Girbaud brand in February 1998 andintroduced a women’s sportswear collection under the Girbaud brand in thesecond quarter of 1998. The Company’s Girbaud men’s products are being sold tomore than 1,600 stores in the United States and Puerto Rico, including majordepartment stores such as Bloomingdales, Macy’s East, Macy’s West, Burdines, Saks,Inc., Dayton Hudson and Carson Pirie Scott, and many prominent specialty storessuch as The Atrium in New York, Fred Segal Santa Monica and The Lark. TheCompany’s Girbaud women’s line is now being sold to more than 700 stores. Noneof the Company’s customers accounted for 10% or more of sales in 2001 or 2000.The Company’s Girbaud brand products are sold and marketed domestically underthe direction of a 9-person sales force headquartered in New York.

 

Previously, theCompany had distribution arrangements with certain distributors in Europe forits Beverly Hills Polo Club brand and with certain other distributors in Europefor its Urban Expedition (UBX) brand and also had sales representatives to sellboth brands to stores in Spain. On December 20, 2001, the Board of Directorsvoted to sell all of the outstanding common stock of Isaacs Europe.Subsequently, the Company sold 100% of the outstanding common stock of IsaacsEurope to a management group of Isaacs Europe in exchange for repayment of$100,000 of intercompany debt and the assumption of liabilities. The Companyrecorded a net charge of $1.2 million in the fourth quarter of 2001 relating tothe disposition of Isaacs Europe. In November 2001, the Company disclosed itsintent not to renew its licensing agreements with Beverly Hills Polo Club inthe United States and Europe. Both of these licenses expired on December 31,2001.

 

**Design and Merchandising**

 

The Company’sdesigners and merchandisers travel around the world to monitor emerging fashiontrends and search for styling inspiration and fabrics. These sources, togetherwith new styling and graphics developed by the Company’s designers, serve asthe primary creative influences for the Company’s product lines.In addition,merchandisers and designers involved with the development of Girbaud productsare provided with the Girbaud collections from Europe twice a year andcollaborate with Marithé and François Girbaud and their staff in thedevelopment of the Company’s Girbaud product lines for sale in the UnitedStates. Merchandisers also regularly meet with sales management to gainadditional market insight and further refine the products to be consistent withthe needs of each of the Company’s markets.The Company’s in-house design andproduct development is carried out by merchandising departments in New York.Many of the Company’s products are developed using computer-aided designequipment, which allows designers to view 

 

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and easily modify imagesof a new design.The Company currently has 5 people on the design staff in NewYork City.  Design expenditures wereapproximately $2.1 million in 2000 and $1.1 million in 2001.

 

**Advertising and Marketing**

 

The Company pridesitself on its ability to efficiently utilize its media advertising budget.Although the Company spent approximately $1.8 million or 2.2% of net sales onadvertising in 2001, this is still a relatively modest amount as compared withsome of its competitors. In 2000, the Company’s expenditures for advertisingand marketing activities totaled $2.0 million or 2.1% of net sales.

 

The Companyaggressively communicates and reinforces the brand and image of its Girbaudproducts through creative and innovative advertising and marketing efforts. TheCompany’s advertising and marketing strategies are directed by its nationalsales offices and developed in collaboration with its advertising agencies andwith Girbaud’s European offices and Paris advertising agency. The Company’sadvertising strategy is geared towards its youthful and contemporary consumers,whose lifestyles are influenced by music, sports and fashion. Its advertisingcampaigns have evolved from trade magazines to a wide variety of media,including billboards, fashion magazines, radio and special events.

 

The Company has amultifaceted marketing campaign for its Girbaud brand, which includes printadvertisement in magazines such as *Jane*, *Marie Claire, Spin, Stuff and Vibe.* The campaign also includes outdooradvertising, including billboards, point of sale materials and promotions, andcelebrity wardrobing. The Company is a sponsor for the U.S.Tour of the GrammyAward winning R&B artist *Usher.*As a first tier designer brand,Girbaud also presents international runway shows and appears in major tradeshows.

 

Recognizing thatpoint of sale brand presentation and images are highly effective, the Companyalso provides an array of in-store signage, fixtures and product videos for itsGirbaud products. In addition, through the “Shop-in-Shop” concept, the Companyprovides key department stores and specialty stores with both fixtures andvisuals to enhance brand recognition and to differentiate Girbaud products fromother branded apparel. The Girbaud “Shop-in-Shops” are designed to create anenvironment that is consistent with the image of Girbaud as a unique designerbrand. Currently, approximately 53 stores are using the “Shop-in-Shop” conceptto showcase the Company’s Girbaud products. During the last few years,  many large retailers began exercising greatercontrol over the layout and displays within their stores. It is unclear howthis will affect the Company’s “Shop-in-Shop” program.

 

**Product Sourcing**

 

*General*

 

The Companybelieves that its sourcing capabilities enable it to effectively control the timing,quality and pricing of products while providing customers with increasedvalue.During 2001, the Company used both domestic and foreign contractors forthe production of its products. Substantially all of the Company’smanufacturing and sourcing in 2001 was done by third parties througharrangements with independent contractors. Each of the Company’s independentcontractors and independent buying agents has an agreement with the Companypursuant to which it performs manufacturing or purchasing services for theCompany on a non-exclusive basis. The Company evaluates its contractorsfrequently and believes that there are a number of manufacturers capable ofproducing products that meet the Company’s quality standards. The Companyrepresents a significant portion of many of its contractors’ production and hasthe ability to terminate its arrangements with any of its contractors at anytime. A change in suppliers, however, could cause a delay in manufacturing anda possible loss of sales which could adversely affect operating results.

 

*Asia*

 

By the end of2001, virtually all of the Company’s sportswear products other than t-shirtsare produced by approximately 20 different manufacturers in 5 countries inAsia.During 2001, one of the Company’s Asian contractors accounted forapproximately 23% of the Company’s total unit production in 2001. The Companyhas well established relationships with many of its contractors, although itdoes not have written agreements with them.The Company retains 

 

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independent buying agentsin various countries in Asia to assist in selecting and overseeing independentmanufacturers, sourcing fabric, trim and other materials and monitoringquotas.Independent buying agents also perform quality control functions onbehalf of the Company, including inspecting materials and manufactured productsprior to accepting delivery. The sourcing and merchandising staffs in theCompany’s New York offices oversee Asian fabric and product development, apparelmanufacturing, price negotiation and quality control, as well as the researchand development of new Asian sources of supply. Asian production representedapproximately 50% of the Company’s total unit production in 2001 as a result ofthe transfer of production from Mexico to Asia during 2001. This shift inpurchasing requires the Company to estimate sales and issue purchase orders forinventory well in advance of receiving firm orders from its customers. A riskto the Company is that its estimates may differ from actual orders. If thishappens, the Company may miss sales because it did not order enough, or it mayhave to sell excess inventory at reduced prices.

 

The Company seeksto achieve the most efficient means for the timely delivery of its high qualityproducts. With rare exceptions, the Company does not purchase fabrics butinstead negotiates a finished garment price from its contractors in Asia. Thecontractor must then purchase the approved fabric as part of the package. Allof the Company’s products manufactured abroad are paid for in United Statesdollars. Accordingly, the Company does not engage in any currency hedgingtransactions.

 

*United States and Mexico*

 

Until 2001, theCompany utilized third party independent contractors in Mexico for productionof slacks, jeans shorts and skirts. During 2001, Mexican production representedapproximately 13% of the Company’s total unit production, however,  the Company discontinued the use of theseindependent contractors in Mexico and has shifted this production to Asia.

 

To take advantageof the shorter production time associated with t-shirt products, the Companypurchases 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 independentcontractors within the United States to be screen printed, embroidered or both,before being sent back as a finished product to fulfill orders. T-Shirtproduction represented approximately 37% of the Company’s total unit productionin 2001.

 

**Warehousing and Distribution**

 

The Companyservices its United States customers utilizing the 70,000 square footCompany-owned and operated distribution center in Milford, Delaware. TheCompany has established a computerized “Warehouse Management System” withreal-time internal tracking information and the ability to provide itscustomers with electronically transmitted “Advance Shipping Notices.” Theaccuracy of shipments is increased by the ability to scan coded garments at thepacking operation. This process also provides for computerized routing andcustomer invoicing. The vast majority of shipments are handled by UPS, commoncarriers or parcel post.

 

Isaacs Europeserviced the Company’s European customers through a contractual arrangementwith a distribution center in Barcelona, Spain where the Company maintained itsEuropean headquarters. On December 20, 2001, the Board of Directors voted tosell all of the outstanding common stock of Isaacs Europe. Subsequently, theCompany sold 100% of the outstanding common stock of Isaacs Europe to amanagement group of Isaacs Europe in exchange for repayment of $100,000 ofintercompany debt and the assumption of liabilities.

 

**Quality Control**

 

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

 

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All garmentsproduced for the Company in Asia must be produced in accordance with theCompany’s specifications. The Company’s import quality control program isdesigned to ensure that the Company’s products meet its high quality standards.The Company monitors the quality of fabrics prior to the production of garmentsand inspects prototypes of products before production runs are commenced. Insome cases, the Company requires its agents or manufacturers to submit fabricto an independent outside laboratory for testing prior to production. TheCompany requires each agent to perform both in-line and final quality controlchecks during and after production before the garments leave the contractor.Personnel from the Company’s New York office also visit Asia to conductinspections.

 

**Backlog and Seasonality**

 

The Company’sbusiness is impacted by the general seasonal trends that are characteristic ofthe apparel and retail industries. In the Company’s segment of the apparelindustry, sales are generally higher in the first and third quarters. TheCompany generally receives orders for its products three to five months priorto the time the products are delivered to the stores. As of December 31,2001, the Company had unfilled orders of approximately $24.0 million,compared to approximately $32.0 million of such orders as of December 31,2000. The Company expects to fill substantially all of these orders in 2001.The backlog of orders at any given time is affected by a number of factors,including seasonality, weather conditions, scheduling of manufacturing andshipment of products. The backlog at December 31, 2001 consists entirely oforders for the Company’s Girbaud products. The backlog at December 31, 2000consisted of orders for the Company’s Girbaud, BOSS and BHPC products. Thebacklog for Girbaud products at December 31, 2000 was $24.0 million**.**Allsuch orders are subject to cancellation for causes such as late delivery.Accordingly, a comparison of backlogs of orders from period to period is notnecessarily meaningful and may not be indicative of eventual actual shipments.

 

**Licenses and Other Rights Agreements**

 

The Company’sbusiness is dependent upon its use of the Girbaud brand names and images, whichare in turn dependent upon the existence and continuation of certain licensesas described below.

 

*Girbaud Licenses*

 

*Girbaud Domestic Licenses*

 

InNovember 1997, the Company entered into an exclusive license agreement(the “Girbaud Men’s Agreement”) with Girbaud Design, Inc. and its affiliateWurzburg 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, theGirbaud Men’s Agreement was amended and restated to include active influencedsportswear as a licensed product category and to name Latitude Licensing Corp.as the licensor (the “Licensor”). Also in March 1998, the Company enteredinto an exclusive license agreement (the “Girbaud Women’s Agreement” and,together with the Girbaud Men’s Agreement, the “Girbaud Agreements”) with theLicensor to manufacture and market women’s jeanswear, casualwear and outerwear,including active influenced sportswear, under the Girbaud Marks in all channelsof distribution in the United States, including Puerto Rico and the U.S. VirginIslands. The Girbaud Agreements include the right to manufacture the licensedproducts in a number of foreign countries, and both had initial terms of twoyears. The Girbaud Agreements have been extended until December 31, 2002,upon which date the Company will have the option to renew the agreements for anadditional five years. The Girbaud Agreements generally allow the Company touse the Girbaud Marks on apparel designed by or for the Company or based ondesigns and styles previously associated with the Girbaud brand, subject toquality control by the Licensor over the final designs of the products,marketing and advertising material and manufacturing premises. The GirbaudAgreements provide that they may be terminated by the Licensor upon theoccurrence of certain events, including, but not limited to, a breach by theCompany of certain obligations under the agreements that remain uncuredfollowing certain specified grace periods.

 

Under the GirbaudMen’s Agreement the Company is required to make payments to the Licensor in anamount equal to 6.25% of the Company’s net sales of regular licensedmerchandise and 3.0% in the case of certain irregular and closeout licensedmerchandise. The Company was subject to guaranteed minimum annual royaltypayments of $2.5 million in 2001, and is subject to guaranteed minimum annualroyalty payments of  $3.0 million eachyear from 2002

 

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through 2007. On amonthly basis during the term, the Company is obligated to pay 8.3% of theminimum guaranteed royalties for that year. On a quarterly basis during theterm, the Company is required to pay the amount that the actual royaltiesexceed the total minimum guaranteed royalties for that quarter. The Company isrequired to spend the greater of an amount equal to 3% of Girbaud men’s netsales or $500,000 in advertising and related expenses promoting the men’sGirbaud brand products in each year through the term of the Girbaud men’sagreement.

 

Under the GirbaudWomen’s Agreement the Company is required to make payments to the Licensor inan amount equal to 6.25% of the Company’s net sales of regular licensedmerchandise and 3.0% in the case of certain irregular and closeout licensedmerchandise. The Company was subject to guaranteed minimum annual royaltypayments of $1.0 million in 2001, and is subject to guaranteed minimum annualroyalty payments of $ $1.5 million each year from 2002 through 2007. On amonthly basis during the term, the Company is obligated to pay 8.3% of theminimum guaranteed royalties for that year. On a yearly basis, the Company isrequired to pay the amount that the actual royalties exceed the total minimumguaranteed royalties for that year. The Company is required to spend thegreater of an amount equal to 3% of Girbaud women’s net sales or $400,000 inadvertising and related expenses promoting the women’s Girbaud brand productsin 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 tocontribute $190,000 per year to the Licensor’s advertising and promotionalexpenditures for the Girbaud brand.

 

The GirbaudWomen’s Agreement initially required the Company to open a Girbaud flagshipstore for the sale of the Company’s Girbaud men’s and women’s lines and otherGirbaud licensed merchandise in New York City by the end of 1998. InDecember 1998, the Girbaud Women’s Agreement was amended to defer thisrequirement for one year and to provide that the Company would spend anadditional $1.8 million on enhanced sales and marketing in 1999. In August,1999, the Company issued 500,000 shares of restricted common stock to LatitudeLicensing Corp. in connection with an amendment of the Girbaud Women’sAgreement to further defer the obligation to open a Girbaud retail store. Underthe new agreement, if the Company has not signed a lease agreement for aGirbaud retail store by July 31, 2002, it will become obligated to payLatitude Licensing Corp. an additional $500,000 in royalties. During 2001, theCompany  decided not to sign a leaseagreement for a Girbaud retail store and paid $175,000 of this royalty, theremainder of which will be paid by July 31, 2002. The entire amount has beenexpensed in the fourth quarter of 2001.

 

In January 2000,the Company entered into a global sourcing agreement with G.I. Promotions toact as a non–exclusive sourcing agent to licensees of the Marithé & FrançoisGirbaud trademark for the manufacture of Girbaud jeanswear and sportswear. Theglobal sourcing agreement extends until December 31, 2003 and provides that theCompany shall net a facilitation fee of 5.0% of the total FOB pricing for eachorder shipped to licensees under the agreement. Also in January 2000, theCompany entered into a license agreement with Wurzburg. The license has a termof three years and provides that the Company shall pay Wurzburg a royalty of1.0% of the total FOB pricing for each order shipped to a licensee under theglobal sourcing agreement.

 

In May 2000, theCompany entered into an exclusive distribution agreement for Girbaud men’s andwomen’s jeanswear and sportswear products in Canada. The Company will sell toWestern Glove Works (“Distributor”) Girbaud products produced in North Americaat cost plus 12.0%, which is less than its normal profit margins on sales ofcomparable products to the Company’s retail customers. For products purchasedby the Distributor from overseas, the Distributor will pay a distributor’s feeequal to 6.75% of net sales to the Company. Under the agreement, theDistributor 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 termof the agreement expired on December 31, 2001. Under the agreement, theDistributor may renew the agreement for six additional one-year terms. TheDistributor renewed the agreement with the Company for an additional one-yearterm that expires on December 31, 2002. The minimum sales level for calendaryear 2002 is $2,000,000 (Canadian Dollars), which will result in a minimumdistribution fee payable to the Company of $60,000 (Canadian Dollars). Theminimum 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). There were no minimum sales levels or distribution fees forcalendar year 2000.

 

The Company isobligated to pay a minimum of $5.9 million during 2002 in the form of minimumroyalty payments, advertising and promotional expenses pursuant to the Girbaudlicense agreements. Presently, the Company has no obligations beyond 2002,however, the Company will have additional obligations if the Girbaud licensesare extended

 

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past December 31, 2002,as expected. In 2002, the Company expects that substantially all of its netsales will come from apparel associated with the Girbaud licenses.

 

*Beverly Hills Polo Club Licenses*

 

Until December2001, the Company held exclusive licenses with BHPC Marketing, Inc. for themanufacture and promotion of certain men’s and boy’s sportswear bearing theregistered trademark Beverly Hills Polo Club (the “BHPC Trademark”). Under theBeverly Hills Polo Club licensing agreements in the United States and PuertoRico, the Company was required to notify the licensor by June 30, 2001 of theCompany’s intention to renew the licenses for both men’s and boys’ sportswear.The Company did not notify the licensor and allowed both of these licenses toexpire on December 31, 2001. The Company was subject to a guaranteed payment of$586,000 in 2001. Under the license for men’s sportswear, guaranteed minimumannual royalties and guaranteed annual net shipments for the most recent termwere equal to the greater of (i) 80.0% of the immediately precedingcontract year’s actual royalties and net shipments or (ii) the previousyear’s guaranteed minimum royalty and guaranteed net shipments. Under thelicense for boys’ sportswear, the Company was subject to guaranteed minimumannual royalties of  $100,000 in theyear 2001.

 

Until December 31,2001, Isaacs Europe held retail and wholesale license agreements (collectively,the “International Agreements”) for use of the BHPC Trademark in Europe. TheInternational Agreements were subject to substantially the same terms andconditions as the Beverly Hills Polo Club licensing agreements described above.Under the International Agreements, as amended, Isaacs Europe was not requiredto pay any guaranteed minimum annual royalties or to meet guaranteed netshipment volumes for the period beginning on January 1, 2000 and ending on June30, 2000, and was required to pay a royalty rate of 3.0% on wholesale sales ofBeverly Hills Polo Club products, including purchases of Beverly Hills PoloClub products by Beverly Hills Polo Club retail stores in Europe (“WholesalePurchases”) for the period beginning July 1, 2000 and ending December 31, 2000;however, no guaranteed annual royalties applied. For the period beginningJanuary 1, 2001 and ending December 31, 2001, the International Agreements, asamended, required Isaacs Europe to pay royalties at a rate of 3.0% of WholesalePurchases, and further required a guaranteed annual royalty of $120,000. IsaacsEurope paid a total of $9,500 and $32,000 in royalties for 2000 and 2001,respectively, under the International Agreements, as amended. The InternationalAgreements expired on December 31, 2001. On December 20, 2001, the Board ofDirectors voted to sell all of the outstanding common stock of Isaacs Europe.Subsequently, the Company sold 100% of the outstanding common stock of IsaacsEurope to a management group of Isaacs Europe in exchange for repayment of$100,000 of intercompany debt and the assumption of liabilities. The Companyrecorded a net charge of $1.2 million in the fourth quarter of 2001 relating tothe disposition of the Isaacs Europe. In November 2001, the Company disclosedits intent not to renew its licensing agreements with Beverly Hills Polo Clubin the United States and Europe. Both of these licenses expired on December 31,2001.

 

**Credit Control**

 

The Companymanages its own credit and collection functions and has never used a factoringservice or outside credit insurance. The Company sells to approximately 2,300accounts throughout the United States and Puerto Rico. All of the functionsnecessary to service this large volume of accounts are handled by the Company’sin-house credit department in Baltimore, Maryland. The Company extends creditto its customers. Accordingly, the Company may have significant risk incollecting accounts receivable from its customers. The Company has creditpolicies and procedures which it uses to minimize exposure to credit losses.The Company currently employs five people in its credit department and believesthat managing its own credit gives it unique flexibility as to which customersthe Company should sell and how much business it should do with each. The Companyobtains and periodically updates information regarding the financial conditionand credit histories of customers. The Company’s collection personnel evaluatethis information and, if appropriate, establish a line of credit. Creditpersonnel track payment activity for each customer using customized computersoftware and directly contact customers with receivable balances outstandingbeyond 30 days. If these collection efforts are unsuccessful, the Company maydiscontinue merchandise shipments until the outstanding balance is paid.Ultimately, the Company may engage an outside collection organization tocollect past due accounts. Timely contact with customers has been effective inreducing credit losses to an immaterial amount. In 2000 and 2001, the Company’scredit losses were $0.9 million and $1.0 million, respectively and theCompany’s actual credit losses as a percentage of net sales were 1.0% and 1.2%,respectively. 

 

7

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**Competition**

 

The apparel industryis highly competitive and fragmented and is subject to rapidly changingconsumer demands and preferences. The Company believes that its continuedsuccess depends in large part upon its ability to anticipate, gauge and respondto changing consumer demands and fashion trends in a timely manner and upon thecontinued appeal to consumers of the Girbaud brand. The Company competes withnumerous apparel brands and distributors (including *Buffalo,Calvin Klein, Diesel, DKNY,Guess?, Nautica, Polo Jeans, Sean Jean, and Tommy Jeans*). Many ofthe Company’s competitors have greater financial resources than the Company.Although the level and nature of competition differ among its productcategories, the Company believes that it competes on the basis of its brand image,quality of design and value pricing. The Company continued to experienceintense competition in 2001 from many established and new competitors at boththe specialty store and department store channels of distribution. Under theGirbaud 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’sproducts. Any such production, distribution, advertisement or sale of suchgarments by such licensor or another authorized party could have a materialadverse effect on the Company’s financial condition or results of operations.

 

**Management Information Systems**

 

The Companybelieves that advanced information processing is essential to maintaining itscompetitive position. The Company’s systems provide, among other things,comprehensive order processing, production, accounting and managementinformation for the marketing, selling, manufacturing, retailing anddistribution functions of the Company’s business. The Company’s softwareprograms allow it to track, among other things, orders, manufacturingschedules, inventory and sales of its products. The programs includecentralized management information systems, which provide the various operatingdepartments with financial, sales, inventory and distribution relatedinformation. Via electronic data interchange, the Company is able to shiporders, from inventory on hand, to certain customers within 24 to 72 hours fromthe time of order receipt.

 

**Employees**

 

The Companybelieves that its employees are one of its most valuable resources. As ofMarch 29, 2002, the Company had approximately 125 full-time employees. TheCompany is not a party to any labor agreements, and none of its employees isrepresented by a labor union. The Company considers its relationship with itsemployees to be good and has not experienced any material interruption of itsoperations due to labor disputes.

 

**Environmental Matters**

 

The Company issubject to federal, state and local laws, regulations and ordinances that(i) govern activities or operations that may have adverse environmentaleffects (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 ofcontaminated property, including damages from spills, disposals or otherreleases of hazardous substances or wastes, in certain circumstances withoutregard to fault. Certain of the Company’s operations routinely involve thehandling of chemicals and waste, some of which are or may become regulated ashazardous substances. The Company has not incurred any significant expendituresor liabilities for environmental matters. Although the Company believes thatits environmental obligations will not have a material adverse effect on itsfinancial condition or results of operations, environmental compliance mattersare subject to inherent risks and uncertainties.

 

8

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**ITEM 2.PROPERTIES**

 

Certaininformation concerning the Company’s principal facilities is set forth below: 

 
| **Location**  |   | **Leased or  Owned** |   | **Use**                                                    |   | **Approximate Area in****Square 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 also has regional sales offices, all of which are leased,in the following cities: Atlanta, Georgia; Dallas, Texas; Miami, Florida; andLos Angeles, California. The Company believes that its existing facilities arewell maintained and in good operating condition. See “ITEM 1. Business—Warehousingand Distribution”. The Company executed a security agreement in favor of Ambraand agreed to grant a mortgage or deed of trust on the Company’s real estate inMilford, Delaware and Baltimore, Maryland as security for the Company’sobligations under a note payable to Ambra. See “Item 7. Management’s DiscussionAnd Analysis Of Financial Condition And Results Of Operations - Termination ofthe BOSS License Agreement”.

 

**ITEM 3. LEGAL PROCEEDINGS**

** **

The Company andcertain of its current and former officers and directors were named asdefendants in three putative class actions filed in United States DistrictCourt for the District of Maryland. The first of the actions was filed onNovember 10, 1999 by Leo Bial and Robert W. Hampton. The threeactions, which were consolidated with Mr. Bial as the first-named plaintiff,purported to have been brought on behalf of all persons (other than thedefendants and their affiliates) who purchased the Company’s stock betweenDecember 17, 1997 and November 11, 1998. The plaintiffs alleged thatthe registration statement and prospectus issued in connection with theCompany’s initial public offering, completed in December 1997, containedmaterially false and misleading statements, which artificially inflated theprice of the Company’s stock during the class period. Specifically, thecomplaints alleged violations of Sections 11, 12(a)(2) and 15 of theSecurities Act of 1933. The plaintiffs sought recision, damages, costs andexpenses, including attorneys’ fees and experts’ fees, and such other relief aswas just and proper. On November 20, 2001 a federal judge approved thesettlement of the cases. Under terms of the settlement, all claims against theCompany and all of the other defendants were dismissed without admission ofliability or wrongdoing by any party. The settlement was funded entirely by theCompany’s insurance carrier, and the settlement payment had no adverse effecton the Company’s financial position or results of operations.

 

**ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

During the fourthquarter of 2001, there were no matters submitted to a vote of the Company’sstockholders.

 

9

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**PARTII**

 

**ITEM5. MARKET FOR THE COMPANY’S COMMON EQUITY AND RELATED****STOCKHOLDER MATTERS**

 

The market for theCompany’s Common Stock is not an exchange but is the OTC Bulletin Board,  an established quotation service regulatedby the National Association of Securities Dealers. As of March 28, 2002, the Companyhad 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 underthe Symbol “ISAC.” On July 19, 2001, the Company’s securities were delistedfrom the NASDAQ National Market. Shares of the Company’s Common Stock are nowtraded on the OTC  Bulletin Board underthe ticker symbol “ISAC.OB”. The reported last sale price of the Common Stockon the OTC Bulletin Board on March 28, 2002 was $0.45. The following tablesets forth for the periods indicated the high and low closing sale prices forthe Common Stock reported by the Nasdaq National Market and the OTC BulletinBoard: 

 
| **Quarter  Ended** |   | **High** |   |       |   | **Low**  |   |   |       | **High** |   |   |   | **Low**    |   |
|--------------------|--------|----------|--------|------------|--------|----------|--------|--------|------------|----------|--------|--------|--------|------------|--------|
|               |   | **2001** |   |       |   | **2000** |   |
| March 31           |   | $        | 0.94   | ** ** | *****  |     | $      | 0.44   | ** ** | *        |   | $      | 3.00   | ** ** | *      |   | $ | 1.3125 | ***** |
| June 30            |   | $        | 1.00   | ** ** | *      |     | $      | 0.28   | ** ** | *        |   | $      | 3.00   | ** ** | *      |   | $ | 1.375 | ***** |
| September 30       |   | $        | 0.67   | ** ** | *      |     | $      | 0.25   | ** ** | **       |   | $      | 2.375  | ** ** | *      |   | $ | 1.25 | ***** |
| December 31        |   | $        | 0.80   | ** ** | **     |     | $      | 0.25   | ** ** | **       |   | $      | 1.75   | ** ** | *      |   | $ | 0.375 | ***** |

 

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

********         ****Denotes closing sales price from the OTC Bulletin Boardwithout dealer mark-ups, markdowns or commissions and may not be representativeof the actual transaction.**

 

The Companyanticipates that all earnings of the Company will be retained for theforeseeable future for use in the operation of the Company’s business. Anyfuture determination as to the payment of dividends will be at the discretionof the Company’s Board of Directors and will depend upon the Company’s resultsof operations, financial condition, restrictions in the Company’s creditfacilities 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 stockholdersadopted the 1997 Omnibus Stock Plan (the “Plan”). The purpose of the Plan is topromote the long-term growth and profitability of the Company by providing keypeople with incentives to improve stockholder value and contribute to thegrowth and financial success of the Company, and by enabling the Company toattract, retain and reward the best-available persons for positions ofsubstantial responsibility. The maximum number of shares of Common Stock thatcould be issued with respect to awards granted under the Plan was 500,000. TheBoard of Directors approved an increase in the shares of Common Stock that maybe issued with respect to awards granted under the Plan to an aggregate of1.1 million shares, which increase was approved by the Company’sstockholders at the 1999 annual meeting of stockholders (the “Annual Meeting”).The Plan is administered by the Compensation Committee of the Board ofDirectors.Participation in the Plan is open to all employees, officers,directors and consultants of the Company or any of its affiliates, as may beselected by the Compensation Committee from time to time. The Plan allows forstock options, stock appreciation rights, stock awards, phantom stock awardsand performance awards to be granted. The Compensation Committee will determinethe prices, vesting schedules, expiration dates and other material conditionsupon which such awards may be exercised. Through December 31, 2001, theCompany had granted stock options under the Plan exercisable upon vesting foran aggregate of 1,086,250 stock options. The weighted average exercise price ofsuch options is $1.47 per share. Through December 31, 2001, none of thosestock options had been exercised. The issuance of such stock options was exemptfrom the registration requirements of the Securities Act of 1933, as amended,pursuant to Section 4(2) thereunder. The Company previously filed aRegistration Statement on Form S-8 (the “Form S-8”) to registershares of Common Stock issuable pursuant to awards granted under the Plan.

 

In November 1999and May 2000, the Company issued an aggregate of 3.3 million shares of Series AConvertible

 

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Preferred Stock, parvalue $.001, of the Company (“Preferred Stock”) to Ambra Inc.(“Ambra”). Exceptas set forth below, the Preferred Stock has all of the same preferences, rightsand voting powers as the common stock. The Preferred Stock is not entitled tovote on any matters to be voted upon by the stockholders of the Company, exceptthat the holders of the Preferred Stock are entitled to vote as a separateclass, and the vote of a majority of the outstanding shares of Preferred Stockis required for the creation of an equity security senior to the PreferredStock or the amendment of the certificate of incorporation or by-laws of theCompany to the detriment of the holders of the Preferred Stock. The PreferredStock has a liquidation preference of $1.00 per share plus any declared butunpaid dividends on the Preferred Stock. The Company may redeem, from March 15,2001 to June 30, 2002, any or all of the Preferred Stock (i) at any time priorto July 1, 2002, at a redemption price of $1.00 per share (ii) at any time fromJuly 1, 2002, through December 31, 2002, for the greater of $1.00 per share oran amount equal to the market value of the number of shares of common stockthat the holder of the Preferred Stock would have held had the shares ofPreferred Stock to be redeemed been converted into common stock immediatelyprior 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 LicenseRights Termination Agreement, Ambra may demand a redemption of the PreferredStock at a redemption price of $1.00 per share.

 

The PreferredStock is 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 amountequal 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 21months or (ii) common stock of the Company at a 1:1 conversion ratio. Forfinancial reporting purposes, the Preferred Stock will be considered redeemablePreferred Stock and will be classified outside of stockholders’ equity.

 

**ITEM6. SELECTED FINANCIAL DATA**

 

The selectedfinancial data set forth below have been derived from the consolidatedfinancial statements of the Company and the related notes thereto. Thestatement of operations data for the years ended December 31, 1999, 2000and 2001 and the balance sheet data as of December 31, 2000 and 2001 arederived from the consolidated financial statements of the Company which havebeen audited by BDO Seidman, LLP, independent certified public accountants,included elsewhere herein. The statement of operations data for the years endedDecember 31, 1997 and 1998 and the balance sheet data as ofDecember 31, 1997, 1998 and 1999 are derived from the consolidatedfinancial statements of the Company, which have been audited but are not containedherein. The following selected financial data should be read in conjunctionwith the Company’s consolidated financial statements and the related notesthereto and “Management’s Discussion and Analysis of Financial Condition andResults of Operations,” which are included elsewhere herein.

 

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|                                                                  |   | **Year Ended  December 31,**              |    |
|-----------------------------------------------------------------------|--------|-------------------------------------------|---------|
|                                                                  |   | **1997**                                  |    | **1998** |   | **1999** |   | **2000** |   | **2001** |   |
| **Statement of Income Data: (3)**                                     |   | **(in  thousands except per share data)** |    |
| Net sales                                                             |   | $                                         | 160,903 |   | $ | 112,598 |   | $ | 83,463 |   | $ | 95,861 |   | $ | 82,312 |   |
| Cost of sales                                                         |   | 109,204                                   |    | 89,595 |   | 60,956 |   | 67,031 |   | 55,108 |   |
| Gross profit                                                          |   | 51,699                                    |    | 23,003 |   | 22,507 |   | 28,830 |   | 27,204 |   |
| Selling expenses                                                      |   | 16,104                                    |    | 16,734 |   | 12,330 |   | 14,464 |   | 12,369 |   |
| License fees                                                          |   | 7,550                                     |    | 5,854 |   | 6,977 |   | 8,343 |   | 5,211 |   |
| Distribution and  shipping expenses                                   |   | 4,267                                     |    | 3,800 |   | 2,790 |   | 3,192 |   | 2,976 |   |
| General and  administrative expenses                                  |   | 7,325                                     |    | 9,576 |   | 7,754 |   | 7,229 |   | 6,648 |   |
| Termination of  license agreement                                     |   | —                                    |    | — |   | — |   | 8,068 |   | — |   |
| Provision for  severance                                              |   | —                                    |    | 526 |   | 750 |   | 385 |   | 726 |   |
| Impairment of  intangibles                                            |   | —                                    |    | — |   | — |   | 743 |   | — |   |
| Recovery of  legal fees                                               |   | (117                                      | )       | — |   | — |   | — |   | — |   |
|                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |
| Operating income  (loss)                                              |   | 16,570                                    |    | (13,487 | ) | (8,094 | ) | (13,594 | ) | (726 | ) |
| Interest, net                                                         |   | 2,372                                     |    | 1,455 |   | 1,624 |   | 1,337 |   | 1,307 |   |
| Other income  (expense)                                               |   | 3                                         |    | 373 |   | 353 |   | 139 |   | (149 | ) |
| Minority  interest                                                    |   | (135                                      | )       | — |   | — |   | — |   | — |   |
|                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |
| Income (loss)  from continuing operations before income taxes         |   | 14,066                                    |    | (14,566 | ) | (9,365 | ) | (14,792 | ) | (2,182 | ) |
| Income tax  (provision)/benefit                                       |   | 1,349                                     |    | (1,351 | ) | (110 | ) | 48 |   | — |   |
|                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |
| Income (loss)  from continuing operations                             |   | 15,415                                    |    | (15,917 | ) | (9,475 | ) | (14,744 | ) | (2,182 | ) |
|                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |
| Loss from  operations of discontinued subsidiary                      |   | (367                                      | )       | (876 | ) | (737 | ) | (503 | ) | (1,310 | ) |
| Loss from sale  of discontinued subsidiary                            |   | —                                    |    | — |   | — |   | — |   | (1,182 | ) |
|                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |
| Loss from  discontinued operations                                    |   | —                                    |    | (876 | ) | (737 | ) | (503 | ) | (2,492 | ) |
|                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |
| Net income  (loss)                                                    |   | $                                         | 15,048  |   | $ | (16,793 | ) | $ | (10,212 | ) | $ | (15,247 | ) | $ | (4,674 | ) |
|                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |
| Basic and  diluted income (loss) per share from continuing operations |   | $                                         | 3.77    | (1) | $ | (2.04 | ) | $ | (1.37 | ) | $ | (1.93 | ) | $ | (0.28 | ) |
|                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |
| Basic and  diluted loss per share from discontinued operations        |   | (0.09)                                    | (1)     | (0.11 | ) | (0.10 | ) | (0.07 | ) | (0.32 | ) |
|                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |
| Basic and  diluted net income (loss) per share                        |   | $                                         | 3.68    | (1) | $ | (2.15 | ) | $ | (1.47 | ) | $ | (2.00 | ) | $ | (0.60 | ) |
| Weighted average  common shares outstanding                           |   | 4,094                                     |    | 7,810 |   | 6,935 |   | 7,639 |   | 7,854 |   |

 

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|                                                           |   | **Year Ended  December 31,** |       |
|----------------------------------------------------------------|--------|------------------------------|------------|
| **Pro Forma Statement of Income Data:**                        |   | **1997**                     | ** ** |
| Income from  continuing operations before income taxes         |   | $                            | 14,066     |   |
| Income tax  provision (2)                                      |   | (5,617                       | )          |
|                                                           |   |                         |       |
| Income from  continuing operations                             |   | 8,449                        |       |
| Loss from  discontinued operations                             |   | (367                         | )          |
|                                                           |   |                         |       |
| Net income                                                     |   | $                            | 8,082      |   |
|                                                           |   |                         |       |
| Basic and  diluted income per share from continuing operations |   | $                            | 1.69       |   |
|                                                           |   |                         |       |
| Basic and  diluted loss per share from discontinued operations |   | $                            | (0.07      | ) |
|                                                           |   |                         |       |
| Basic and  diluted net income per share                        |   | $                            | 1.62       |   |
|                                                           |   |                         |       |
| Weighted average  common shares outstanding                    |   | 5,001                        |       |

 
|                        |   | **As of  December 31,** |   |
|-----------------------------|--------|-------------------------|--------|
|                        |   | **1997**                |   | **1998** |   | **1999** |   | **2000** |   | **2001** |   |
| **Balance Sheet Data:**     |   |                    |   |   |   |   |   |   |   |   |   |
| Working capital             |   | $                       | 45,940 |   | $ | 31,577 |   | $ | 22,610 |   | $ | 16,777 |   | $ | 11,154 |   |
| Total assets                |   | 73,443                  |   | 59,046 |   | 40,435 |   | 36,430 |   | 22,333 |   |
| Total debt                  |   | 11,609                  |   | 13,848 |   | 3,651 |   | 14,813 |   | 6,841 |   |
| Redeemable  preferred stock |   | —                  |   | — |   | 2,000 |   | 3,300 |   | 3,300 |   |
| Stockholders’  equity  |   | 52,496                  |   | 37,313 |   | 27,751 |   | 13,503 |   | 8,816 |   |
|                             |        |                         |        |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  Historical earnings per share does notreflect a provision for income taxes as the Company had been taxed as anS corporation for the majority of 1997.

(2)                                  Reflects pro forma provision for incometaxes as if the Company had been taxed as a C Corporation for the year endedDecember 31, 1997.

(3)                                  Total losses of $2.5 million for thediscontinued operations of Isaacs Europe are included in the year endedDecember 31, 2001.  All prior periodshave been restated. 

 

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**ITEM7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

 

The followingdiscussion and analysis should be read in conjunction with the “SelectedFinancial Data” and the Company’s consolidated financial statements and therelated notes thereto, which are included elsewhere herein.

 

**Overview**

** **

During its first77 years, the Company became one of the leading manufacturers of pants,trousers and jeans in the United States. The Company was able to utilize itsfabric sourcing and manufacturing expertise to build a well known franchise inthe men’s and women’s bottoms segment of the apparel industry. In this period,the Company’s marketing efforts were typically driven by its manufacturingcapabilities, and branding was limited to Company-owned brands and third-partyprivate labels.

 

In the late1980’s, management made a decision to change the Company’s marketing focus froma manufacturing-driven to a brand-driven strategy. This fundamental shiftwithin the Company reflected senior management’s belief that the Americansportswear market would be dominated by recognized brands with clearlyestablished images. Management also concluded that increasing market sharewould go to those companies that were market-driven and able to service theircustomers with diversified manufacturing and sourcing capabilities. Recognizingits strength in bottoms manufacturing, in 1990 the Company entered into alicense agreement for the use of the BOSS brand name on men’s denim apparel andon all types of juniors’ sportswear for the young women’s market. In the fallof 1993, the Company entered into license agreements for the use of the BeverlyHills Polo Club brand name on men’s sportswear in the United States and PuertoRico. License rights were expanded to include Europe in 1996.

 

InNovember 1997, the Company acquired an exclusive license to manufactureand market certain men’s jeanswear and sportswear under the Girbaud brand inthe United States and Puerto Rico. The Girbaud brand is an internationallyrecognized designer sportswear label with a distinct European influence. Bytargeting men who desire contemporary international fashion, the Girbaud brandhas enabled the Company to address another consumer segment within its brandedproduct portfolio. The Company has positioned the Girbaud men’s line with abroad assortment of products, styles and fabrications reflecting a contemporaryEuropean look. The Company began marketing a fall men’s collection under theGirbaud brand in February 1998. In March 1998, the Company enteredinto an exclusive license agreement to manufacture and market certain women’sjeanswear and sportswear under the Girbaud brand in the United States andPuerto Rico. The Company began marketing women’s sportswear under the Girbaudbrand in the second quarter of 1998. The Company has positioned the Girbaudwomen’s line with a broad assortment of contemporary sportswear and jeanswearproducts. 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 brandproducts in each year through the term of the Girbaud men’s agreement. TheCompany is required to spend  thegreater of an amount equal to 3% of Girbaud women’s net sales or $400,000 inadvertising and related expenses promoting the men’s Girbaud brand products ineach year through the term of the Girbaud men’s agreement. In addition, theCompany is required to contribute $190,000 per year to the licensor’sadvertising and promotional expenditures for the Girbaud brand. InDecember 1998, the Girbaud women’s license agreement was amended toprovide that the Company would spend an additional $1.8 million in salesand marketing of the brand in 1999. Minimum royalty payments began in the firstquarter of 1998.

 

In May 2000, theCompany entered into an exclusive distribution agreement for Girbaud men’s andwomen’s jeanswear and sportswear products in Canada. The Company will sell toWestern Glove Works (“Distributor”) Girbaud products produced in North Americaat cost plus 12.0%, which is less than its normal profit margins on sales ofcomparable products to the Company’s retail customers. For products purchasedby the Distributor from overseas, the Distributor will pay a distributor’s feeequal to 6.75% of net sales to the Company. Under the agreement, theDistributor 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 termof the agreement expired on December 31, 2001. The Distributor may renew theagreement for six additional one-year terms. The Distributor renewed theagreement for an additional one-year term that expires on December 31, 2002.The minimum sales level for calendar year 2002 is $2,000,000 (CanadianDollars), which results 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 feepayable to the Company of $48,000 (Canadian Dollars). There were no minimumsales levels or distribution fees for calendar year 2000.

 

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The Company alsomanufactured and marketed a limited number of pants and jeans styles for womenunder its own “I.C. Isaacs” brand name and under third-party private labels forsale to major chain stores and catalogs and sportswear under the Company-ownedUrban Expedition brand. The Company discontinued production of the women’sCompany-owned and private label lines and the Company-owned  Urban Expedition (UBX) line in 2001.Substantially all remaining inventories of these products were  shipped during 2001.

 

By the end of the1990’s, the Company had completed its strategic repositioning from amanufacturing-driven company to a marketing and brand-driven company. Through astrategy of providing fashionable, branded merchandise, the Company has becomea fashion influence for youthful and contemporary consumers who purchasejeanswear and sportswear through specialty and department stores. The Company’sbrand-driven market strategy has been evidenced by the increase of licensed,branded apparel as a percentage of the Company’s net sales. In 2001, theGirbaud, Beverly Hills Polo Club and BOSS brands comprised 84.9%, 8.6% and 2.4%of net sales, respectively. This compares to 69.6%, 13.4% and 11.3% in 2000 and32.9%, 17.3% and 43.7% in 1999, respectively. The Company expects that licensedbranded sportswear will determine its product offerings. Concurrent with thisstrategy, the Company shifted its product mix from predominately bottoms to afull array of sportswear, including tops and outerwear.

 

                Based on itsperformance in 2001 and 2000, the Company believes that the Girbaud brand hasestablished itself as the dominant brand in the Company’s future. In the fourthquarter of 2000, the Company decided to dramatically reduce the use ofindependent contractors’ facilities in Mexico. In 2001, the Companydiscontinued the use of these contractors except for the purchase of t-shirtblanks. The production of these independent contractors in Mexico wastransferred to independent contractors in Asia. By moving this production toAsia, where the Company generally purchases garments as finished goods, theCompany believes it has obtained greater flexibility of quantities and stylesordered.

 

Over the pastseveral years, the Company has shifted its focus from various brands to theGirbaud brand exclusively. In 2000, the Company  terminated its license for use of the BOSS brand. Under theBeverly Hills Polo Club licensing agreements in the United States and PuertoRico, the Company was required to notify the licensor by June 30, 2001 of theCompany’s intention to renew the licenses for both men’s and boys’ sportswear.The Company did not notify the licensor and has allowed both of these licensesto expire on December 31, 2001. During 2002, the Company intends to focus allof its resources on the Girbaud men’s and women’s lines.

 

Historically, theCompany has recognized markdowns for specific unsold inventory in the secondand fourth quarters. These specific markdowns are reflected in cost of salesand the related gross margins at the conclusion of the appropriate sellingseason.

 

**Termination of the BOSS License Agreement**

 

In October 1999,the Company, Ambra Inc. (“Ambra”) and Hugo Boss A.G. (“Hugo Boss”) entered intocertain agreements including (i) a license agreement (the “BOSS LicenseAgreement”) granting the Company rights to manufacture and sell apparel usingthe BOSS brand name and (ii) an agreement pursuant to which the Company issuedto Ambra an aggregate of 3.3 million shares of Series A Convertible PreferredStock, par value $.0001 per share, of the Company (the “Preferred Stock”) and666,667 shares of common stock, par value $.0001, of the Company. The BOSSLicense Agreement had an initial term through December 31, 2003 and carriedminimum annual royalties of approximately $3.2 million in each of 2000 and2001, $2.6 million in 2002 and $2.1 million in 2003. The Preferred Stock wasredeemable at the option of the Company any time and from time to time and atthe option of Ambra upon the occurrence of certain acceleration events underthe BOSS License Agreement, in either case at a redemption price of $1.00 per share.Any and all unredeemed shares of Preferred Stock were convertible, at theoption of the holder, for a 60 day period beginning October 1, 2003, into apromissory note of the Company in a principal amount equal to $1.00 multipliedby the total number of shares of Preferred Stock being converted, with interestthereafter at an annual interest rate of 12%, payable in four quarterlyinstallments beginning January 1, 2004.

 

In October 2000,the Board of Directors of the Company authorized the appropriate officers ofthe Company to negotiate a termination of the BOSS License Agreement. In March2001, the Company, Ambra and Hugo Boss executed an agreement to terminate theCompany’s rights under the BOSS License Agreement (the “License RightsTermination

 

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Agreement”). Pursuant tothe License Rights Termination Agreement, (i) the Company issued to Ambra asubordinated secured promissory note (the “Note”) of the Company in theprincipal amount of $7.2 million, with principal and interest at an annual rateof 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, 2002through September 30, 2006 and (c) $407,085 on December 31, 2006; (ii) theCompany’s rights under the BOSS License Agreement (and the Company’s obligationto pay any royalties thereunder) were terminated; (iii) the Company agreed tosell or dispose of existing BOSS inventory by October 31, 2001; and (iv) the PreferredStock will be (a) redeemable by the Company until June 30, 2002 for $1.00 pershare, (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 valueof the number of shares of common stock which the holder of the Preferred Stockwould have held had the shares of Preferred Stock being redeemed been convertedto common stock immediately prior to such redemption; (c) redeemable by Ambraat any time upon an event of default under the Note; and (d) convertible byAmbra from January 1, 2003 through December 31, 2006 into (at Ambra’selection): (x) a subordinated secured promissory note of the Company in theamount 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 oftwenty-one (21) months or (y) common stock of the Company at a 1:1 conversionratio. The Company also executed a security agreement in favor of Ambra andagreed to grant a mortgage or deed of trust on the Company’s real estate inMilford, Delaware and Baltimore, Maryland as security for the Company’sobligations under the Note.

 

**Sale of Isaacs Europe**

** **

On December 20,2001, the Board of Directors voted to sell all of the outstanding common stockof Isaacs Europe. Subsequently, the Company sold 100% of the outstandingcommon stock of Isaacs Europe to a management group of Isaacs Europe inexchange for repayment of $100,000 of intercompany debt and the assumption ofliabilities. The Company recorded a net charge of $1.2 million in the fourthquarter of 2001 relating to the disposition of Isaacs Europe. In November 2001,the Company disclosed its intent not to renew its licensing agreements withBeverly Hills Polo Club in the United States and Europe. These licenses expiredon December 31, 2001. The Company has determined that the sale of Isaacs Europemeets the conditions for presentation as discontinued operations. Total lossesof $2.5 million for the discontinued operations of Isaacs Europe are includedin the year ended December 31, 2001. Accordingly, the following comparisonshave been made based on continuing operations. The results of operations fromthe discontinued operations were insignificant in all periods presented. Allprior periods have been restated. See Note 8 to the “Notes to ConsolidatedFinancial Statements.”

 

**Significant Accounting Policies and Estimates**

 

The Company’ssignificant accounting policies are more fully described in its Summary ofAccounting Policies to the Company’s consolidated financial statements. Thepreparation of financial statements in conformity with accounting principlesgenerally accepted within the United States requires management to makeestimates and assumptions in certain circumstances that affect amounts reportedin the accompanying financial statements and related notes. In preparing thesefinancial statements, management has made its best estimates and judgements ofcertain amounts included in the financial statements, giving due considerationto materiality. The Company does not believe there is a great likelihood thatmaterially different amounts would be reported related to the accountingpolicies described below; however, application of these accounting policiesinvolves the exercise of judgement and the use of assumptions as to futureuncertainties and, as a result, actual results could differ from theseestimates.

 

The Companyevaluates the adequacy of its allowance for doubtful accounts at the end ofeach quarter. In performing this evaluation, the Company analyzes the paymenthistory of its significant past due accounts, subsequent cash collections onthese accounts and comparative accounts receivable aging statistics. Based onthis information, along with consideration of the general strength of theeconomy, the Company develops what it considers to be a reasonable estimate ofthe uncollectible amounts included in accounts receivable. This estimateinvolves significant judgement by the management of  the Company. Actual uncollectible amounts may differ from theCompany’s estimate.

 

The Companyestimates inventory markdowns based on customer orders sold below cost, to beshipped in the following period and on the amount of similar unsold inventoryat period end. The Company analyzes recent sales and gross margins on unsoldinventory in further estimating inventory markdowns. These specific markdownsare reflected in

 

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cost of sales and therelated gross margins at the conclusion of the appropriate selling season. Thisestimate involves significant judgement by the management of the Company.Actual gross margins on sales of excess inventory may differ from the Company’sestimate.

 

**Results of Operations**

 
|                                 |   | **Year Ended  December 31,** |   |
|--------------------------------------|--------|------------------------------|--------|
|                                 |   | **1999**                     |   | **2000** |   | **2001** |   |
| Net sales                            |   | 100.0                        | %      | 100.0 | % | 100.0 | % |
| Cost of sales                        |   | 73.1                         |   | 69.9 |   | 67.0 |   |
|                                 |   |                         |   |   |   |   |   |
| Gross profit                         |   | 26.9                         |   | 30.1 |   | 33.0 |   |
|                                 |   |                         |   |   |   |   |   |
| Selling expenses                     |   | 14.7                         |   | 15.1 |   | 15.0 |   |
| License fees                         |   | 8.4                          |   | 8.7 |   | 6.3 |   |
| Distribution and  shipping expenses  |   | 3.3                          |   | 3.3 |   | 3.6 |   |
| General and  administrative expenses |   | 9.3                          |   | 7.5 |   | 8.1 |   |
| Termination of  licensing agreement  |   | —                       |   | 8.4 |   | — |   |
| Provision for  severance             |   | 0.9                          |   | 0.4 |   | 0.9 |   |
| Impairment of  intangibles           |   | —                       |   | 0.8 |   | — |   |
|                                 |   |                         |   |   |   |   |   |
| Operating loss                       |   | (9.8                         | )%     | (14.1 | )% | (0.9 | )% |

 

**YearEnded December 31, 2001 Compared to Year Ended December 31, 2000**

 

*NetSales.*

 

Net salesdecreased 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 HillsPolo Club and Company-owned and private label brands as a result of theCompany’s decision to discontinue the sale of these lines. The decrease in netsales was not the result of any significant reduction in the prices charged forthe Company’s continuing products. This decrease was partially offset by anincrease of net sales in both the men’s and women’s Girbaud lines. Net sales ofGirbaud 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 theCompany’s rights under the BOSS License Agreement, net sales of BOSS sportsweardecreased $9.0 million or 81.8% to $2.0 million. Net sales of BeverlyHills Club sportswear decreased $4.9 million or 40.8% to $7.1 million. Netsales of Company-owned brands and private label brands decreased $0.2 millionor 5.9% to $3.2 million in 2001. The Company began shipping its UrbanExpedition (UBX) line in the first quarter of 2000 and shipped $2.1 million in2000. During 2001, the Company discontinued its  Urban Expedition (UBX) line as sales were insignificant for theyear.

 

*GrossProfit.*

 

Gross profitdecreased 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% overthe same period. The increase in gross profit as a percentage of net sales wasprimarily due to increased sales of Girbaud jeanswear and sportswear at highermargins than those realized on sales of BOSS and Beverly Hills Polo Clubsportswear. In an effort to continue to decrease inventory levels and togenerate cash, a significant amount of sales were made 2000 to a mass retailerat gross profit margins significantly below the margins on goods that are soldto department and specialty stores. This adversely affected the overall grossmargin. However, the level of these sales in 2001 was less than in 2000. Toproperly reflect unsold inventory at its net realizable value, the Company hadan inventory valuation allowance of $0.3 million at December 31,2001, compared to an inventory valuation allowance of $1.0 million atDecember 31, 2000. To help identify inventory shortages as well as

 

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excess inventory, theCompany monitors inventory levels by product category on a weekly basis.Personnel look at recent sales data and order backlog to help identify slowmoving inventory items. Further, sales managers continually discuss productturnover and sales forecasts with sales personnel to aid in identifying productshortages and overages. Based on the information available, the Companybelieves the inventory valuation provisions were appropriate atDecember 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 netsales, 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 decreasingexpenses 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’ssalespersons. Distribution and shipping expenses decreased to $3.0 million in2001 from $3.2 million in 2000 due to decreased personnel at the Company’sdistribution 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 isattributable primarily to lower amortization expense resulting from thewrite-off of goodwill and deferred royalty expense in the fourth quarter of2000. 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-ownedwomen’s private label line.

 

*LicenseFees.*

 

License feesdecreased $3.1 million to $5.2 million in 2001 from $8.3 millionin 2000. As a percentage of net sales, license fees decreased to 6.3% from8.7%. The decrease in license fees as a percentage of net sales is primarilydue to the elimination of the minimum royalties under the BOSS LicenseAgreement, which had been in effect for all of 2000.

 

*Terminationof License Agreement.*

 

In connection withthe termination of its rights under the BOSS License Agreement, the Companyrecorded a note payable of $7.2 million and wrote off the remaining deferredroyalty expense of $0.7 million and other BOSS related assets of $0.2 millionas a charge against earnings totaling $8.1 million in the fourth quarter of2000.

 

*OperatingLoss.*

 

Operating lossdecreased 94.9% to $0.7 million in 2001 from $13.6 million in 2000. Theimproved performance is due to higher gross margins coupled with a reduction inoperating expenses as well as the expenses associated with the termination ofthe BOSS license agreement in 2000 as explained above.

 

*InterestExpense.*

 

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

 

*IncomeTaxes.*

 

The Companyrecorded an income tax benefit of $48,000 in 2000 related to an overaccrual ofstate taxes in 1999.

 

**YearEnded December 31, 2000 Compared to Year Ended December 31, 1999**

 

*NetSales.*

 

Net salesincreased 14.9% to $95.9 million in 2000 from $83.5 million in 1999.The increase was primarily due to growth in both the men’s and women’s Girbaudlines offset by continued declines in the BOSS, Beverly Hills Polo Club andCompany-owned and private label brands. Net sales of Girbaud men’s sportswearincreased $34.8 million or 152.6%

 

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to $57.6 million.Net sales of Girbaud women’s sportswear increased $5.2 million or 104.0%to $10.2 million. The Company began shipping its   Urban Expedition (UBX) line in the first quarter of 2000 andshipped $2.1 million in 2000. During 2001, the Company discontinued its UrbanExpedition (UBX) line due to insignificant sales.Net sales of BOSS sportsweardecreased $26.0 million or 70.3% to $11.0 million. Net sales ofBeverly Hills Club sportswear decreased $0.9 million or 6.7% to $12.6 million.Net sales of Company-owned brands and private label brands decreased $1.8million or 34.6% to $3.4 million in 2000.

 

*Gross Profit.*

 

Gross profitincreased 28.4% to $28.9 million in 2000 from $22.5 million in 1999.Gross profit as a percentage of net sales increased to 30.1% from 26.9% overthe same period. The increase in gross profit as a percentage of net sales wasprimarily due to increased sales of Girbaud jeanswear and sportswear at highermargins than those realized on sales of BOSS and Beverly Hills Polo Clubsportswear. In an effort to continue to decrease inventory levels and togenerate cash, a significant amount of sales were made in 1999 and 2000 to amass retailer at gross profit margins significantly below the margins on goodsthat are sold to department and specialty stores. This adversely affected theoverall gross margin. However, the level of these sales in 2000 was less thanin 1999. In addition, the Company had an inventory valuation allowance of$1.0 million at December 31, 2000 to properly reflect unsoldinventory at its net realizable value. This inventory valuation allowanceincluded Girbaud, BOSS and Beverly Hills Polo Club products. The Company had aninventory valuation allowance of $2.3 million at December 31, 1999.To help identify inventory shortages as well as excess inventory, the Companymonitors inventory levels by product category on a weekly basis.Personnel lookat recent sales data and order backlog to help identify slow moving inventoryitems. Further, sales managers continually discuss product turnover and salesforecasts with sales personnel to aid in identifying product shortages andoverages. Based on the information available, the Company believes theinventory valuation provisions were appropriate at December 31, 2000 and 1999,respectively.

 

*Selling, Distribution, General and Administrative Expenses.*

 

Selling,distribution, general and administrative (“SG&A”) expenses increased 6.8%to $25.3 million in 2000 from $23.7 million in 1999. As a percentage of netsales, SG&A expenses decreased to 26.4% from 28.4% over the same period.The decrease in SG&A as a percentage of net sales in a period of increasingexpense was due to the significant increase in net sales. Selling expensesincreased 17.9% to $14.5 million from $12.3 million due to increasedcommissions to the Company’s salespersons and increases in promotional costs.Distribution and shipping expenses increased to $3.2 million in 2000 from $2.8million in 1999 due to increased personnel and wages at the Company’s distributionfacility to cover the increase in merchandise shipments. General andadministrative expenses decreased 7.7% to $7.5 million due to the elimination,in October 1999, of amortization expense related to the BOSS trademark.Therefore, no amortization expense related to the trademark was recorded by theCompany in 2000. The provision for severance decreased 50.0% in 2000 to $0.4million. In 1999 the Company’s Chief Operating Officer resigned resulting in aprovision for severance of $0.8 million and in 2000 the Company recorded aprovision for severance related to a plant closing which totaled $0.4 million.The Company recorded an impairment of intangibles for $0.7 million in 2000related to the goodwill associated with the Company-owned women’s private labelline.

 

*License Fees.*

 

License feesincreased $1.3 million to $8.3 million in 2000 from $7.0 millionin 1999. As a percentage of net sales, license fees increased to 8.7% from8.4%. The increase in license fees as a percentage of net sales is primarily dueto higher royalties for Girbaud offset somewhat by reductions in the minimumroyalties under the BOSS License Agreement that was in effect for all of 2000.

 

*Termination of License Agreement.*

 

In connection withthe termination of its rights under the BOSS License Agreement, the Companyrecorded a note payable of $7.2 million and wrote off the remaining deferredroyalty expense of $0.7 million and other BOSS related assets of $0.2 millionas a charge against earnings totaling $8.1 million in the fourth quarter of2000.

 

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*Operating Loss.*

 

Operating lossincreased 67.9% to $13.6 million in 2000 from $8.1 million in 1999. Thedecline in performance is due to the termination of the BOSS License Agreementoffset by higher gross margins at increased sales volumes coupled with areduction in operating expenses, as explained above.

 

*Interest Expense.*

 

Interest expensedecreased $0.3 million to $1.3 million in 2000. The decrease ininterest expense is primarily due to the elimination of interest expense in thethird quarter of 1999 on the $11.25 million note payable associated withthe purchase of the BOSS trademark in November 1997, offset by increasedborrowings under the Company’s asset-based revolving line of credit. Interestincome earned in 2000 and 1999 was insignificant.

 

*Income Taxes.*

 

The Companyrecorded an income tax benefit of $48,000 in 2000 related to an overaccrual ofstate taxes in 1999. The Company recorded income tax expense of$0.1 million in 1999 related to state taxes.

 

**Liquidity and Capital Resources**

 

The Company hasrelied primarily on internally generated funds, trade credit and asset basedborrowings to finance its operations. The Company’s working capital decreasedsignificantly during 2001 compared to 2000. During 2001, the Company reducedits accounts receivable and inventory approximately $4.0 million and $8.7million, respectively. These funds were used to reduce its revolving line ofcredit by $7.6 million and to fund the net loss of $4.7 million. As ofDecember 31, 2001, the Company had cash, including temporary investments,of $0.8 million and working capital of $11.2 million compared to$0.8 million and $16.8 million, respectively, as of December 31,2000.  A decrease in demand for theCompany’s products could have a material adverse effect on the Company’sworking capital. In connection with the BOSS Termination Agreement, the Companyeliminated the minimum royalty payments due Ambra in 2001 through 2003. Thesewere, prior to the termination, $3.2 million, $2.6 million and $2.1 millionthat would otherwise have been in 2001, 2002 and 2003, respectively. Net of theprincipal and interest payments on the Termination Note, the Company savedapproximately $2.4 million in 2001 and will save approximately $0.9 million and$0.4 million in 2002 and 2003, respectively.

 

*Operating Cash Flow.*

 

Cash provided byoperations totaled $8.6 million in 2001 compared to cash used in operations of$4.2 million in 2000. Positive operating cash flow in 2001 is due to thedecrease in the net loss and significant decreases in accounts receivableand  inventory levels. Cash used ininvesting activities during 2001 totaled $0.2 million and was used for thepurchase of fixtures for the Girbaud Shop-in-Shop stores and computer equipmentof $0.3 million offset by $0.1 million in proceeds from the sale ofmachinery and equipment from the closing of the Company’s manufacturing facility in Carthage, Mississippi. Cash usedin financing activities totaled $8.5 million resulting primarily frompayments on the revolving line of credit and decreases in checks issued againstfuture deposits.

 

Inventoriesdecreased $8.7  million fromDecember 31, 2000 to December 31, 2001, compared to a decrease of$3.9 million from December 31, 1999 to December 31, 2000. Thedecrease in 2001 was the result of a $2.3 million reduction in inventory ofdiscontinued lines related to a decrease in quantities purchased to meet saleslevels, a decrease of $3.3 million in Girbaud inventory, and a decrease of rawmaterial inventory as the Company completed the move from being a manufacturerto a marketer of apparel. The decrease in 2000 was the result of a $2.6 millionreduction in BOSS inventory related to a decrease in quantities purchased tomeet sales levels. At December 31, 2001, the Company had an inventoryvaluation allowance of $0.3 million related to unsold inventory comparedto $1.0 million at December 31, 2000.

 

Capitalexpenditures were $0.2 million in 2001 compared to $1.1 million in2000. The Company’s capital expenditures were primarily for the purchase offixtures for the Girbaud Shop-in-Shop stores and computer equipment of$0.3 million offset by $0.1 million in proceeds from the sale ofmachinery and equipment from the closing of the

 

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Company’s manufacturingfacility in Carthage, Mississippi. The Company does not currently havecommitments for significant capital expenditures in 2002.

 

*Credit Facilities*

 

The Company has anasset-based revolving line of credit (the “Agreement”) with Congress FinancialCorporation (“Congress”). As of December 31, 2001 the Company had nooutstanding borrowings under the Agreement compared to $7.6 million as ofDecember 31, 2000.  In March 2001, theAgreement was amended to extend the term through December 31, 2002. The amendedAgreement provides that the Company may borrow up to (i) 80.0% of net eligibleaccounts receivable and a portion of inventory, as defined in the agreementless (ii) a $1.0 million special availability reserve. Borrowings under theAgreement may not exceed $25.0 million (including outstanding letters of creditwhich 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 lendersprime rate of interest plus 1.0%. Outstanding letters of credit approximated$3.7  million at December 31, 2001. Inconnection with the March 2001 amendment, the Company paid Congress a financingfee of $150,000. Under the terms of the Agreement, as amended, the Company isrequired to maintain minimum levels of working capital and tangible net worth.In August 2001, the Agreement was further amended to bring the Company intocompliance with its working capital and net worth covenants.  The Company paid Congress a fee of $75,000in connection with this amendment, the expense of which was recognized in thethird quarter of 2001. The Company was in violation of the working capital andthe net worth covenants at December 31, 2001 and has obtained a waiver of theseviolations. In March 2002, the Agreement was further amended to modify theminimum levels of working capital and tangible net worth covenants through theremainder of the extended term of the Agreement. Effective January 1, 2002 theCompany is required to maintain minimum net worth and working capital of $6.0million and $10.0 million, respectively, until July 1, 2002, when these amountsincrease to $9.0 million and $13.0 million, respectively. There can be noassurances that the Company will not be in violation of these covenants during2002 or thereafter. In connection with the March 2002 amendment, the Companypaid Congress a financing fee of $20,000.

 

The Companyextends credit to its customers. Accordingly, the Company may have significantrisk in collecting accounts receivable from its customers. The Company hascredit policies and procedures which it uses to minimize exposure to creditlosses. The Company’s collection personnel regularly contact customers withreceivable balances outstanding beyond 30 days to expedite collection. If thesecollection efforts are unsuccessful, the Company may discontinue merchandiseshipments until the outstanding balance is paid. Ultimately, the Company mayengage an outside collection organization to collect past due accounts. Timelycontact with customers has been effective in reducing credit losses. In 2001and 2000, the Company’s credit losses were $1.0 million and $0.9 million,respectively and the Company’s actual credit losses as a percentage of netsales were 1.2% and 1.0%, respectively.

 

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The Company has thefollowing contractual obligations and commercial commitments as of December 31,2001: 

 

**Schedule of contractual obligations:**

 
|                                |   | **Payments  Due By Period** |       |
|-------------------------------------|--------|-----------------------------|------------|
|                                |   | **Total**                   |       | **Less than  1 year** |   | **1-3 years** |   | **4-5 years** |   | **After 5  years** | ** ** |
| Long-term debt                      |   | $                           | 6,841,087  |   | $ | 1,160,134 |   | $ | 4,094,396 |   | $ | 1,586,557 |   | $ | — |   |
| Operating leases                    |   | 1,003,302                   |       | 631,925 |   | 371,377 |   | — |   | — |   |
| Girbaud license  obligations        |   | 5,915,000                   |       | 5,915,000 |   | — |   | — |   | — |   |
| Total  contractual cash obligations |   | $                           | 13,759,389 |   | $ | 7,707,059 |   | $ | 4,465,773 |   | $ | 1,586,557 |   | $ | — |   |

 

**Scheduleof commercial commitments:**

 
|                                   |   | **Amount of Commitment Expiration Per Period** |       |
|----------------------------------------|--------|------------------------------------------------|------------|
|                                   |   | **Total**                                      |       | **Less than  1 year** |   | **1-3 years** |   | **4-5 years** |   | **After 5  years** |   |
| Line of  credit  *****            |   | $                                              | 25,000,000 |   | $ | 25,000,000 |   | $ | — |   | $ | — |   | $ | — |   |
| Standby letters  of credit  ***** |   | 4,000,000                                      |       | 4,000,000 |   | — |   | — |   | — |   |
|                                   |   |                                           |       |   |   |   |   |   |   |   |   |
| Total commercial  commitments          |   | $                                              | 29,000,000 |   | $ | 29,000,000 |   | $ | — |   | $ | — |   | $ | — |   |

 

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*****              The Company has an asset-based revolvingline of credit. The Company may borrow up to 80% of net eligible accountsreceivable and a portion of inventory. Borrowings under the revolving lineof  credit may not exceed $25.0 millionincluding outstanding letters of credit, which are limited to $6.0 million fromMay 1 to September 30 of each year and $4.0 million for the remainder ofeach  year. At December 31, 2001, theCompany had no borrowings under its revolving line of credit  and outstanding letters of creditapproximated $3.7 million.

 

The Companybelieves that current levels of cash and cash equivalents ($0.8 million atDecember 31, 2001) together with cash from operations and funds available underits Agreement, will be sufficient to meet its capital requirements for the next12 months.

 

**Backlogand Seasonality**

 

The Company’sbusiness is impacted by the general seasonal trends that are characteristic ofthe apparel and retail industries. In the Company’s segment of the apparelindustry, sales are generally higher in the first and third quarters.Historically, the Company has taken greater markdowns in the second and fourthquarters. The Company generally receives orders for its products three to fivemonths prior to the time the products are delivered to stores. As ofDecember 31, 2001, the Company had unfilled orders of approximately $24.0million, compared to $32.0 million of such orders as of December 31,2000. The backlog at December 31, 2001 consisted entirely of orders for theCompany’s Girbaud products. The backlog at December 31, 2000 consisted oforders for the Company’s Girbaud, BOSS and BHPC products. The backlog forGirbaud products at December 31, 2000 was $ 24.0 million. The backlog of ordersat any given time is affected by a number of factors, including seasonality,weather conditions, scheduling of manufacturing and shipment of products. Asthe time of the shipment of products may vary from year to year, the resultsfor any particular quarter may not be indicative of the results for the fullyear.

 

**Inflation**

 

The Company doesnot believe that the relatively moderate rates of inflation experienced in theUnited States over the last year have had a significant effect on its net salesor profitability. Although higher rates of inflation have been

 

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experienced in a numberof foreign countries in which the Company’s products are manufactured, theCompany does not believe that they have had a material effect on the Company’snet sales or profitability.

 

**RecentAccounting Pronouncements**

 

In June 2001, theFASB issued Statement of Financial Accounting Standards No.141, “BusinessCombinations” (“SFAS 141”). SFAS 141 changed the accounting for businesscombinations, requiring that all business combinations be accounted for usingthe purchase method and that intangible assets be recognized as assets apartfrom goodwill if they arise from contractual or other legal rights, or if theyare separable or capable of being separated from the acquired entity and sold,transferred, licensed, rented or exchanged. SFAS 141 is effective for allbusiness combinations initiated after June 30, 2001.

 

In June 2001, theFASB issued Statement of Financial Accounting Standards No.142, “Accounting forGoodwill” (“SFAS 142”). SFAS 142 establishes accounting standards for existinggoodwill related to purchase business combinations. Under SFAS 142, the Companywould discontinue the periodic amortization of goodwill effective with adoptionof the SFAS 142. Also, the Company would have to test any remaining goodwillfor possible impairment within six months of adoption of SFAS 142, andperiodically thereafter, based on new valuation criteria set forth in SFAS 142.Further, SFAS 142 has new criteria for purchase price allocation. SFAS becomeseffective January 1, 2002.

 

The Company doesnot believe either of these pronouncements will have a material effect on theCompany’s financial statements.

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

 

 

The Company’sprincipal market risk results from changes in floating interest rates onshort-term debt. The Company does not use interest rate swap agreements tomitigate the risk of adverse changes in the prime interest rate. However, theimpact of a 100 basis point change in interest rates affecting the Company’sshort-term debt would not be material to the net loss, cash flow or workingcapital. The Company does not hold long-term interest sensitive assets andtherefore is not exposed to interest rate fluctuations for its assets. TheCompany does not hold or purchase any derivative financial instruments fortrading purposes.

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

 

 

The consolidatedfinancial statements of the Company and the report of independent certifiedpublic accountants thereon are set forth on pages 27 through 50 hereof.

 
| **ITEM 9.** | **CHANGES IN AND DISAGREEMENTS WITH  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL** |
|-------------|--------------------------------------------------------------------------------|
|        | **DISCLOSURE**                                                                 |
|        |                                                                           |
|        | None.                                                                          |

 

 

23

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**PART III**

 

**ITEM10.               DIRECTORS AND EXECUTIVEOFFICERS OF THE COMPANY**

 

The informationappearing in the Company’s Definitive Proxy Statement prepared in connectionwith the 2002 Annual Meeting of Stockholders to be held on June 6, 2002 (the“Proxy Statement”) under the captions “Proposal 1: Election of Three Class IIDirectors”, “Principal Executive Officers of the Company Who Are Not AlsoDirectors” and “Section 16(a) Beneficial Ownership Reporting Compliance” areincorporated herein by reference.  TheProxy Statement will be filed not later than 120 days after the end of thefiscal year covered by this annual report on Form 10-K.

** **

**ITEM11.               EXECUTIVE COMPENSATION**

 

The informationappearing in the Proxy Statement under the caption “Executive Compensation” isincorporated herein by reference.

 

**ITEM12.               SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

The informationappearing in the Proxy Statement under the caption “Security Ownership OfCertain Beneficial Owners And Management” is incorporated herein by reference.

 

**ITEM13.               CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS**

 

The information appearing in the Proxy Statement underthe caption “Certain Relationships And Related Transactions” is incorporatedherein by reference.

 

24

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**PART IV**

 

**ITEM14.               EXHIBITS, FINANCIALSTATEMENT SCHEDULES, AND REPORTS ON FORM 8-K**

 

(a)1. Financial Statements. The following financial statements, relatednotes and the Report of Independent Auditors, are included in response to Item8 hereof:

 

**Index to Consolidated Financial Statements**

** **
|                                                                                                        |   |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------|
| Report  of Independent Certified Public Accountants                                                         |   |   |
| Consolidated Balance  Sheets at December 31, 2000 and 2001                                                  |   |   |
| Consolidated  Statements of Operations for the years ended December 31, 1999, 2000 and 2001                 |   |   |
| Consolidated  Statements of Stockholders’ Equity for the years ended December 31, 1999,  2000 and 2001 |   |   |
| Consolidated  Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001                 |   |   |
| Summary of Accounting  Policies                                                                             |   |   |
| Notes to  Consolidated Financial Statements                                                                 |   |   |

 

(a)2. Financial Statements Schedules. The following is a list of allfinancial statements schedules filed herewith

 

ScheduleII-Valuation and Qualifying Accounts

 

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

 

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

 

10.91Twenty-fourth Amendment to Financing Agreements dated March 11, 2002

 

10.92Amendment No.3 to Trademark License and Technical Assistance Agreement CoveringMen’s Products Dated May 31, 2001

 

23.01 Consent ofBDO Seidman, LLP

 

(b) Reports on Form 8-K:

 

On December 20,2001, the Board of Directors approved the sale of Isaacs Europe. On February 4,2002, the Company filed a Current Report on Form 8-K to announce that, onFebruary 1, 2002, it sold all of the outstanding common stock of Isaacs Europeto a management group of Isaacs Europe in exchange for the repayment of$100,000 of intercompany debt and the assumption of liabilities.  The Company recorded a $1.2 million netcharge in the fourth quarter of 2001 relating to the disposition of IsaacsEurope.

 

25

----

 

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, asamended, the Registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.

 
|   |   | I.C. ISAACS & COMPANY , INC. |
|--------|--------|----------------------------------|
|   |   | (REGISTRANT)                     |
|   |   |                             |
|   |   | By:                              | /s/   ROBERT  J. ARNOT |   |
|   |   |                             | Robert J. Arnot |   |
|   |   |                             | *Chairman of the Board* |   |
|   |   |                             | *and Chief Executive Officer* |   |
|   |   |                             | Date: March 29, 2002 |   |
|        |        |                                  |  |  |  |  |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, as amended, this reporthas been signed below by the following persons on behalf of the Registrant andin the capacities and on the dates indicated.

 
| **Signature**                           |                                                   | **Title**                                          |                 | **Date** |   |
|-----------------------------------------|--------------------------------------------------------|----------------------------------------------------|----------------------|----------|--------|
|                                    |                                                   |                                               |
| /s/   ROBERT J. ARNOT         |                                                   | Chairman of the Board and Chief Executive Officer, | March 29, 2002       |
| Robert J. Arnot                         | President and Director  (Principal Executive Officer)  |                                               |
|                                    |                                                   |                                               |
| /s/   EUGENE C. WIELEPSKI     |                                                   | Vice President and Chief Financial Officer and     | March  29, 2002 |
| Eugene C. Wielepski                     | Director (Principal  Financial and Accounting Officer) |                                               |
|                                    |                                                   |                                               |
| /s/   DANIEL   GLADSTONE |                                                   | President Girbaud Division and Director            | March 29, 2002       |
| Daniel Gladstone                        |                                                   |                                               |
|                                    |                                                   |                                               |
| /s/   JON HECHLER             |                                                   | Director                                           | March 29, 2002       |
| Jon Hechler                             |                                                   |                                               |
|                                    |                                                   |                                               |
| /s/   RONALD S. SCHMIDT       |                                                   | Director                                           | March 29, 2002       |
| Ronald S. Schmidt                       |                                                   |                                               |
|                                    |                                                   |                                               |
| /s/   THOMAS P. ORMANDY       |                                                   | Director                                           | March 29, 2002       |
| Thomas P. Ormandy                       |                                                   |                                               |
|                                    |                                                   |                                               |
| /s/   NEAL J. FOX             |                                                   | Director                                           | March 29, 2002       |
| Neal J. Fox                             |                                                   |                                               |
|                                    |                                                   |                                               |
| /s/   ANTHONY J. MARTERIE     |                                                   | Director                                           | March 29, 2002       |
| Anthony J. Marterie                     |                                                   |                                               |

 

26

----

 

**Report of Independent Certified Public Accountants**** on FinancialStatement Schedules**

 

I.C. Isaacs & Company, Inc.

 

The auditsreferred to in our report to I.C. Isaacs & Company, Inc. dated February 22,2002, which is contained in Item 8 of this Form 10-K, include the audit of thefinancial statement schedule listed in the accompanying index for the each ofthe three years in the period ended December 31, 2001. This financial statementschedule is the responsibility of the Company’s management. Our responsibilityis to express an opinion on the financial statement schedule based on ouraudits.

 

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

 

BDO Seidman, LLP

 

Washington, D.C.

February 22, 2002

 

27

----

 

**SCHEDULEII**

**I.C. Isaacs & Company, Inc.**

**Valuation and Qualifying Accounts**

** **
| **Description**                          |   | **Balance  Beginning of the Year** |      | **Charged to  Costs and Expenses** |   | **Deduction** |     | **Balance at  End of Year** |       |
|------------------------------------------|--------|------------------------------------|-----------|------------------------------------|--------|---------------|----------|-----------------------------|------------|
| Year Ended  December 31, 1999            |   |                               |      |                               |   |          |     |                        |       |
| Allowance for  doubtful accounts         |   | $                                  | 1,353,000 |                               | $      | 1,023,000     |     | $                           | (1,651,000 | ) | $ | 725,000 |   |
| Reserve for  sales returns and discounts |   | 96,000                             |      | 4,278,000                          |   | (4,221,000    | )        | 153,000                     |       |
| 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                     |       |
|                                          |        |                                    |           |                                    |        |               |          |                             |            |  |  |  |  |

 

----

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

 

28

----

 

**Reportof Independent Certified Public Accountants**

 

To the Board of Directors and Stockholders

I.C. Isaacs & Company, Inc.

Baltimore, Maryland

 

We have auditedthe accompanying consolidated balance sheets of I.C. Isaacs &Company, Inc. and subsidiaries as of December 31, 2000 and 2001 andthe related consolidated statements of operations, stockholders’ equity andcash flows for each of the three years in the period ended December 31,2001. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

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

 

In our opinion,the consolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of I.C. Isaacs &Company, Inc. and subsidiaries at December 31, 2000 and 2001 and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2001 in conformity with accountingprinciples generally accepted in the United States of America.

 

BDO Seidman, LLP

 

Washington, D.C.

February 22, 2002 

 

29

----

 

**I.C. Isaacs & Company, Inc.**

**ConsolidatedBalance Sheets**

 
|                                                                                                                                |   | **December  31,** |       |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|
|                                                                                                                                |   | **2000**          |       | **2001** |   |
| **Assets**                                                                                                                          |   |              |       |   |   |
| Current                                                                                                                             |   |              |       |   |   |
| Cash, including  temporary investments of $203,000 and $170,000                                                                     |   | $                 | 847,644    |   | $ | 826,812 |   |
| Accounts  receivable, less allowance for doubtful accounts of $630,000 and $400,000  (Note 3)                                  |   | 13,618,127        |       | 9,337,333 |   |
| Inventories  (Notes 1 and 3)                                                                                                   |   | 14,307,339        |       | 5,070,802 |   |
| Prepaid expenses  and other                                                                                                         |   | 446,644           |       | 423,062 |   |
| Refundable  income taxes                                                                                                            |   | 342,822           |       | 31,192 |   |
| Total current  assets                                                                                                               |   | 29,562,576        |       | 15,689,201 |   |
| Property, plant  and equipment, at cost, less accumulated depreciation and amortization  (Note 2)                              |   | 3,156,967         |       | 2,521,696 |   |
| Trademark and  licenses, less accumulated amortization of $636,514 and $965,818  (Note 9)                                 |   | 713,486           |       | 384,182 |   |
| Other assets  (Note 10)                                                                                                             |   | 2,996,715         |       | 3,737,804 |   |
|                                                                                                                                |   | $                 | 36,429,744 |   | $ | 22,332,883 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                      |   |              |       |   |   |
| Current                                                                                                                             |   |              |       |   |   |
| Checks issued  against future deposits                                                                                              |   | $                 | 845,344    |   | $ | 348,856 |   |
| Current  maturities of revolving line of credit (Note 3)                                                                            |   | 7,613,109         |       | — |   |
| Current maturities  of long-term debt (Note 3)                                                                                      |   | 358,913           |       | 1,160,134 |   |
| Accounts payable                                                                                                                    |   | 1,135,007         |       | 1,090,453 |   |
| Accrued expenses  and other current liabilities (Note 4)                                                                            |   | 2,832,924         |       | 1,936,150 |   |
|                                                                                                                                |   |              |       |   |   |
| Total current  liabilities                                                                                                          |   | 12,785,297        |       | 4,535,593 |   |
|                                                                                                                                |   |              |       |   |   |
| Long-term debt  (Note 3)                                                                                                            |   | 6,841,087         |       | 5,680,953 |   |
|                                                                                                                                |   |              |       |   |   |
| Redeemable  preferred stock (Notes 6 and 9)                                                                                         |   | 3,300,000         |       | 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 shares issued;  7,864,657 and 7,834,657 shares outstanding |   | 901               |       | 901 |   |
| Additional  paid-in capital                                                                                                         |   | 39,674,931        |       | 39,674,931 |   |
| Accumulated  deficit                                                                                                                |   | (23,862,442       | )          | (28,536,624 | ) |
| Treasury stock,  at cost (1,146,709 and 1,176,709 shares)                                                                           |   | (2,310,030        | )          | (2,322,871 | ) |
|                                                                                                                                |   |              |       |   |   |
| Total  stockholders’ equity                                                                                                    |   | 13,503,360        |       | 8,816,337 |   |
|                                                                                                                                |   | $                 | 36,429,744 |   | $ | 22,332,883 |   |

 

See accompanying summaryof accounting policies and notes to consolidated financial statements.

 

30

----

 

**I.C. Isaacs & Company, Inc.**

**ConsolidatedStatements of Operations**

** **
|                                                               |   | **Years  Ended December 31,** |              |
|--------------------------------------------------------------------|--------|-------------------------------|-------------------|
|                                                               |   | **1999**                      |              | **2000** |   | **2001** |   |
| Net sales                                                          |   | $                             |  83,462,775  |   | $ |  95,861,375 |   | $ |  82,311,654 |   |
| Cost of sales                                                      |   | 60,956,183                    |              | 67,031,379 |   | 55,108,041 |   |
|                                                               |   |                          |              |   |   |   |   |
| Gross profit                                                       |   | 22,506,592                    |              | 28,829,996 |   | 27,203,613 |   |
| Operating  Expenses                                                |   |                          |              |   |   |   |   |
| Selling                                                            |   | 12,329,428                    |              | 14,464,154 |   | 12,369,155 |   |
| License fees  (Note 9)                                             |   | 6,977,328                     |              | 8,343,310 |   | 5,210,978 |   |
| Distribution and  shipping                                         |   | 2,790,263                     |              | 3,191,673 |   | 2,975,405 |   |
| General and  administrative                                        |   | 7,753,782                     |              | 7,228,876 |   | 6,648,167 |   |
| Termination of  license agreement (Note 9)                         |   | —                        |              | 8,067,908 |   | — |   |
| Provision for  severance (Note 9)                                  |   | 750,000                       |              | 385,314 |   | 726,400 |   |
| Impairment of  intangibles (Note 9)                                |   | —                        |              | 743,590 |   | — |   |
| Total operating  expenses                                          |   | 30,600,801                    |              | 42,424,825 |   | 27,930,105 |   |
| Operating loss                                                     |   | (8,094,209                    | )                 | (13,594,829 | ) | (726,492 | ) |
|                                                               |   |                          |              |   |   |   |   |
| Other income  (expense)                                            |   |                          |              |   |   |   |   |
| Interest, net of  interest income of $27,339, $18,668 and $2,805   |   | (1,623,825                    | )                 | (1,337,151 | ) | (1,307,151 | ) |
| Other, net                                                         |   | 352,770                       |              | 139,637 |   | (148,648 | ) |
| Total other  expense                                               |   | (1,271,055                    | )                 | (1,197,514 | ) | (1,455,799 | ) |
|                                                               |   |                          |              |   |   |   |   |
| Loss from  continuing operations before income taxes               |   | (9,365,264                    | )                 | (14,792,343 | ) | (2,182,291 | ) |
| Income tax  (provision) benefit (Note 5)                           |   | (110,000                      | )                 | 48,000 |   | — |   |
| Loss from  continuing operations                                   |   | (9,475,264                    | )                 | (14,744,343 | ) | (2,182,291 | ) |
|                                                               |   |                          |              |   |   |   |   |
| Discontinued  operations (Note 8)                                  |   |                          |              |   |   |   |   |
| Loss from  operations of discontinued subsidiary                   |   | (737,118                      | )                 | (502,987 | ) | (1,309,610 | ) |
| Loss from sale  of discontinued subsidiary                         |   | —                        |              | — |   | (1,182,281 | ) |
| Loss from  discontinued operations                                 |   | (737,118                      | )                 | (502,987 | ) | (2,491,891 | ) |
| Net loss                                                           |   | $                             |  (10,212,382 | ) | $ |  (15,247,330 | ) | $ |  (4,674,182 | ) |
|                                                               |   |                          |              |   |   |   |   |
| Basic and  diluted net loss per share from continuing operations   |   | $                             |  (1.37       | ) | $ |  (1.93 | ) | $ |  (0.28 | ) |
|                                                               |   |                          |              |   |   |   |   |
| Basic and  diluted net loss per share from discontinued operations |   | (0.10                         | )                 | (0.07 | ) | (0.32 | ) |
|                                                               |   |                          |              |   |   |   |   |
| Basic and  diluted net loss per share                              |   | $                             |  (1.47       | ) | $ |  (2.00 | ) | $ |  (0.60 | ) |
| Weighted average  common shares outstanding                        |   | 6,935,005                     |              | 7,638,792 |   | 7,853,780 |   |
|                                                               |   |                          |              |   |   |   |   |

See accompanying summaryof accounting policies and notes to consolidated financial statements.

 

31

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**I.C. Isaacs & Company, Inc.**

**Consolidated Statements of Stockholders’ Equity**

 
|                           |   | **Preferred Stock** |   | **Common Stock** |   |         |   |       |   |                           |   |                    |   |
|--------------------------------|--------|---------------------|--------|------------------|--------|--------------|--------|------------|--------|--------------------------------|--------|-------------------------|--------|
|                           |   | **Shares**          |   | **Amount**       |   | **Shares**   |   | **Amount** |   | **Additional Paid-in Capital** |   | **Accumulated Deficit** |   | **Treasury Stock** |   | **Total** |   |
| Balance, at  December 31, 1998 |   | —              |   | —           |   | 8,344,699    |   | $          | 834    |                           | $      | 38,924,998              |   | $ | 1,597,270 |   | $ | (3,210,030 | ) | $ | 37,313,072 |   |
| Net loss                       |   | —              |   | —           |   | —       |   | —     |   | —                         |   | (10,212,382             | )      | — |   | (10,212,382 | ) |
| Purchase of treasury  stock    |   | —              |   | —           |   | —       |   | —     |   | —                         |   | —                  |   | (100,000 | ) | (100,000 | ) |
| Issuance of  treasury stock    |   | —              |   | —           |   | —       |   | —     |   | (250,000                       | )      | —                  |   | 1,000,000 |   | 750,000 |   |
|                           |   |                |   |             |   |         |   |       |   |                           |   |                    |   |   |   |   |   |
| Balance, at  December 31, 1999 |   | —              |   | —           |   | 8,344,699    |   | 834        |   | 38,674,998                     |   | (8,615,112              | )      | (2,310,030 | ) | 27,750,690 |   |
| Net loss                       |   | —              |   | —           |   | —       |   | —     |   | —                         |   | (15,247,330             | )      | — |   | (15,247,330 | ) |
| Issuance of  common stock      |   | —              |   | —           |   | 666,667      |   | 67         |   | 999,933                        |   | —                  |   | — |   | 1,000,000 |   |
|                           |   |                |   |             |   |         |   |       |   |                           |   |                    |   |   |   |   |   |
| Balance, at  December 31, 2000 |   | —              |   | —           |   | 9,011,366    |   | 901        |   | 39,674,931                     |   | (23,862,442             | )      | (2,310,030 | ) | 13,503,360 |   |
| Net loss                       |   | —              |   | —           |   | —       |   | —     |   | —                         |   | (4,674,182              | )      | — |   | (4,674,182 | ) |
| Purchase of  treasury stock    |   | —              |   | –—     |   | —– |   | —     |   | —                         |   | —                  |   | (12,841 | ) | (12,841 | ) |
|                           |   |                |   |             |   |         |   |       |   |                           |   |                    |   |   |   |   |   |
| Balance, at  December 31, 2001 |   | —              |   | —           |   | 9,011,366    |   | $          | 901    |                           | $      | 39,674,931              |   | $ | (28,536,624 | ) | $ | (2,322,871 | ) | $ | 8,816,337 |   |

 

See accompanying summaryof accounting policies and notes to consolidated financial statements.

 

32

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**I.C. Isaacs & Company, Inc.**

**ConsolidatedStatements of Cash Flows**

 
|                                                                                      |   | **Years  Ended December 31,** |        |
|-------------------------------------------------------------------------------------------|--------|-------------------------------|-------------|
|                                                                                      |   | **1999**                      |        | **2000** |   | **2001** |   |
| Operating  Activities                                                                     |   |                          |        |   |   |   |   |
| Net loss                                                                                  |   | $                             | (10,212,382 | ) | $ | (15,247,330 | ) | $ | (4,674,182 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities |   |                          |        |   |   |   |   |
| Provision for  doubtful accounts                                                          |   | 1,022,828                     |        | 837,275 |   | 880,019 |   |
| Write off of  accounts receivable                                                         |   | (1,650,828                    | )           | (932,275 | ) | (1,019,727 | ) |
| Provision for  sales returns and discounts                                                |   | 4,277,845                     |        | 6,004,743 |   | 4,803,384 |   |
| Sales returns  and discounts                                                              |   | (4,221,184                    | )           | (5,927,743 | ) | (4,835,384 | ) |
| Depreciation and  amortization                                                            |   | 2,150,841                     |        | 1,770,751 |   | 1,176,378 |   |
| Impairment of  intangibles                                                                |   | —                        |        | 743,590 |   | — |   |
| Gain on sale of  assets                                                                   |   | (288,788                      | )           | (135,364 | ) | (56,340 | ) |
| Termination of  license agreement                                                         |   | —                        |        | 8,067,908 |   | — |   |
| Compensation  expense on stock options                                                    |   | 7,264                         |        | 10,500 |   | 3,239 |   |
| Loss on sale of  subsidiary                                                               |   | —                        |        | — |   | 1,182,281 |   |
| (Increase)  decrease in assets                                                            |   |                          |        |   |   |   |   |
| Accounts  receivable                                                                      |   | 4,525,290                     |        | (2,649,577 | ) | 4,037,841 |   |
| Inventories                                                                               |   | 4,920,648                     |        | 3,893,984 |   | 8,731,917 |   |
| Prepaid expenses  and other                                                               |   | 588,830                       |        | (98,904 | ) | 23,582 |   |
| Refundable  income taxes                                                                  |   | 1,443,185                     |        | 13,443 |   | 311,630 |   |
| Other assets                                                                              |   | (965,513                      | )           | (25,887 | ) | (805,375 | ) |
| Increase  (decrease) in liabilities                                                       |   |                          |        |   |   |   |   |
| Accounts payable                                                                          |   | (2,378,249                    | )           | (788,451 | ) | (216,764 | ) |
| Accrued expenses  and other current liabilities                                           |   | 1,220,924                     |        | 306,158 |   | (900,013 | ) |
| Cash provided by  (used in) operating activities                                          |   | 440,711                       |        | (4,157,179 | ) | 8,642,486 |   |
|                                                                                      |   |                          |        |   |   |   |   |
| Investing  Activities                                                                     |   |                          |        |   |   |   |   |
| Proceeds from  sale of assets                                                             |   | 288,788                       |        | 366,402 |   | 126,397 |   |
| Capital  expenditures                                                                     |   | (767,032                      | )           | (1,068,308 | ) | (308,364 | ) |
| Cash used in  investing activities                                                        |   | (478,244                      | )           | (701,906 | ) | (181,967 | ) |
|                                                                                      |   |                          |        |   |   |   |   |
| Financing  Activities                                                                     |   |                          |        |   |   |   |   |
| Checks issued  against future deposits                                                    |   | (1,004,840                    | )           | 551,255 |   | (496,488 | ) |
| Purchase of  treasury stock                                                               |   | (100,000                      | )           | — |   | (12,841 | ) |
| Principal  proceeds from (payments on) revolving line of credit                           |   | 1,232,235                     |        | 3,968,639 |   | (7,613,109 | ) |
| Principal  payments on long-term debt                                                     |   | (179,864                      | )           | (6,258 | ) | (358,913 | ) |
| Deferred  financing costs                                                                 |   | (62,500                       | )           | — |   | — |   |
| Cash provided by  (used in) financing activities                                          |   | (114,969                      | )           | 4,513,636 |   | (8,481,351 | ) |
| Decrease in cash  and cash equivalents                                                    |   | (152,502                      | )           | (345,449 | ) | (20,832 | ) |
| Cash and Cash  Equivalents, at beginning of year                                          |   | 1,345,595                     |        | 1,193,093 |   | 847,644 |   |
| Cash and Cash  Equivalents, at end of year                                                |   | $                             | 1,193,093   |   | $ | 847,644 |   | $ | 826,812 |   |

 

See accompanying summaryof accounting policies and notes to consolidated financial statements.

 

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**I.C. Isaacs & Company, Inc.**

**Summaryof Accounting Policies**

 

**Basis ofPresentation**

 

The consolidatedfinancial 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 FarEast Ltd. (collectively the “Company”). The Company sold the common stock ofIsaacs Europe, SL in December 2001. I.C.Isaacs Far East Ltd.did not have anysignificant revenue or expenses in 1999, 2000 and 2001. All intercompanybalances and transactions have been eliminated.

 

**BusinessDescription**

 

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 brandedjeanswear and sportswear. The Company, which operates in one business segment,designs and markets branded jeanswear and sportswear. The Company offerscollections of jeanswear and sportswear for men and women under the Marithé andFrançois Girbaud brand in the United States, Puerto Rico and Canada. TheGirbaud brand is an internationally recognized designer label with a distinctEuropean influence. The Company has positioned the Girbaud line with a broadassortment of products, styles and fabrications reflecting a contemporaryEuropean look. The Company markets a full collection of men’s jeanswear andsportswear under the Girbaud brand, including a broad array of bottoms, topsand outerwear. In August 1998, the Company introduced a women’s sportswear collectionunder the Girbaud brand, which also includes a wide assortment of bottoms, topsand outerwear. In May 2000, the Company acquired an exclusive license to marketcertain men’s and women’s jeanswear and sportswear under the Girbaud brand inCanada and began making shipments in December 2000. Net sales of Girbaudproducts accounted for 84.9% and 69.6% of the Company’s sales in 2001 and 2000,respectively. Based on its performance in 2001 and 2000, the Company believesthat the Girbaud brand has established itself as the dominant brand in theCompany’s future.

 

Until December2001, the Company offered collections of sportswear for men and boys under theBeverly Hills Polo Club brand in the United States, Puerto Rico and Europe.Under the Beverly Hills Polo Club licensing agreements in the United States andPuerto Rico, the Company was required to notify the licensor by June 30, 2001of the Company’s intention to renew the licenses for both men’s and boys’sportswear. The Company did not notify the licensor and has allowed both ofthese licenses to expire on December 31, 2001. Net sales of Beverly Hills PoloClub sportswear accounted for 8.6% and 13.4% of the Company’s net sales in 2001and 2000, respectively. The Company also offered women’s pants and jeans undervarious Company owned brand names as well as under third party private labelsfor sale to major chain stores and catalogs. In 1999, the Company introduced acollection of men’s sportswear under the Company owned Urban Expedition (UBX)brand in the United States and Europe. The Company also offered collections ofjeanswear and sportswear for young men, women and boys under the BOSS brand inthe United States and Puerto Rico. In the fourth quarter of 2000, the Companybegan restructuring its product lines in an effort to focus on growth potentialand eliminate poorly performing lines. The Company terminated its licenseagreement for the design and marketing of the BOSS brand of sportswear for menand boys in the United States in 2000. The Company discontinued production ofthe women’s Company-owned and private label lines and the Urban Expedition(UBX) line in 2001. Substantially all remaining inventories of these productswere shipped during 2001.

 

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

 

34

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**Risksand Uncertainties**

 

The apparelindustry is highly competitive.  TheCompany competes with many companies, including larger, well capitalizedcompanies which have sought to increase market share through massive consumeradvertising and price reductions.  TheCompany continues to experience increased competition from many established andnew competitors at both the department store and specialty store channels ofdistribution.  The Company continues toredesign its jeanswear and sportswear lines in an effort to be competitive andcompatible with changing consumer tastes. Also, the Company has developed andimplemented new marketing initiatives to promote its Girbaud brand, including“shop-in-shops”.  A risk to the Companyis that such a strategy may lead to continued pressure on profit margins.  In the past several years, many of theCompany’s competitors have switched much of their apparel manufacturing fromthe United States to foreign locations such as Mexico, the Dominican Republicand throughout Asia.  As competitorslower production costs, it gives them greater flexibility to lower prices.  Over the last several years, the Companyalso switched its production to contractors outside the United States to reducecosts.  In 2001, the Company beganimporting substantially all of its inventory, excluding t-shirts, as finishedgoods from contractors in Asia.  Thisshift in purchasing requires the Company to estimate sales and issue purchaseorders for inventory well in advance of receiving firm orders from itscustomers.  A risk to the Company isthat its estimates may differ from actual orders.  If this happens, the Company may miss sales because it did notorder enough, or it may have to sell excess inventory at reduced prices.  The Company faces other risks inherent inthe apparel industry.  These risksinclude changes in fashion trends and related consumer acceptance and thecontinuing consolidation in the retail segment of the apparel industry.  The Company’s ability, or inability, tomanage these risk factors could influence future financial and operating results.

 

**Use ofEstimates**

 

The preparation offinancial statements in accordance with generally accepted accountingprinciples 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 liabilitiesat the date of the financial statements. Actual results could differ from those estimates.

 

**Concentrationof Credit Risk**

 

Financialinstruments which potentially expose the Company to concentrations of creditrisk consist primarily of trade accounts receivable.  The Company’s customer base is not concentrated in any specificgeographic region, but is concentrated in the retail industry.  For the years ended December 31, 1999, 2000and 2001, sales to one customer were $12,012,202, $5,528,436 and$4,361,417.  These amounts constitute14.2%, 5.7% and 5.3% of total sales, respectively.  The Company establishes an allowance for doubtful accounts basedupon factors surrounding the credit risk of specific customers, historicaltrends and other information.  TheCompany’s actual credit losses as a percentage of net sales were 2.0%, 1.0% and1.2% for the years ended December 31, 1999, 2000 and 2001, respectively.

 

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

 

**Inventories**

 

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

 

**Property,Plant and Equipment**

 

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

 

35

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**Goodwill**

 

The Company hadrecorded goodwill based on the excess of purchase price over net assetsacquired.  The Company analyzed theoperating income of the women’s Company-owned and private label lines inrelation to the goodwill amortization on a quarterly basis for evidence ofimpairment.  During the year endedDecember 31, 1998, management determined that the reduction in sales had significantlyimpacted the operating income of the women’s Company-owned and private labellines and that an impairment of the goodwill associated with the linesoccurred.  In response, for the yearended December 31, 1998 management recorded a write down of $435,000 andreduced the life of the goodwill from 40 years to 20 years.  Effective October 1, 1998, the remaininggoodwill was being amortized over 63 months. In the fourth quarter of 2000, the Company decided to discontinueproduction of the women’s Company-owned and private label lines.  Accordingly, management determined thegoodwill associated with these lines had been impaired and recorded a writedown of $743,590 in the quarter ended December 31, 2000.

 

**Trademarkand Licenses**

 

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

 

**AssetImpairment**

 

The Company periodicallyevaluates the carrying value of long-lived assets when events and circumstanceswarrant such a review.  The carryingvalue of a long-lived asset is considered impaired when the anticipatedundiscounted cash flow from such asset is separately identifiable and is lessthan the carrying value.  In that event,a loss is recognized based on the amount by which the carrying value exceedsthe fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flowsdiscounted at a rate commensurate with the risk involved.

 

**RevenueRecognition**

 

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

 

**AdvertisingCosts**

 

Advertising costs,included in selling expenses, are expensed as incurred and were $2,796,430,$1,993,754  and $1,767,647 for the yearsended December 31, 1999, 2000 and 2001 respectively.

 

**CashEquivalents**

 

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

 

**IncomeTaxes**

 

The Companyaccounts for income taxes in accordance with Statement of Financial AccountingStandards No.109, “Accounting for Income Taxes” (“SFAS 109”). Under SFAS 109,deferred taxes are determined using the liability method which requires therecognition of deferred tax assets and liabilities based on differences betweenfinancial statement and the income tax basis using presently enacted tax rates.

 

36

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**Fair Value of Financial Instruments**

 

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

 

**Earnings Per Share**

 

Earnings per shareis based on the weighted average number of shares of common stock and dilutivecommon stock equivalents outstanding. Basic earnings per share includes no dilution and is computed bydividing income available to common shareholders by the weighted average numberof common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securitiesthat could share in the earnings of an entity. Basic and diluted earnings per share are the same during 1999, 2000 and2001 because the impact of dilutive securities is anti-dilutive.  There were outstanding employee stockoptions of 996,250, 1,020,250 and 1,086,250 at December 31, 1999, 2000 and2001, respectively.  These stock optionswere excluded from the computation of earnings per share for their inclusionwould have been anti-dilutive.

 

**Comprehensive Income**

** **

Statement ofFinancial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS130”), establishes standards for reporting and display of comprehensive income,its components and accumulated balances. Comprehensive income is defined to include all changes in equity exceptthose resulting from investments by owners and distributions to owners.  Among other disclosures, SFAS 130 requiresthat all items that are required to be recognized under current accountingstandards as components of comprehensive income be reported in a financialstatement that is displayed with the same prominence as other financialstatements.  The Company has no items ofcomprehensive income to report.

 

**Recent Accounting Pronouncements**

 

In June 2001, theFASB issued Statement of Financial Accounting Standards No. 141, “BusinessCombinations” (“SFAS 141”). SFAS 141 changed the accounting for businesscombinations, requiring that all business combinations be accounted for usingthe purchase method and that intangible assets be recognized as assets apartfrom goodwill if they arise from contractual or other legal rights, or if theyare separable or capable of being separated from the acquired entity and sold,transferred, licensed, rented or exchanged. SFAS 141 is effective for allbusiness combinations initiated after June 30, 2001.

 

In June 2001, theFASB issued Statement of Financial Accounting Standards No.142, “Accounting forGoodwill” (“SFAS 142”). SFAS 142 establishes accounting standards for existinggoodwill related to purchase business combinations.  Under SFAS 142, the Company would discontinue the periodicamortization of goodwill effective with adoption of the SFAS 142.  Also, the Company would have to test anyremaining goodwill for possible impairment within six months of adoption ofSFAS 142, and periodically thereafter, based on new valuation criteria setforth in SFAS 142.  Further, SFAS 142has new criteria for purchase price allocation. SFAS becomes effective January1, 2002.

 

The Company doesnot believe either of these pronouncements will have a material affect on theCompany’s financial statements.

 

37

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**I.C. Isaacs &Company, Inc.**

**Notes to Consolidated FinancialStatements**

**1. Inventories**

** **

Inventoriesconsist of the following:

 
|            |   | **December  31,** |       |
|-----------------|--------|-------------------|------------|
|            |   | **2000**          |       | **2001** |   |
| Raw materials   |   | $                 | 2,139,305  |   | $ | 763,233 |   |
| Work-in-process |   | 534,867           |       | 489,551 |   |
| Finished goods  |   | 11,633,167        |       | 3,818,018 |   |
|            |   | $                 | 14,307,339 |   | $ | 5,070,802 |   |

** **

**2.Property, Plant and Equipment**

** **

Property, plantand equipment consists of the following: 

 
|                                            |   |       |              |       |       |      |   | **Estimated** |   |
|-------------------------------------------------|--------|------------|-------------------|------------|------------|-----------|--------|---------------|--------|
|                                            |   |       | **December  31,** |       | **Useful** |      |
|                                            |   |       | **2000**          |       |       | **2001**  |   | **Lives**     |   |
| Land                                            |   | $          | 714,304           |       | $          | 714,304   |   |          |   |
| Buildings and  improvements                     |   | 4,144,261  |              | 4,144,261  |       | 18 years  |   |
| Machinery,  equipment and fixtures              |   | 7,142,227  |              | 7,041,339  |       | 5-7 years |   |
| Other                                           |   | 1,563,678  |              | 1,427,176  |       | various   |   |
|                                            |   |       |              |       |       |      |   |
|                                            |   | 13,564,470 |              | 13,327,080 |       |      |   |
| Less accumulated  depreciation and amortization |   | 10,407,503 |              | 10,805,385 |       |      |   |
|                                            |   | $          | 3,156,967         |       | $          | 2,521,696 |   |          |   |

**3.Long-term Debt**

** **

Long–termdebt consists of the following: 

 
|                                                 |   | **December  31,** |      |
|------------------------------------------------------|--------|-------------------|-----------|
|                                                 |   | **2000**          |      | **2001** |   |
| Revolving line  of credit (a)                        |   | $                 | 7,613,109 |   | $ | — |   |
| Notes payable  (b)                                   |   | 7,200,000         |      | 6,841,087 |   |
|                                                 |   |              |      |   |   |
| Total                                                |   | 14,813,109        |      | 6,841,087 |   |
|                                                 |   |              |      |   |   |
| Less current  maturities of revolving line of credit |   | 7,613,109         |      | — |   |
| Less current  maturities of long-term debt           |   | 358,913           |      | 1,160,134 |   |
|                                                 |   | $                 | 6,841,087 |   | $ | 5,680,953 |   |

 

----

(a)                                  The Company has an asset-based revolvingline of credit (the “Agreement”) with Congress Financial Corporation(“Congress”).  As of December 31, 2000and 2001 the Company had $7,613,109 and $0, respectively, in outstandingborrowings under its revolving line of credit. In March 2001, the Agreement was amended to extend the term throughDecember 31, 2002.  The amendedAgreement provides that the Company may borrow up to

 

38

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80.0% of net eligible accounts receivable and aportion of inventory, as defined in the Agreement. Borrowings under theAgreement may not exceed $25.0 million including outstanding letters of creditwhich 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’sprime rate of interest plus 1.0% (effectively 5.7% at December 31, 2001).  In connection with amending the Agreement inMarch 2001, the Company paid  Congress afinancing fee of $150,000.  Thefinancing fee is being amortized over 21 months, ending December 31, 2002.Under the terms of the Agreement, the Company is required to maintain minimumlevels of working capital and tangible net worth. In August 2001, the Agreementwas further amended to allow the Company’s performance to be in compliance withits working capital and net worth covenants. The Company paid Congress a fee of $75,000 in connection with thisamendment, the expense of which was recognized in the third quarter of 2001.Outstanding letters of credit approximated $3.7 million at December 31,2001.  The Company was in violation ofthe working capital and the net worth covenants at December 31, 2001 and hasobtained a waiver of these violations. In March 2002, the Agreement was further amended to modify the minimumlevels of working capital and tangible net worth covenants through theremainder of the extended term of the Agreement.  Effective January 1, 2002 the Company is required to maintain minimumnet worth and working capital of $6.0 million and $10.0 million, respectively,until July 1, 2002, when these amounts increase to $9.0 million and $13.0million, respectively.  There can be noassurances that the Company will not be in violation of these covenants during2002 or thereafter.  In connection withthe March 2002 amendment, the Company paid Congress a financing fee of $20,000.

 

Average short-termborrowings and the related interest rates are as follows: 

 
|                                       |   | **Year Ended  December 31,** |
|--------------------------------------------|--------|------------------------------|
|                                       |   | **2000**                     |   | **2001** |   |
| Borrowings under  revolving line of credit |   | $                            | 7,613,109 |   | $ | — |   |
| Weighted average  interest rate            |   | 10.63                        | % | 8.6 | % |
| Maximum  month-end balance during year     |   | $                            | 15,356,405 |   | $ | 10,021,581 |   |
| Average  month-end balance during year     |   | $                            | 10,263,820 |   | $ | 6,781,314 |   |
|                                            |        |                              |  |  |  |  |  |  |

 

(b)                                 In March 2001, the Company issued a$7,200,000 note payable to Ambra, Inc. (“Ambra”) as consideration for the BOSSTermination Agreement. The note payable, which bears interest at 8.0% per annumwith interest and principal payable quarterly through December 31, 2006, issubordinated to the asset-based line of credit and is collateralized by asecond security interest in the Company’s assets. The termination expense andthis note payable were recorded as of December 31, 2000 as further discussed inNote 9.

 

At December 31,2001, long-term debt maturities are as follows: 

 
| 2002   |   | $         | 1,160,134 |   |
|--------|--------|-----------|-----------|--------|
| 2003   |   | 1,257,135 |      |
| 2004   |   | 1,361,202 |      |
| 2005   |   | 1,476,059 |      |
| 2006   |   | 1,586,557 |      |
|   |   | $         | 6,841,087 |   |

 

39

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**4.Accrued Expenses**

 

Accrued expensesconsist of the following: 

 
|                            |   | **December  31,** |      |
|---------------------------------|--------|-------------------|-----------|
|                            |   | **2000**          |      | **2001** |   |
|                            |   |              |      |   |   |
| Severance  benefits             |   | $                 | 335,318   |   | $ | 526,611 |   |
| Selling bonuses                 |   | 408,551           |      | 460,000 |   |
| License  obligation             |   | —            |      | 325,000 |   |
| Customer credit  balances       |   | 300,137           |      | 215,805 |   |
| Royalties                       |   | 1,267,150         |      | 107,061 |   |
| Property taxes                  |   | 92,019            |      | 86,585 |   |
| Accrued  compensation           |   | 99,221            |      | 87,707 |   |
| Payroll tax  withholdings       |   | 152,288           |      | 56,381 |   |
| Accrued  professional fees      |   | 100,000           |      | 50,000 |   |
| Directors  compensation expense |   | 17,763            |      | — |   |
| Other                           |   | 60,477            |      | 21,000 |   |
|                            |   | $                 | 2,832,924 |   | $ | 1,936,150 |   |
|                                 |        |                   |           |  |  |  |  |  |

** **

**5.Income Taxes**

 

The income taxprovision (benefit) consists of the following: 

 
|            |   | **Year ended  December 31,** |    |
|-----------------|--------|------------------------------|---------|
|            |   | **1999**                     |    | **2000** |   | **2001** |   |
| Current         |   |                         |    |   |   |   |   |
| Federal         |   | $                            | —  |   | $ | — |   | $ | — |   |
| State and local |   | 110,000                      |    | (48,000 | ) | — |   |
|            |   | 110,000                      |    | (48,000 | ) | — |   |
| Deferred        |   | —                       |    | — |   | — |   |
|            |   | $                            | 110,000 |   | $ | (48,000 | ) | $ | — |   |

 

40

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Deferred incometaxes reflect the net effects of temporary differences between the carryingamounts of assets and liabilities for financial and income tax reportingpurposes. The Company has net operating loss carry forwards for income taxreporting purposes of approximately $40,200,000 for which no income tax benefithas been recorded due to the uncertainty over the generation of taxable income in 2002. These net operating losscarryforwards begin to expire in 2013. Significant items comprising theCompany’s deferred tax assets  andliabilities are as follows: 

 
|                               |   | **December  31,** |       |
|------------------------------------|--------|-------------------|------------|
|                               |   | **2000**          |       | **2001** |   |
| Net operating  loss carry forwards |   | $                 | 12,647,000 |   | $ | 17,277,000 |   |
| Termination of  license agreement  |   | 3,096,000         |       | — |   |
| Depreciation and  amortization     |   | 443,000           |       | 562,000 |   |
| Allowance for  doubtful accounts   |   | 307,000           |       | 172,000 |   |
| Inventory  valuation               |   | 162,000           |       | 65,000 |   |
| Accrued severance                  |   | 69,000            |       | 226,000 |   |
| Contribution  carryovers           |   | 12,000            |       | 28,000 |   |
| Other                              |   | 21,000            |       | 22,000 |   |
|                               |   | 16,757,000        |       | 18,352,000 |   |
| Deferred royalty  expense          |   | (39,000           | )          | — |   |
| Valuation  allowance               |   | (16,718,000       | )          | (18,352,000 | ) |
| Net deferred tax  asset            |   | $                 | —     |   | $ | — |   |

 

A reconciliationbetween the statutory and effective tax rates is as follows: 

 
|                                           |   | **Year Ended  December 31,** |   |
|------------------------------------------------|--------|------------------------------|--------|
|                                           |   | **1999**                     |   | **2000** |   | **2001** |   |
|                                           |   |                         |   |   |   |   |   |
| Federal  statutory rate                        |   | (35.0)                       | %      | (35.0) | % | (35.0) | % |
| State and local  taxes, net of federal benefit |   | (4.0)                        |   | (4.0) |   | (4.0) |   |
| Nondeductible  entertainment expense           |   | 0.5                          |   | 1.0 |   | 1.0 |   |
| Nondeductible  goodwill amortization           |   | 2.7                          |   | 13.7 |   | — |   |
| Net operating  losses not currently available  |   | 37.0                         |   | 23.6 |   | 38.0 |   |
|                                           |   |                         |   |   |   |   |   |
|                                           |   | 1.2                          | %      | (0.7) | % | — | % |

** **

**6.Stockholders’ Equity**

** **

In June 1998, theCompany’s Board of Directors authorized a stock repurchase program. Under thisprogram the Company may repurchase up to $4,000,000 of its common stock. Frominception of the stock repurchase program through December 31, 2001, theCompany purchased 1,652,011 shares at a cost of $3,308,003. In August 1999, theCompany issued 500,000 shares of restricted common stock out of its treasuryshares, in connection with an amendment of the Girbaud women’s licenseagreement. In November 1999, the Company issued 2,000,000 shares of restrictedSeries A Redeemable Convertible Preferred Stock having an estimated fair marketvalue of $2,000,000 in connection with a restructuring of the licensingarrangement for the use of the BOSS trademark. Also in connection with suchrestructuring, in May 2000, the Company issued an additional 1,300,000restricted shares of the same series of redeemable convertible preferred stockhaving an estimated fair market value of $1,300,000 and 666,667 shares ofrestricted common stock, which had an aggregate value of $1,000,000 based onthe market price of $1.50 at the time the parties agreed to thetransaction. The common stock issued in connection with the licensingarrangement is subject to certain piggyback registration rights and, beginningDecember 15, 2000, certain demand registration rights.

 

Except as setforth below, the Series A Convertible Preferred Stock issued by the Company inNovember 1999 and May 2000 has all of the same preferences, rights and votingpowers as the common stock.The preferred stock is not

 

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entitled to vote on anymatters to be voted upon by the stockholders’ of the Company, except that theholders of the preferred stock are entitled to vote as a separate class, andthe vote of a majority of the outstanding shares of preferred stock will berequired for the creation of an equity security senior to the preferred stockor the amendment of the certificate of incorporation or by–laws of theCompany to the detriment of the holders of the preferred stock. The preferredstock has a liquidation preference of $1.00 per share plus any declared butunpaid dividends on the preferred stock. The Company may redeem, until June 30,2002, any or all of the preferred stock at a redemption price of $1.00 pershare. From July 1, 2002 to December 31, 2002, the Company may redeem any orall of the preferred stock at the greater of a redemption price of $1.00 pershare or the current market price of the common stock. From January 1, 2003 toDecember 31, 2006, any unredeemed preferred stock may be converted, at the solediscretion of Ambra, into either a promissory note from the Company or commonstock. If converted into a promissory note, the note will bear interest at12.0% and is payable in two consecutive quarterly payments of interest,followed by four quarterly payments of principal and interest. For financialreporting purposes, the preferred stock will be considered redeemable preferredstock and will be classified outside of stockholders’ equity.

 

**7. StockOptions**

 

In May 1997, the Company adopted the 1997 OmnibusStock Plan (the “Plan”). Under the 1997 Omnibus Stock Plan, the Company maygrant qualified and nonqualified stock options, stock appreciation rights,restricted stock or performance awards, payable in cash or shares of commonstock, to selected employees. The Company has reserved 1,100,000 shares ofcommon stock for issuance under the 1997 Omnibus Stock Plan.Options vest at theend of the second year and expire 10 years from the date of grant and upontermination of employment.

 

The following table relates to options activity in1999, 2000 and 2001under the Plan:

 
|                                      |   | **Number of  shares** |   | **Weighted  average   exercise price per share** |   |
|-------------------------------------------|--------|-----------------------|--------|-------------------------------------------------------|--------|
| Options  outstanding at December 31, 1998 |   | 346,000               |   | $ 2.125                                               |   |
| Granted                                   |   | 763,250               |   | 1.358                                                 |   |
| Cancelled                                 |   | (113,000              | )      | 2.125                                                 |   |
|                                      |   |                  |   |                                                  |   |
| 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                                                 |   |
|                                      |   |                  |   |                                                  |   |
| Options  exercisable at December 31, 2001 |   | 975,250               |   | $ 1.530                                               |   |

 

A summary of stock options outstanding and exercisableas of December 31, 2001 is as follows:

 
|                         |           | **Options  outstanding** |      | **Options  exercisable**                     |   |
|------------------------------|----------------|--------------------------|-----------|----------------------------------------------|--------|
| **Range of Exercise Prices** |           | **Number  Outstanding**  |      | **Weighted  Average Remaining Life (years)** |   | **Weighted  Average Exercise Price** |   | **Number  Exercisable** |   | **Weighted  Average Exercise Price** |   |
| $                            | 0.30           |                     | 10,000    |                                         | 10.00  |   | $ | 0.30 |   | — |   | — |   |
| $                            | 0.90 to $2.125 |                     | 1,076,250 |                                         | 7.39   |   | $ | 1.47 |   | 975,250 |   | $ | 1.530 |   |
|                              |                |                          |           |                                              |        |  |  |  |  |  |  |  |  |  |

 

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The Company has adopted the disclosure–onlyprovisions of Statement of Financial Accounting Standards No.123, “Accountingfor Stock Based Compensation” (“SFAS 123”), but applies the intrinsic valuemethod set forth in Accounting Principles Board Opinion No.25. For stockoptions granted to employees, the Company has estimated the fair value of eachoption granted using the Black-Scholes option pricing model with the followingassumptions: risk-free interest rate of 6.08%, 6.70% and 5.93%, expectedvolatility of 90%, 65% and 75%, expected option life of 4.5, 2.0  and 2.0 years and no dividend payment expectedfor 1999, 2000 and 2001, respectively. Using these assumptions, the fair valueof the stock options granted is $0.84, $0.51 and $0.39 for 1999, 2000 and 2001,respectively. There were no adjustments made in calculating the fair value toaccount for vesting provisions or for non-transferability or risk offorfeiture. The weighted average remaining life for options outstanding atDecember 31, 2001 is 7.39 years. If the Company had elected to recognizecompensation expense based on the fair value at the grant dates, consistentwith the method prescribed by SFAS No.123, net loss per share would have beenchanged to the pro forma amount indicated below:

 
|                                      |   | **Year ended  December 31,** |        |
|-------------------------------------------|--------|------------------------------|-------------|
|                                      |   | **1999**                     |        | **2000** |   | **2001** |   |
| Net loss:                                 |   |                         |        |   |   |   |   |
| As reported                               |   | $                            | (10,212,382 | ) | $ | (15,247,330 | ) | $ | (4,674,182 | ) |
| Pro forma                                 |   | (10,630,632                  | )           | (15,654,757 | ) | (4,694,128 | ) |
| Basic and  diluted loss per common share: |   |                         |        |   |   |   |   |
| As reported                               |   | $                            | (1.47       | ) | $ | (2.00 | ) | $ | (0.60 | ) |
| Pro forma                                 |   | (1.53                        | )           | (2.05 | ) | (0.60 | ) |

** **

**8.Discontinued Operations**

 

On December 20, 2001, the Board of Directors voted tosell all of the outstanding common stock of Isaacs Europe. Subsequently, theCompany sold 100% of the outstanding common stock of Isaacs Europe to amanagement group of Isaacs Europe in exchange for repayment of $100,000 ofintercompany debt and the assumption of liabilities.

 

The Company had concluded, from the inception ofIsaacs Europe, that it did not meet the criteria for segment reporting undereither Statement of Financial Accounting Standards No. 14 “Financial Reportingfor Segments of a Business Enterprise” or Statement of Financial AccountingStandards No. 131 “Disclosures about Segments of an Enterprise and RelatedInformation”. However, in June 2001, the Financial Accounting Standards Boardissued Statement of Financial Accounting Standards No. 144 “Accounting for theImpairment or Disposal of Long-Lived Assets” (“SFAS 144”) which changed thecriteria for reporting disposals as discontinued operations in the financialstatements. The Company has reviewed the provisions of SFAS 144 and hasdetermined that the sale of Isaacs Europe meets the two conditions necessaryfor presentation as discontinued operations. Those conditions are (a) theoperations and cash flow of the component have been or will be eliminated fromthe ongoing operations of the entity as a result of the disposal transactionand (b) the entity will not have any significant continuing involvement in theoperations of the component after the disposal transaction.

 

The sale of Isaacs Europe was effective on December31, 2001 and as such the consolidated balance sheet of the Company at December31, 2001 does not include the assets or liabilities of the disposal group. TheCompany recorded a loss from operations of Isaacs Europe of $1,309,610 for the yearended December 31, 2001. The Company recorded a loss on the sale of IsaacsEurope of $1,182,281. The loss on the sale of Isaacs Europe does not includethe consideration of $100,000 as the ultimate collection of the amount isuncertain. Accordingly, the Company will record this consideration whenreceived. Revenues from Isaacs Europe were insignificant since its inception.

 

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**9.Commitments and Contingencies**

 

The Company rents real and personal property underleases expiring at various dates through 2004. Certain of the leases stipulatepayment of real estate taxes and other occupancy expenses. Minimum annualrental commitments under noncancellable operating leases in effect at December31, 2001 are summarized as follows: 

 
|   |   | **Trucks  &  Machinery** |    | **Showrooms  &  Office Space** |   | **Computer  &  Office  Equipment** |   | **Total** |    |
|--------|--------|------------------------------|---------|------------------------------------|--------|----------------------------------------|--------|-----------|---------|
| 2002   |   | $                            | 60,684  |                               | $      | 435,871                                |   | $         | 135,370 |   | $ | 631,925 |   |
| 2003   |   | 43,196                       |    | 298,569                            |   | 16,152                                 |   | 357,917   |    |
| 2004   |   | —                       |    | —                             |   | 13,460                                 |   | 13,460    |    |
|   |   | $                            | 103,880 |                               | $      | 734,440                                |   | $         | 164,982 |   | $ | 1,003,302 |   |

 

Total rent expense is as follows:

 
|               |   | **Year Ended  December 31,** |    |
|--------------------|--------|------------------------------|---------|
|               |   | **1999**                     |    | **2000** |   | **2001** |   |
| Minimum rentals    |   | $                            | 512,421 |   | $ | 556,875 |   | $ | 949,204 |   |
| Other lease  costs |   | 820,135                      |    | 594,234 |   | 22,847 |   |
|               |   |                         | $       | 1,332,556 |   | $ | 1,151,109 |   | $ | 972,051 |   |
|                    |        |                              |         |  |  |  |  |  |  |  |  |  |

 

In November 1997, the Company, Ambra and Hugo Boss AG(“Hugo Boss”) executed certain agreements including an agreement whereby theCompany borrowed $11,250,000 from Ambra to finance the acquisition of certainBOSS trademark rights. This obligation was evidenced by a note scheduled tomature on December 31, 2007, which bore interest at 10% per annum, payablequarterly, with principal payable in full upon maturity. As part of the sametransaction, the Company sold its foreign BOSS trademark rights and relatedassets to Ambra and entered into a foreign rights manufacturing agreement (the“Foreign Rights Agreement”) with Ambra, which allowed the Company tomanufacture apparel in certain foreign countries for sale in the United Statesusing the BOSS brand and image in exchange for an annual royalty payment. TheCompany retained ownership of its domestic BOSS trademark rights subject to aconcurrent use agreement with Hugo Boss (the “Concurrent Use Agreement”).

 

On October 22,1999, the Company, Ambra and Hugo Boss entered into an agreement to restructurethe licensing arrangement for the use of the BOSS trademark. Pursuant to thisagreement, the Company transferred to Ambra substantially all of its rights inthe 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 AConvertible Preferred Stock having an estimated fair market value of $2,000,000in 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 RightsAgreement, the Concurrent Use Agreement and an option on the part of Ambra topurchase the Company’s domestic BOSS trademark rights, which was originallyentered into in November 1997. The Company, Ambra and Hugo Boss also agreed toenter into a license agreement granting the Company rights to use varioustrademarks including the word “BOSS” in the manufacture and domestic sale ofspecified types of apparel. Except for the initial term and the minimum annualroyalties, the Company’s rights under the new license agreement aresubstantially similar to those it previously had. As consideration, togetherwith the royalties discussed below, for the new license agreement, the Company issuedto Ambra, on April 30, 2000, 1,300,000 shares of the same series of convertiblepreferred stock having an estimated fair market value of $1,300,000 and 666,667shares of common stock, which had an aggregate value of $1,000,000 based on themarket price of $1.50 at the time the parties agreed to the transaction. Thelicense agreement extended through December 31, 2003, with renewal options, atthe option of the Company, through December 31, 2007.

 

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In October 2000,the Board of Directors authorized the appropriate officers of the Company tonegotiate a termination of the license agreement for the use of the BOSStrademark (the “License Agreement”). In March 2001, the Company, Ambra and HugoBoss executed the BOSS Termination Agreement. Pursuant to the BOSS TerminationAgreement, the Company issued to Ambra a note payable in the amount of$7,200,000. In connection with the BOSS Termination Agreement, the Companyrecorded the note payable and wrote off the remaining deferred royalty expenseof $706,315 and other BOSS related assets of $161,593 as a charge againstearnings totaling $8,067,908 in the fourth quarter of 2000. The note bearsinterest at 8.0% with interest and principal payable quarterly through December31, 2006.  The Company complied with theOctober 31, 2001 deadline to discontinue the manufacture and sale of BOSSapparel. In connection with the BOSS Termination Agreement, the Series AConvertible Preferred Stock held by Ambra, having an estimated value of$3,300,000, may be redeemed for cash by the Company through December 31, 2002;thereafter it may be converted into a promissory note from the Company orCommon Stock at the sole discretion of Ambra (see Note 6). Total license feeson BOSS sportswear sales amounted to $2,910,013, $3,240,000 and $0 for theyears ended December 31, 1999, 2000 and 2001, respectively. The percentage ofBOSS sportswear sales to total sales was 43.7%, 11.3%, and 2.4% for the yearsended December 31, 1999, 2000 and 2001, respectively.

 

In November 1997,and as further amended in March 1998, November 1998, June 2000 and May 2001,the Company entered into an exclusive license agreement with Latitude LicensingCorp. to manufacture and market men’s jeanswear, casual wear, outerwear andactive influenced sportswear under the Girbaud brand and certain relatedtrademarks in the United States, Puerto Rico, the U.S.Virgin Islands andCanada. The initial term of the agreement extended through December 31,1999. The agreement has been extended through December 31, 2002, uponwhich date the Company will have the option to renew the agreement for anadditional five years. Under the agreement, the Company is required to makepayments to the licensor in an amount equal to 6.25% of net sales or regularlicensed merchandise and 3.0% of certain irregular and closeout licensedmerchandise. Payments are subject to guaranteed minimum annual royalties of$3,000,000 for 2002.

 

Beginning with the first quarter of 1998, the Companybecame obligated to pay the greater of actual royalties earned or the minimumguaranteed royalties for that year. The Company is required to spend  the greater of an amount equal to 3% ofGirbaud men’s net sales or $500,000 in advertising and related expensespromoting the men’s Girbaud brand products in each year through the term of theGirbaud men’s agreement.

 

In March 1998, theCompany entered into an exclusive license agreement with Latitude LicensingCorp. to manufacture and market women’s jeanswear, casual wear and activeinfluenced sportswear under the Girbaud brand and certain related trademarks inthe United States, Puerto Rico and the U.S.Virgin Islands. The initial term ofthe agreement extended through December 31, 1999. The agreement has beenextended through December 31, 2002, upon which date the Company will havethe option to renew the agreement for an additional five years. Under theagreement, the Company is required to make payments to the licensor in anamount equal to 6.25% of net sales of regular licensed merchandise and 3.0% ofcertain irregular and closeout licensed merchandise. Payments are subject toguaranteed minimum annual royalties of $1,500,000 for 2002.

 

Beginning with the first quarter of 1999, the Companywas obligated to pay the greater of actual royalties earned or the minimumguaranteed royalties for that year. The Company is required to spend thegreater of an amount equal to 3% of Girbaud women’s net sales or $400,000 inadvertising and related expenses promoting the women’s Girbaud brand productsin 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 peryear to the licensor for advertising and promotional expenditures related tothe Girbaud brand. In December 1998, the Girbaud women’s license agreement wasamended to provide that the Company would spend an additional $1.8 million onsales and marketing in 1999 in conjunction with a one year deferral of therequirement that the Company open a Girbaud retail store in New York City. InAugust 1999, the Company issued 500,000 shares of restricted Common Stock toLatitude Licensing Corp. in connection with an amendment of the Girbaud women’slicense agreement. The market value of the shares issued, as of the date ofissuance, was $750,000 and, together with the initial license fee of $600,000,is being amortized over the remaining life of the agreement. Under the amendedlicense agreement, if the Company has not signed a lease agreement for a Girbaudretail store by July 31, 2002 it will become obligated to pay LatitudeLicensing Corp.an additional $500,000 in royalties. During 2001, theCompany  decided not to sign a leaseagreement for a Girbaud retail store and paid $175,000 of this royalty, the remainderof which will be paid by July 31, 2002. The entire amount has been expensed inthe fourth quarter of 2001.

 

45

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Total license fees on Girbaud sportswear salesamounted to $2,356,669,$4,328,764 and $4,494,591 for the years ended December31, 1999, 2000 and 2001, respectively. The percentage of Girbaud sportswearsales to total sales was 32.9%, 69.6% and 84.9% for the years ended December31, 1999, 2000 and 2001, respectively.

 

In January 2000, the Company entered into a globalsourcing agreement with G.I.Promotions to act as a non–exclusive sourcingagent to licensees of the Marithé & François Girbaud trademark for themanufacture of Girbaud jeanswear and sportswear. The global sourcing agreementextends until December 31, 2003 and provides that the Company shall net afacilitation fee of 5.0% of the total FOB pricing for each order shipped tolicensees under this agreement. Also in January 2000, the Company entered intoa license agreement with Wurzburg Holding S.A.(“Wurzburg”). The license has aterm of three years and provides that the Company shall pay Wurzburg a royaltyof 1.0% of the total FOB pricing for each order shipped to a licensee under theglobal sourcing agreement.

 

In May 2000, the Company entered into an exclusivedistribution agreement for Girbaud men’s and women’s jeanswear and sportswearproducts 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 tothe Company’s retail customers. For products purchased by the Distributor fromoverseas, the Distributor will pay a distributor’s fee equal to 6.75% of netsales to the Company. Under the agreement, the Distributor will pay a royaltyfee equal to 6.25% of net sales to the Company, which will in turn pay theroyalty to Latitude Licensing Corp. The initial term of the agreement expiredon December 31, 2001. Under the agreement, the Distributor may renew theagreement for six additional one-year terms. The Distributor renewed theagreement with the Company for an additional one-year term that expires onDecember 31, 2002. The minimum sales level for calendar year 2002 is $2,000,000(Canadian Dollars), which results in a minimum distribution fee payable to theCompany of $60,000 (Canadian Dollars). The minimum sales level for calendaryear 2001 was $1,600,000 (Canadian Dollars), which resulted in a minimumdistribution fee payable to the Company of $48,000 (Canadian Dollars). Therewas no minimum sales levels or distribution fees for calendar year 2000.

 

Since 1993, the Company has had an exclusive wholesalelicensing arrangement with BHPC Marketing, Inc. for the manufacture andpromotion of certain men’s sportswear bearing the registered trademark BeverlyHills Polo Club. The BHPC men’s agreement had a three year term expiringDecember 31, 2001 with renewal options for a total of nine years. Underthe men’s agreement the Company was required to make payments to the licensorin an amount equal to 5.0% of net invoiced sales of licensed products and tospend an amount equal to 1.0% of net invoiced sales of such merchandise inadvertising for the licensed products. Payments were subject to a guaranteedminimum annual royalty of $586,000 in 2001. Under the BHPC men’s agreement, theCompany was required to notify the licensor by June 30, 2001 of the Company’sintention to renew the license for men’s sportswear. The Company did not notifythe licensor and has allowed this license to expire on December 31, 2001.

 

In May 1998, the Company entered into a licenseagreement with BHPC Marketing, Inc., to manufacture and market boys knitted andwoven shirts, cotton pants, jeanswear, shorts, swimwear and outerwear under theBeverly Hills Polo Club brand in the United States and Puerto Rico. The initialterm of the agreement is three years, commencing January 1, 1999, withrenewal options for a total of nine years. Under the boy’s agreement theCompany was required to make payments to the licensor in an amount equal to5.0% of net sales in 1999 and is subject to a guaranteed minimum annual royaltyof $100,000 in 2001. Under the BHPC boy’s agreement, the Company was requiredto notify the licensor by June 30, 2001 of the Company’s  intention to renew the license for men’ssportswear. The Company did not notify the licensor and has allowed thislicense to expire on December 31, 2001.

 

Total license fees on Beverly Hills Polo Clubsportswear sales amounted to $803,281, $774,546 and $716,387 for the yearsended December 31, 1999, 2000 and 2001, respectively. The percentage of BeverlyHills Polo Club sportswear sales to total sales was 17.3%, 13.4% and 8.5% forthe years ended December 31, 1999, 2000 and 2001,  respectively.

 

On August 15, 1996, Isaacs Europe entered intoretail and wholesale license agreements (collectively, the “InternationalAgreements”) for use of the Beverly Hills Polo Club trademark in Europe. TheInternational Agreements, as amended, provide certain exclusive rights to usethe Beverly Hills Polo Club trademark for men’s sportswear in all countries inEurope for an initial term of three years ending December 31, 1999,renewable at the Company’s option, provided the Company is not in breach thereofat the time the renewal notice is given, through five consecutive extensionsending December 31, 2007.This Agreement was amended July 31, 2000 toreduce certain royalty payments and increased

 

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the amount the Company isrequired to spend in advertising the BHPC line. For the period beginningJanuary 1, 2000 and ending June 30, 2000, no guaranteed minimumannual royalties or guaranteed net shipment volumes applied; for the periodbeginning July 1, 2000 and ending December 31, 2000, the royalty ratewas 3.0% of wholesale sales of BHPC products including purchases of BHPCproducts by Beverly Hills Polo Club retail stores in Europe (“WholesalePurchases”) and no guaranteed annual royalties applied; for the periodbeginning January 1, 2001 and ending December 31, 2001, the royaltyrate shall be 3.0% of Wholesale Purchases, and the guaranteed annual royaltywas $120,000; for the period beginning January 1, 2002 and endingDecember 31, 2004, the royalty rate shall be 3.0% of Wholesale Purchases,the guaranteed annual royalty shall be $120,000 and the Company shall besubject to the guaranteed net shipment volumes in effect immediately prior tothe amendment dated March 1, 1999. For the period beginning January 1,2000 and ending December 31, 2001, the Company was required to spend anamount equal to 4.0% of Wholesale Purchases in advertising the BHPC line. TheCompany allowed the license to expire on December 31, 2001. In addition, theCompany sold the subsidiary headquartered in Spain, effective December 31, 2001(see Note 8).

 

The Company is party to employment agreements withthree executive officers as well as a consulting agreement which provide forspecified levels of compensation ranging from $171,000 to $345,000 and certainother benefits. The agreements also provide for severance payments from thetermination date through the expiration date under certain circumstances.

 

In June 1999, the Company’s President and ChiefOperating Officer resigned. As part of this action, the Company will pay atotal of $700,000 over the next two years. The Company also transferred a lifeinsurance policy with a cash surrender value of $50,000 to the former Presidentand Chief Operating Officer. Also in connection with this resignation, theCompany purchased 84,211 shares of common stock of the Company held by thisindividual at the market price of $1.19 per share, for a total of $100,000.This individual’s options vested immediately upon his resignation and areexercisable up to the tenth anniversary of the grant date.

 

In the second quarter of 2000, the Company announcedthat it intended to close its last company-owned manufacturing facility locatedin Raleigh, Mississippi. This closure, which occurred in the third quarter of2000, resulted in a charge against earnings of $0.2 million in the secondquarter. The production in this facility was transferred to third partyindependent contractor facilities in Mexico. The actual expenses incurred werenot significantly different than the reserve provided by the Company in thesecond quarter of 2000.

 

In the fourth quarter of 2000 the Company decided todiscontinue using independent contractors facilities in Mexico. This decisionresulted in the termination of certain employees whom will be paid severance inthe first and second quarters of 2001. This severance resulted in a chargeagainst earnings of $0.2 million in the fourth quarter of 2000.

 

The Company and certain of its current and former officers anddirectors were named as defendants in three putative class actions filed inUnited States District Court for the District of Maryland. The first of theactions was filed on November 10, 1999 by Leo Bial and Robert W. Hampton.The three actions, which had been consolidated with Mr. Bial as the first–namedplaintiff, purported to have been brought on behalf of all persons (other thanthe defendants and their affiliates) who purchased the Company’s stock betweenDecember 17, 1997 and November 11, 1998. The plaintiffs alleged thatthe registration statement and prospectus used in connection with the Company’sinitial public offering, completed in December 1997, contained materially falseand misleading statements, which artificially inflated the price of theCompany’s stock during the class period.Specifically, the complaints allegedviolations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. Theplaintiffs sought rescission, damages, costs and expenses, including attorneys’fees and experts’ fees, and such other relief as were just and proper. OnNovember 20, 2001 a federal judge approved the settlement of a consolidatedsecurities class action filed against the Company. Under terms of thesettlement, all claims against the Company and all of the other defendants weredismissed without admission of liability or wrongdoing by any party. Thesettlement was funded entirely by  theCompany’s insurance carrier, and the settlement payment had no adverse effecton the Company’s financial position or results of operations.

 

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**10.Retirement Plan**

 

The Company sponsors a defined benefit pension planthat covers substantially all employees with more than one year of service. TheCompany’s policy is to fund pension costs accrued.Contributions to the planreflect benefits attributed to employees’ service to date, as well as serviceexpected to be earned in the future. The benefits are based on the number ofyears of service and the employee’s compensation during the three consecutivecomplete years of service prior to or including the year of termination ofemployment. Plan assets consist primarily of common stocks, fixed incomesecurities and cash. The latest available actuarial valuation is as of December31, 2001.

 

Pension expense for 1999, 2000 and 2001 wasapproximately $390,000, $409,000 and $190,000 respectively, and includes thefollowing components:

 
|                                          |   | **Years  Ended December 31,** |    |
|-----------------------------------------------|--------|-------------------------------|---------|
|                                          |   | **1999**                      |    | **2000** |   | **2001** |   |
| Service cost of  current period               |   | $                             | 207,000 |   | $ | 148,000 |   | $ | 106,000 |   |
| Interest on the  above service cost           |   | 15,000                        |    | 11,000 |   | 8,000 |   |
|                                          |   | 222,000                       |    | 159,000 |   | 114,000 |   |
| Interest on the  projected benefit obligation |   | 609,000                       |    | 541,000 |   | 485,000 |   |
| Expected return  on plan assets               |   | (646,000                      | )       | (577,000 | ) | (599,000 | ) |
| Amortization of  prior service cost           |   | 42,000                        |    | 42,000 |   | 43,000 |   |
| Amortization of  transition amount            |   | 31,000                        |    | 31,000 |   | — |   |
| Amortization of  loss                         |   | 132,000                       |    | 213,000 |   | 147,000 |   |
| Pension cost                                  |   | $                             | 390,000 |   | $ | 409,000 |   | $ | 190,000 |   |

 

The following table sets forth the Plan’s funded status and amountsrecognized at December 31, 1999, 2000 and 2001:

 
|                                                                    |   | **Years  ended December 31,** |      |
|-------------------------------------------------------------------------|--------|-------------------------------|-----------|
|                                                                    |   | **1999**                      |      | **2000** |   | **2001** |   |
| Vested benefits                                                         |   | $                             | 7,819,000 |   | $ | 6,323,000 |   | $ | 6,110,000 |   |
| Nonvested  benefits                                                     |   | 110,000                       |      | 116,000 |   | 63,000 |   |
| Accumulated  benefit obligation                                         |   | 7,929,000                     |      | 6,439,000 |   | 6,173,000 |   |
| Effect of  anticipated future compensation levels and other events      |   | 963,000                       |      | 707,000 |   | 457,000 |   |
| Projected  benefit obligation                                           |   | 8,892,000                     |      | 7,146,000 |   | 6,630,000 |   |
| Fair value of  assets held in the plan                                  |   | 9,260,000                     |      | 7,297,000 |   | 7,093,000 |   |
| (Excess)/deficit  of projected benefit obligation over plan assets      |   | 368,000                       |      | 151,000 |   | 463,000 |   |
| Unrecognized net  loss from past experience different from that assumed |   | 1,868,000                     |      | 2,569,000 |   | 2,900,000 |   |
| Unrecognized  prior service cost                                        |   | 257,000                       |      | 154,000 |   | 171,000 |   |
| Unamortized  liability at transition                                    |   | 31,000                        |      | — |   | 3⁄4 |   |
| Net prepaid  periodic pension cost                                      |   | $                             | 2,524,000 |   | $ | 2,874,000 |   | $ | 3,534,000 |   |

 

With respect to the above table, the weighted averagediscount rate used to measure the projected benefit obligation was 7.5% for1999, 2000 and 2001; the rate of increase in future compensation levels is 3%;and the expected long–term rate of return on assets is 8%. The netprepaid periodic pension cost is included in other assets in the accompanying consolidatedbalance sheets.

 

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**11.Supplemental Disclosures of Cash Flow Information**

 

Cash paid during the year for interest amounted to$1,804,098, $1,093,284 and $1,309,956 for 1999, 2000 and  2001, respectively.

 

Non-cash effect of restructuring BOSS trademark andlicensing arrangement:

 
|                                                                                                       |   | **1999** |       | **2000** |      |
|------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|-----------|
| Transfer of BOSS  trademark                                                                                |   | $        | 9,093,750  |     | —    |   |
| Exchange of note  payable                                                                                  |   | $        | 11,250,000 |     | —    |   |
| Issuance of  redeemable preferred stock                                                                    |   | $        | 2,000,000  |     | $         | 1,300,000 |   |
| Liability to  issue preferred and common stock                                                             |   | $        | 2,300,000  |     | —    |   |
| Reduction of  accrued royalties                                                                            |   | $        | 996,000    |     | —    |   |
| Issuance of  treasury stock in connection with an amendment of the Girbaud women’s license  agreement |   | $        | 750,000    |     | —    |   |
| Issuance of common  stock in settlement of BOSS liability                                                  |   | —   |       | $        | 1,000,000 |   |

 

**12.Quarterly Financial Data (Unaudited)**

 

Summarized quarterly financial data for 2001 and 2000 is as follows:

 
|                                                                      |   | **Quarter** |       |
|---------------------------------------------------------------------------|--------|-------------|------------|
| **2001**                                                                  |   | **First**   |       | **Second** |   | **Third** |   | **Fourth** |   |
| Net sales                                                                 |   | $           | 23,939,924 |   | $ | 18,425,825 |   | $ | 24,867,482 |   | $ | 15,078,423 |   |
| Gross profit                                                              |   | 7,884,429   |       | 5,116,975 |   | 9,650,231 |   | 4,551,978 |   |
| Income (loss)  from continuing operations                                 |   | 633,098     |       | (2,143,837 | ) | 1,815,473 |   | (2,487,025 | ) |
| Income (loss)  from discontinued operations                               |   | 6,171       |       | (176,922 | ) | 93,022 |   | (2,228,118 | ) |
| Net income  (loss)                                                        |   | 639,269     |       | (2,320,759 | ) | 1,722,451 |   | (4,715,143 | ) |
| Basic and  diluted earnings (loss) per share from continuing operations   |   | 0.08        |       | (0.27 | ) | 0.23 |   | (0.32 | ) |
| Basic and  diluted earnings (loss) per share from discontinued operations |   | 0.00        |       | 0.03 |   | (0.01 | ) | (0.28 | ) |
| Basic and  diluted earnings (loss) per share                              |   | 0.08        |       | (0.30 | ) | 0.22 |   | (0.60 | ) |
|                                                                      |   |        |       |   |   |   |   |   |   |
|                                                                           |        |             |            |  |  |  |  |  |  |  |  |  |  |

 
|                                                                      |   | **Quarter** |       |
|---------------------------------------------------------------------------|--------|-------------|------------|
| **2000**                                                                  |   | **First**   |       | **Second** |   | **Third** |   | **Fourth** |   |
| Net sales                                                                 |   | $           | 24,119,019 |   | $ | 23,319,145 |   | $ | 31,426,965 |   | $ | 16,996,246 |   |
| Gross profit                                                              |   | 8,189,625   |       | 6,046,662 |   | 10,580,144 |   | 4,013,565 |   |
| Income (loss)  from continuing operations                                 |   | 320,493     |       | (2,677,152 | ) | 1,347,662 |   | (13,735,346 | ) |
| Income (loss)  from discontinued operations                               |   | (203,110    | )          | (145,199 | ) | 65,780 |   | (220,458 | ) |
| Net income (loss)                                                         |   | 117,383     |       | (2,822,351 | ) | 1,413,442 |   | (13,955,804 | ) |
| Basic and  diluted earnings (loss) per share from continuing operations   |   | 0.04        |       | (0.35 | ) | 0.17 |   | (1.75 | ) |
| Basic and  diluted earnings (loss) per share from discontinued operations |   | (0.02       | )          | (0.02 | ) | 0.01 |   | (0.02 | ) |
| Basic and  diluted earnings (loss) per share                              |   | 0.02        |       | (0.37 | ) | 0.18 |   | (1.77 | ) |
|                                                                           |        |             |            |  |  |  |  |  |  |  |  |  |  |

 

----

1.                                       The fourth quarter of 2001 includes acharge of $1.2 million for the discontinued operations of Isaacs Europe. (SeeNote 8). All prior quarters have been restated.

 

2.                                       Earnings per share calculations for eachof the quarters are based on the weighted average shares outstanding for eachperiod. The sum of the quarters may not necessarily be equal to the full yearearnings per share amounts.

 

49

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3.                                       During the fourth quarter of 2001, theCompany 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 pershare. During the fourth quarter of 2000, the Company negotiated a terminationof the BOSS license agreement and recorded a charge against earnings of$8,067,908, which had the effect of increasing the net loss by $1.06 per share.During the fourth quarter ended December 31, 1999, the Company increased theinventory valuation reserve by $1,000,000, which had the effect of increasingthe net loss by $0.14 per share.

 

50

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EXHIBIT INDEX

 

| EXHIBIT NO. |   | DESCRIPTION                                                                                                        |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                               |
| 3.01        |   | Amended and Restated Certificate of Incorporation  (1)                                                             |
| 3.02        |   | Amended and Restated By-Laws (1)                                                                                   |
| 3.03        |   | Certificate of Designation dated November 5, 1999  (9)                                                             |
| 3.04        |   | Certificate of Amendment to Certificate of  Designation dated March 15, 2001 (1)                              |
| 4.01        |   | Specimen Common Stock Certificate (1)                                                                              |
| 10.01(a)    |   | Form of Amended and Restated Shareholders’ Agreement  (1)                                                     |
| 10.01(b)    |   | Form of Amendment No. 1 to Amended and Restated  Shareholders’ Agreement (1)                                  |
| 10.02       |   | Employment Agreement dated as of May 15, 1997  between the Registrant and Robert J. Arnot (1)                      |
| 10.03       |   | Employment Agreement dated as of May 15, 1997  between Registrant and Gerald W. Lear (1)                           |
| 10.04       |   | Employment Agreement dated as of May 15, 1997  between Registrant and Gary B. Brashers (1)                         |
| 10.05       |   | Employment Agreement dated as of May 15, 1997,  between the Registrant and Eugene C. Wielepski (1)                 |
| 10.06       |   | Employment Agreement dated as of May 15, 1997,  between the Registrant and Thomas Ormandy (1)                      |
| 10.07       |   | 1997 Omnibus Stock Plan (1)                                                                                        |
| 10.08(a)    |   | Accounts Financing Agreement dated June 16, 1992 (1)                                                               |
| 10.08(b)    |   | Covenant Supplement to Accounts Financing Agreement  dated June 16, 1992 (1)                                  |
| 10.08(c)    |   | Inventory and Equipment Security Agreement  Supplement to Accounts Financing Agreement dated June 16, 1992 (1)     |
| 10.08(d)    |   | Trade Financing Agreement Supplement to Accounts  Financing Agreement (Security Agreement) dated June 16, 1992 (1) |
| 10.08(e)    |   | Amendment to Financing Agreements dated October 30,  1992 (1)                                                      |
| 10.08(f)    |   | Second Amendment to Financing Agreements dated  January 4, 1993 (1)                                                |
| 10.08(g)    |   | Third Amendment to Financing Agreements dated March  10, 1993 (1)                                                  |
| 10.08(h)    |   | Fourth Amendment to Financing Agreements dated May  1, 1993 (1)                                                    |
| 10.08(i)    |   | Fifth Amendment to Financing Agreements dated  January 1, 1994 (1)                                                 |
| 10.08(j)    |   | Sixth Amendment to Financing Agreements dated  September 1, 1993 (1)                                               |
| 10.08(k)    |   | Seventh Amendment to Financing Agreements dated  August, 1994 (1)                                                  |
| 10.08(l)    |   | Eighth Amendment to Financing Agreements dated  December 31, 1994 (1)                                              |
| 10.08(m)    |   | Ninth Amendment to Financing Agreements dated April,  1995 (1)                                                     |
| 10.08(n)    |   | Tenth Amendment to Financing Agreements dated June  23, 1995 (1)                                                   |
| 10.08(o)    |   | Eleventh Amendment to Financing Agreements dated  January 1, 1996 (1)                                              |
| 10.08(p)    |   | Twelfth Amendment to Financing Agreements dated June  25, 1996 (1)                                                 |
| 10.08(q)    |   | Thirteenth Amendment to Financing Agreements dated  August, 1996 (1)                                               |
| 10.08(r)    |   | Term Promissory Note dated June, 1996 (1)                                                                          |

 

 

51

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| EXHIBIT NO. |   | DESCRIPTION                                                                                             |
|-------------|--------|---------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                    |
| 10.08(s)    |   | Trademark Collateral Assignment and Security  Agreement dated June 16, 1992 (1)                         |
| 10.09       |   | Form of Indemnification Agreement (1)                                                                   |
| 10.10(a)    |   | BOSS Worldwide Rights Acquisition Agreement dated  September 30, 1997 (1)                               |
| 10.10(b)    |   | Promissory Note dated November 5, 1997 (1)                                                              |
| 10.10(c)    |   | Guaranty of Promissory Note dated November 5, 1997  (1)                                                 |
| 10.10(d)    |   | Trademark Assignment dated November 5, 1997 (1)                                                         |
| 10.10(e)    |   | Trademark Assignment dated November 5, 1997 (1)                                                         |
| 10.10(f)    |   | Trademark Assignment dated November 5, 1997 (1)                                                         |
| 10.10(g)    |   | Trademark Assignment dated November 5, 1997 (1)                                                         |
| 10.10(h)    |   | Assignment and Assumption Agreement dated November  5, 1997 (1)                                         |
| 10.10(i)    |   | Escrow Agreement dated November 5, 1997 (1)                                                             |
| 10.10(j)    |   | Collateral Assignment of Trademarks dated November  5, 1997 (1)                                         |
| 10.10(k)    |   | Termination of License Agreement dated November 5,  1997 (1)                                            |
| 10.10(l)    |   | Logo Typeface (1)                                                                                       |
| 10.10(m)    |   | Certain Provisions in Settlement Agreement (1)                                                          |
| 10.11(a)    |   | Foreign BOSS Rights Acquisition Agreement dated  September 30, 1997 (1)                                 |
| 10.11(b)    |   | Trademark Assignment dated November 5, 1997 (1)                                                         |
| 10.11(c)    |   | Assignment and Assumption Agreement dated November  5, 1997 (1)                                         |
| +10.11(d)   |   | Concurrent Use Agreement dated November 5, 1997 (1)                                                     |
| +10.11(e)   |   | Foreign Manufacturing Rights Agreement dated  November 5, 1997 (1)                                      |
| 10.11(f)    |   | Option Agreement dated November 5, 1997 (1)                                                             |
| 10.11(g)    |   | Secured Limited Recourse Promissory Note dated  November 5, 1997 (1)                                    |
| 10.11(h)    |   | Note Assumption Agreement dated November 5,  1997  (1)                                             |
| 10.11(i)    |   | Guaranty of Promissory Note dated November 5, 1997  (1)                                                 |
| 10.11(j)    |   | Agreement Regarding Consent to Release and Waiver of  Brookhurst Note Claims dated November 5, 1997 (1) |
| 10.11(k)    |   | Certain Provisions in Settlement Agreement (1)                                                          |
| 10.11(l)    |   | Indemnification Agreement dated November 5, 1997 (1)                                                    |
| 10.12       |   | Uniforms License Agreement dated November 5, 1997  (1)                                                  |
| 10.13       |   | Trademark License Agreement Relating to BOSS Golf  and Other Marks dated November 5, 1997 (1)           |
| 10.14       |   | Beverly Hills Polo Club Exclusive Domestic License  Agreement dated December 14, 1995 (1)               |
| 10.15       |   | Beverly Hills Polo Club Amendment to Exclusive  License Agreement (Men’s) dated June 3, 1997 (1)   |
| 10.16       |   | Beverly Hills Polo Club Exclusive Domestic License  Agreement dated June 1, 1993 (1)                    |
| 10.17       |   | Beverly Hills Polo Club Assignment of Licenses  (Women’s) dated August 31, 1993 (1)                |
| 10.18       |   | Beverly Hills Polo Club Amendment (Women’s) dated  September 1, 1993 (1)                           |
| 10.19       |   | Beverly Hills Polo Club Amendment to Exclusive  License Agreement (Women’s) dated June 3, 1997 (1) |

 

 

52

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| EXHIBIT NO. |   | DESCRIPTION                                                                                                                                                                                                                      |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                             |
| 10.20       |   | Beverly Hills Polo Club Amendment to Exclusive  License Agreement (Men’s dated July 29, 1997 (1)                                                                                                                            |
| 10.21       |   | Beverly Hills Polo Club International Exclusive  License Agreement (Wholesale) dated August 15, 1996 (1)                                                                                                                         |
| 10.22       |   | Beverly Hills Polo Club Amendment to Exclusive  License Agreement (Wholesale) dated June 3, 1997 (1)                                                                                                                             |
| 10.23       |   | Beverly Hills Polo Club International Exclusive  License Agreement (Retail) dated August 15, 1996 (1)                                                                                                                            |
| 10.24       |   | Beverly Hills Polo Club Amendment to International  Exclusive License Agreement (Retail) dated June 3, 1997 (1)                                                                                                                  |
| 10.25       |   | Beverly Hills Polo Club Amendment to Exclusive  License Agreement dated July 29, 1997 (1)                                                                                                                                        |
| 10.26(a)    |   | Girbaud Trademark License and Technical Assistance  Agreement dated January 15, 1998 (2)                                                                                                                                         |
| 10.26(b)    |   | Girbaud Trademark License and Technical Assistance  Agreement for Women’s   Collection dated March 4, 1998 (2)                                                                                                              |
| 10.26(c)    |   | Cancellation Agreement dated March 4, 1998 (2)                                                                                                                                                                                   |
| 10.27(a)    |   | Defined Benefit Pension Plan (1)                                                                                                                                                                                                 |
| 10.27(b)    |   | First Amendment to Defined Benefit Pension Plan (1)                                                                                                                                                                              |
| 10.28       |   | Beverly Hills Polo Club Letter Agreement dated March  18, 1998 (2)                                                                                                                                                               |
| 10.29       |   | Beverly Hills Polo Club Letter Agreement dated  February 27, 1998 (2)                                                                                                                                                            |
| 10.30       |   | Beverly Hills Polo Club Letter Agreement dated  February 27, 1998 (2)                                                                                                                                                            |
| 10.31       |   | Beverly Hills Polo Club Exclusive Domestic License  Agreement (Boys) dated April 24, 1998 (3)                                                                                                                                    |
| 10.32       |   | Amendment No. 1 dated June 18, 1998 to Trademark  License and Technical Assistance Agreement for Women’s Collections dated  January 15, 1998 by and between I.C. Isaacs & Co., L.P. and Latitude Licensing  Corp. (4)   |
| 10.33       |   | Fourteenth Amendment to Financing Agreements dated  July 31, 1997 (4)                                                                                                                                                            |
| 10.34       |   | Fifteenth Amendment to Financing Agreements dated  May 1, 1998 (4)                                                                                                                                                               |
| 10.35       |   | Amendment by and between BHPC Marketing, Inc. and  I.C. Isaacs & Company, L.P. dated October 21, 1998 relating to the  Exclusive Domestic License Agreement dated December 14, 1995 (5)                                      |
| 10.36       |   | Letter Agreement by and between BHPC Marketing, Inc.  and I.C. Isaacs &   Company, L.P. dated October 21, 1998 relating to the Exclusive Domestic License  Agreement for Women’s BHPC Sportswear dated June 1, 1993 (5) |
| 10.37       |   | Amended and Restated Omnibus Stock Plan (7)                                                                                                                                                                                      |
| 10.38       |   | Amendment by and between BHPC Marketing, Inc. and  I.C. Isaacs Europe, S.L. dated November 12, 1998 relating to the International  Exclusive License Agreement (Wholesale) dated August 15, 1996 (7)                             |
| 10.39       |   | Amendment by and between BHPC Marketing, Inc. and  I.C. Isaacs Europe, S.L. dated November 12, 1998 relating to the  International Exclusive License Agreement (Retail) dated August 15, 1996 (7)                                |

 

 

53

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| EXHIBIT NO. |   | DESCRIPTION                                                                                                                                                                                                                        |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                               |
| ++10.40     |   | Amendment No. 1 dated November 12, 1998 to Trademark  License and Technical Assistance Agreement for Men’s Collections dated  January 15, 1998 by and between I.C. Isaacs & Co., L.P. and   Latitude Licensing Corp. (7)  |
| ++10.41     |   | Amendment No. 2 dated November 12, 1998 to Trademark  License and Technical Assistance Agreement for Women’s Collections dated  January 15, 1998 by and between I.C. Isaacs & Co., L.P. and Latitude  Licensing Corp. (7) |
| 10.42       |   | Executive Employment Agreement by and between I.C.  Isaacs & Company, Inc. and Daniel Gladstone dated January 21, 1999 (7)                                                                                                     |
| 10.43       |   | Amendment No. 1 to Employment Agreement by and  between I.C. Isaacs & Company, Inc. and Robert J. Arnot dated August 27,  1998 (6)                                                                                             |
| 10.44       |   | Amendment No. 1 to Employment Agreement by and  between I.C. Isaacs & Company, Inc. and Gerald W. Lear dated August 27,  1998 (6)                                                                                              |
| 10.45       |   | Amendment No. 1 to Employment Agreement by and  between I.C. Isaacs & Company, Inc. and Eugene C. Wielepski dated August  27, 1998 (6)                                                                                         |
| 10.46       |   | Amendment No. 1 to Employment Agreement by and  between I.C. Isaacs & Company, Inc. and Thomas Ormandy dated August 27,  1998 (6)                                                                                              |
| 10.47       |   | Consulting Agreement by and between I.C. Isaacs  & Company and Gary Brashers dated August 27, 1998 (6)                                                                                                                         |
| 10.48       |   | Amendment No. 2 to Employment Agreement by and  between I.C. Isaacs & Company, Inc. and Robert J. Arnot dated February  11, 1999 (7)                                                                                           |
| 10.49       |   | Amendment No. 2 to Employment Agreement by and  between I.C. Isaacs & Company, Inc. and Gerald W. Lear dated February 11,  1999 (7)                                                                                            |
| 10.50       |   | Amendment No. 2 to Employment Agreement by and  between I.C. Isaacs & Company, Inc. and Eugene C. Wielepski dated  February 11, 1999 (7)                                                                                       |
| 10.51       |   | Amendment No. 2 to Employment Agreement by and  between I.C. Isaacs & Company, Inc. and Thomas Ormandy dated February 11,  1999 (7)                                                                                            |
| 10.52       |   | Amendment No. 1 to Consulting Agreement by and  between I.C. Isaacs & Company and Gary Brashers dated February 11, 1999  (7)                                                                                                   |
| 10.53       |   | Sixteenth Amendment to Financing Agreements dated  March 26, 1999 (7)                                                                                                                                                              |
| 10.54       |   | Amendment by and between BHPC Marketing, Inc. dated  March 1, 1999 relating to the International Exclusive License Agreement  (Wholesale) dated August 15, 1996 (7)                                                                |
| 10.55       |   | Amendment by and between BHPC Marketing, Inc. dated  March 1, 1999 relating to the International Exclusive License Agreement  (Retail) dated August 15, 1996 (7)                                                                   |
| 10.56       |   | Amendment No. 1 dated March 4, 1998 to Trademark  License and Technical Assistance Agreement for Men’s Collections by and  between the Company and Latitude Licensing Corp. (7)                                               |
| ++10.57     |   | Amendment No. 3 dated December 23, 1998 to Trademark  License and Technical Assistance Agreement for Women’s Collections by and  between the Company and Latitude Licensing Corp. (7)                                         |
| 10.58       |   | Severance and Redemption Agreement dated June 30,  1999 by and between the Company and Gerald W. Lear (8)                                                                                                                          |

 

 

54

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| EXHIBIT NO. |   | DESCRIPTION                                                                                                                                                                                                                            |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                   |
| 10.59       |   | Second Amended and Restated Shareholders’ Agreement  dated June 30, 1999 (8)                                                                                                                                                      |
| 10.60       |   | Amendment No. 4 to the Trademark License and  Technical Assistance Agreement Covering Women’s Products dated August 2, 1999  (8)                                                                                                  |
| 10.61       |   | Shareholders’ Agreement dated August 9, 1999 (8)                                                                                                                                                                                  |
| 10.62       |   | Agreement dated October 22, 1999 by and among I.C.  Isaacs & Company, Inc., I.C. Isaacs & Company L.P., Ambra Inc. and  Hugo Boss AG. (9)                                                                                      |
| 10.63       |   | Restated and Amended License Rights Agreement dated  October 22, 1999 by and among Ambra Inc., Hugo Boss AG and I.C. Isaacs &  Company L.P. (9)                                                                                    |
| 10.64       |   | Shareholders’ Agreement dated November 5, 1999 by  and between I.C. Isaacs & Company, Inc. and Ambra Inc. (9)                                                                                                                 |
| 10.65       |   | Bill of Sale and Assignment of Trademark Rights  dated October 22, 1999 by and between I.C. Isaacs & Company L.P. and  Ambra Inc. (9)                                                                                              |
| 10.66       |   | Assumption of Assumed Agreements dated October 22,  1999 and between I.C. Isaacs & Company L.P. and Ambra Inc. (9)                                                                                                                 |
| 10.67       |   | Amendment to International Exclusive License  Agreement dated November 1, 1999 by and between I.C. Isaacs Europe, S.L. and  BHPC Marketing, Inc. (10)                                                                                  |
| 10.68       |   | Amendment to International Exclusive License  Agreements dated September 1, 1999 by and between I.C. Isaacs Europe, S.L.  and BHPC Marketing, Inc. (10)                                                                                |
| 10.69       |   | Amendment No. 3 to Employment Agreement dated  January 3, 1999 by and between I.C. Isaacs & Company L.P. and Robert J.  Arnot (10)                                                                                                 |
| 10.70       |   | Amendment No. 3 to Employment Agreement dated  January 3, 1999 by and between I.C. Isaacs & Company L.P. and Eugene C.  Wielepski. (10)                                                                                            |
| 10.71       |   | Letter Agreement dated December 31, 1999 by and between  I.C. Isaacs & Company L.P. and G.I. Promotion (10)                                                                                                                        |
| 10.72       |   | License Agreement effective January 1, 2000 by and  between I.C. Isaacs & Company L.P. and Wurzburg Holding S.A. (10)                                                                                                              |
| 10.73       |   | Girbaud Distribution Agreement Canada dated as of  May 15, 2000, between Western Glove Works and I.C Isaacs and Company L.P.  (11)                                                                                                     |
| 10.74       |   | Amendment No. 1 dated as of May 15, 2000, to Girbaud  Distribution Agreement Canada dated as of May 15, 2000, between Western Glove  Works and I.C. Isaacs and Company L.P. (11)                                                       |
| 10.75       |   | Amendment No. 2 dated June 21, 2000, to Trademark  License and Technical Assistance Agreement Covering Men’s Products dated  January 15, 1998, by and between Latitude Licensing Corp. and I.C. Isaacs  & Company L.P. (11)   |
| 10.76       |   | Amendment No. 5 dated June 21, 2000, to Trademark  License and Technical Assistance Agreement Covering Women’s Products dated  January 15, 1998, by and between Latitude Licensing Corp. and I.C. Isaacs  & Company L.P. (11) |
| 10.77       |   | Amendment by and between BHPC Marketing, Inc., and  I.C Isaacs Europe, S.L. dated July 31, 2000, relating to the International  Exclusive License Agreements (Wholesale and Retail) dated August 15, 1996  (11)                        |
| 10.78       |   | Amendment No. 2, dated as of August 25, 2000, to  Consulting Agreement by and between I.C. Isaacs & Company, Inc. and Gary  Brashers (12)                                                                                          |
| 10.79       |   | Eighteenth Amendment to Financing Agreement, dated  as of May 30, 2000 (12)                                                                                                                                                            |

 

 

55

----

 

| EXHIBIT NO. |   | DESCRIPTION                                                                                                                                                                                        |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                               |
| 10.80       |   | Nineteenth Amendment to Financing Agreement, dated  June 23, 2000 (12)                                                                                                                             |
| 10.81       |   | Twentieth Amendment to Financing Agreements, dated  as of November 7, 2000 (12)                                                                                                                    |
| 10.82       |   | Letter Agreement dated August 9, 2000, by and  between I.C. Isaacs & Company L.P. and Congress Financial Corporation  relating to Covenant Supplement to the Accounts Financing Agreement (12) |
| 10.83       |   | License Rights Termination Agreement dated March 15,  2001 by and between Ambra Inc., Hugo Boss AG, I.C. Isaacs & Company L.P.  I.C. Isaacs & Company, Inc. (13)                           |
| 10.84       |   | Subordinated Secured Promissory Note dated March 15,  2001 (13)                                                                                                                                    |
| 10.85       |   | Security Agreement dated March 15, 2001 by and  between I.C. Isaacs & Company, Inc. and Ambra Inc. (13)                                                                                        |
| 10.86       |   | Amendment No. 1 dated March 15, 2001 to  Shareholders’ Agreement by and between I.C. Isaacs & Company, Inc. and  Ambra Inc. (13)                                                          |
| 10.87       |   | Twenty-second Amendment to Financing Agreements  dated March 15, 2001 (13)                                                                                                                    |
| 10.88       |   | Amendment No. 4 to Employment Agreement dated March  31, 2001 by and between I.C. Isaacs & Company L.P. and Robert J. Arnot  (14)                                                              |
| 10.89       |   | Amendment No. 4 to Employment Agreement dated March  31, 2001 by and between I.C. Isaacs & Company L.P. and Eugene Wielepski  (14)                                                             |
| 10.90       |   | Twenty-third Amendment to Financing Agreements dated  August 13, 2001 (15)                                                                                                                         |
| 10.91       |   | Twenty-fourth Amendment to Financing Agreements  dated March 11, 2002                                                                                                                              |
| 10.92       |   | Amendment No. 3 to Trademark License and Technical  Assistance Agreement Covering Men’s Products dated May 31, 2001                                                                           |
| 21.01       |   | List of Subsidiaries (1)                                                                                                                                                                           |
| 23.01       |   | Consent of BDO Seidman, LLP                                                                                                                                                                        |
|        |   |                                                                                                                                                                                               |
| (1)         |   | Previously filed with the Company’s Registration  Statement on Form S-1 (SEC File No. 333-37155).                                                                                             |
| (2)         |   | Previously filed with the Company’s Annual Report on  Form 10-K for the Year Ended December 31, 1997 (SEC File No. 0-23379).                                                                  |
| (3)         |   | Previously filed with the Company’s Quarterly Report  on Form 10-Q for the Quarter Ended March 31, 1998 (SEC File No. 0-23379).                                                               |
| (4)         |   | Previously filed with the Company’s Quarterly Report  on Form 10-Q for the Quarter Ended June 30, 1998 (SEC File No. 0-23379).                                                                |
| (5)         |   | Previously filed with the Company’s Quarterly Report  on Form 10-Q for the Quarter Ended September 30, 1998 (SEC File No. 0-23379).                                                           |
| (6)         |   | Previously filed with the Company’s Current Report  on Form 8-K dated August 27, 1998 (SEC File No. 0-23379).                                                                                 |
| (7)         |   | Previously filed with the Company’s Annual Report on  Form 10-K for the Year Ended December 31, 1998 (SEC File No. 0-23379).                                                                  |
| (8)         |   | Previously filed with the Company’s Quarterly Report  on Form 10-Q for the Quarter Ended June 30, 1999 (SEC File No. 0-23379).                                                                |
| (9)         |   | Previously filed with the Company’s Quarterly Report  on Form 10-Q for the Quarter Ended September 30, 1999 (SEC File No. 0-23379).                                                           |

 

 

56

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| EXHIBIT NO. |   | DESCRIPTION                                                                                                                                                                                         |
|-------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                |
| (10)        |   | Previously filed with the Company’s Annual Report on  Form 10-K for the Year Ended December 31, 1999 (SEC File No. 0-23379).                                                                   |
| (11)        |   | Previously filed with the Company’s Quarterly Report  on Form 10-Q for the Quarter Ended June 30, 2000 (SEC File No. 0-23379).                                                                 |
| (12)        |   | Previously filed with the Company’s Quarterly Report  on Form 10-Q for the Quarter Ended September 30, 2000 (SEC File No. 0-23379).                                                            |
| (13)        |   | Previously filed with the Company’s Annual Report on  Form 10-K for the Year Ended December 31, 2000 (SEC File No. 0-23379).                                                                   |
| (14)        |   | Previously filed with the Company’s Quarterly Report  on Form 10-Q for the Quarter Ended March 31, 2001 (SEC File No. 0-23379).                                                                |
| (15)        |   | Previously filed with the Company’s Current Report  on Form 8-K dated September 14, 2001 (SEC File No. 0-23379).                                                                               |
|        |   |                                                                                                                                                                                                |
| +           |   | Certain portions of this exhibit have been omitted  pursuant to an order granting confidential treatment and have been filed  separately with the Securities and Exchange Commission.               |
| ++          |   | Certain portions of this exhibit have been omitted  pursuant to a request for an order granting confidential treatment and have  been filed separately with the Securities and Exchange Commission. |

 

 

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