IC ISAACS & CO INC, 10-Q, 1998-08-12

IC ISAACS & CO INC
10-Q, 1998-08-12
KNIT OUTERWEAR MILLS

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998.
OR

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

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER: 0-23379

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

I.C. ISAACS & COMPANY, INC.

(Exact name of Registrant as specified in its Charter)

<TABLE>
<S> <C>
DELAWARE 52-1377061
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

3840 BANK STREET 21224-2522
BALTIMORE, MARYLAND (Zip Code)
(Address of principal executive offices)
</TABLE>

(410) 342-8200
(Registrant's telephone number, including area code)

NONE
(Former name, former address and former
fiscal year--if changed since last report)

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

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

As of June 30, 1998, 8,274,500 shares of common stock ("Common Stock") of
the Registrant were outstanding.

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<PAGE>
PART I--FINANCIAL INFORMATION
I.C. ISAACS & COMPANY, INC.
CONSOLIDATED BALANCE SHEETS

ITEM 1. FINANCIAL STATEMENTS.

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
Current
Cash, including temporary investments of $6,512,455 and $4,888,000............... $ 7,422,067 $ 4,098,267
Accounts receivable, less allowance for doubtful accounts of $1,185,000 and
$1,025,000..................................................................... 23,020,077 21,310,818
Inventories (Note 1)............................................................. 23,936,226 27,927,574
Refundable income taxes (Note 4)................................................. -- 1,803,634
Prepaid expenses and other....................................................... 1,768,792 1,780,914
------------- -------------
Total current assets......................................................... 56,147,162 56,921,207
Property, plant and equipment, at cost, less accumulated depreciation and
amortization..................................................................... 2,678,688 3,511,429
Trademark, less accumulated amortization of $187,500 and $750,000
(Note 7)......................................................................... 11,062,500 10,500,000
Goodwill, less accumulated amortization of $863,505 and $896,625................... 1,788,595 1,755,475
Deferred income taxes (Note 4)..................................................... 1,505,000 1,505,000
Other assets (Note 7).............................................................. 260,776 1,099,987
------------- -------------
$ 73,442,721 $ 75,293,098
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Current maturities of revolving line of credit (Note 2)............................ $ -- $ 817,544
Current maturities of capital lease obligations.................................... 172,515 180,781
Accounts payable................................................................... 6,967,488 5,683,265
Accrued expenses and other current liabilities (Note 3)............................ 1,979,364 2,310,810
Accrued compensation............................................................... 235,309 228,442
Income taxes payable (Note 4)...................................................... 156,000 --
------------- -------------
Total current liabilities.................................................... 9,510,676 9,220,842
------------- -------------
Long-term debt
Note payable....................................................................... 11,250,000 11,250,000
Capital lease obligations.......................................................... 186,122 91,598
------------- -------------
Total long-term debt......................................................... $ 11,436,122 $ 11,341,598
------------- -------------
Commitments and Contingencies (Note 7)
Stockholders' Equity (Notes 5 and 6)
Preferred stock; $.0001 par value; 5,000,000 shares authorized, none outstanding... -- --
Common stock; $.0001 par value; 50,000,000 shares authorized, 7,824,699 and
8,344,699 shares issued; 7,800,000 and 8,274,500 shares outstanding.............. 782 834
Additional paid-in capital......................................................... 34,120,190 38,894,998
Retained earnings.................................................................. 18,389,819 16,010,907
Treasury stock, at cost (24,699 and 70,199 shares)................................. (14,868) (176,081)
------------- -------------
Total stockholders' equity................................................... 52,495,923 54,730,658
------------- -------------
$ 73,442,721 $ 75,293,098
------------- -------------
------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

1
<PAGE>
I.C. ISAACS & COMPANY, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales........................................... $ 38,397,753 $ 26,834,405 $ 77,709,554 $ 61,105,285
Cost of Sales....................................... 26,022,471 20,766,194 52,020,970 44,329,785
------------- ------------- ------------- -------------
Gross profit........................................ 12,375,282 6,068,211 25,688,584 16,775,500
------------- ------------- ------------- -------------
Operating Expenses
Selling........................................... 4,057,820 4,338,970 7,978,747 8,665,054
License fees (Note 7)............................. 1,814,943 1,455,446 3,651,325 3,237,488
Distribution and shipping......................... 927,477 952,622 1,977,534 2,022,467
General and administrative........................ 1,606,906 2,801,473 3,375,974 4,943,689
Recovery of legal fees............................ -- -- (117,435) --
Provision for plant closing (Note 7).............. -- -- -- 226,326
------------- ------------- ------------- -------------
Total operating expenses...................... 8,407,146 9,548,511 16,866,145 19,095,024
------------- ------------- ------------- -------------
Operating Income (Loss)............................. 3,968,136 (3,480,300) 8,822,439 (2,319,524)
------------- ------------- ------------- -------------
Other Income (Expense)
Interest, net of interest income of $4,315,
$16,045, $98,838 and $232,174................... (538,372) (304,390) (922,251) (543,804)
Other, net........................................ 13,313 17,709 22,198 330,147
------------- ------------- ------------- -------------
Total other income (expense)........................ (525,059) (286,681) (900,053) (213,657)
------------- ------------- ------------- -------------
Income (loss) before minority interest and income
taxes............................................. 3,443,077 (3,766,981) 7,922,386 (2,533,181)
Minority interest................................... (34,155) -- (79,267) --
------------- ------------- ------------- -------------
Income (loss) before income taxes................... 3,408,922 (3,766,981) 7,843,119 (2,533,181)
Income tax benefit.................................. -- 660,000 -- 154,000
------------- ------------- ------------- -------------
Net Income (Loss)................................... $ 3,408,922 $ (3,106,981) $ 7,843,119 $ (2,379,181)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

Basic and diluted earnings (loss) per share......... $ 0.85 $ (0.37) $ 1.96 $ (0.29)
Weighted average shares outstanding................. 4,000,000 8,314,522 4,000,000 8,256,914
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Proforma financial information:
Income before income taxes, as presented.......... $ 3,408,922 $ -- $ 7,843,119 $ --
Pro forma provision for income taxes.............. 1,398,000 -- 3,216,000 --
------------- ------------- ------------- -------------
Pro forma net income.............................. $ 2,010,922 $ -- $ 4,627,119 $ --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Pro forma basic and diluted earnings per share.... $ 0.41 $ -- $ 0.94 $ --
Weighted average shares outstanding............... 4,930,000 -- 4,930,000 --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

2
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I.C. ISAACS & COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
<S> <C> <C>
1997 1998
------------- -------------
Operating Activities
Net income (loss)................................................................. $ 7,843,119 $ (2,379,181)
Adjustments to reconcile net income to net cash provided by operating activities
Provision for doubtful accounts................................................. 553,895 707,571
Write off of accounts receivable................................................ (513,895) (867,571)
Provision for sales returns and discounts....................................... 4,790,896 3,339,011
Sales returns and discounts..................................................... (5,190,096) (3,446,011)
Depreciation and amortization................................................... 495,669 1,114,917
Minority interest............................................................... 79,267 --
Other........................................................................... 150,450 23,269
(Increase) decrease in assets
Accounts receivable........................................................... (8,678,424) 1,953,259
Inventories................................................................... (7,916,239) (3,991,348)
Refundable income taxes....................................................... -- (1,803,634)
Prepaid expenses and other.................................................... (239,044) (12,122)
Other assets.................................................................. -- (315,708)
Increase (decrease) in liabilities
Accounts payable.............................................................. 1,102,730 (1,284,223)
Accrued expenses and other current liabilities................................ 46,972 331,446
Accrued compensation.......................................................... 575,331 (6,867)
Income taxes payable.......................................................... -- (156,000)
------------- -------------
Cash used in operating activities................................................... (6,899,369) (6,793,192)
------------- -------------
Investing Activities
Capital expenditures.............................................................. (639,609) (1,275,541)
Acquisition of Girbaud license.................................................... -- (600,000)
------------- -------------
Cash used in investing activities................................................... (639,609) (1,875,541)
------------- -------------
Financing Activities
Checks issued against future deposits............................................. 1,026,469 --
Issuance of common stock.......................................................... -- 4,774,860
Stockholder distributions......................................................... (4,370,089) --
Principal proceeds from debt...................................................... 11,779,587 817,544
Principal payments on debt........................................................ (223,836) (86,258)
Deferred financing costs.......................................................... (108,298) --
Purchase of treasury stock........................................................ -- (161,213)
------------- -------------
Cash provided by financing activities............................................... 8,103,833 5,344,933
------------- -------------
Increase (decrease) in cash and cash equivalents.................................... 564,855 (3,323,800)
Cash and Cash Equivalents, at beginning of period................................... 938,799 7,422,067
------------- -------------
Cash and Cash Equivalents, at end of period......................................... $ 1,503,654 $ 4,098,267
------------- -------------
------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

3
<PAGE>
I.C. ISAACS & COMPANY, INC.

SUMMARY OF ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of I. C. Isaacs &
Company, Inc. ("ICI"), I.C. Isaacs Europe, S.L. ("Isaacs Europe"), I.C. Isaacs &
Company, L.P. (the "Partnership"), Isaacs Design, Inc. ("Design") and I. C.
Isaacs Far East (collectively, the "Company"). ICI operates as the general
partner of the Partnership and has a 99.0% ownership interest. The limited
partner, with a 1.0% ownership interest was an individual. The Company accounted
for the limited partner's ownership interest as a minority interest in the
accompanying consolidated financial statements. In connection with the initial
public offering of its common stock, ICI purchased the limited partnership
interest, at book value, from the limited partner. The Company established
Isaacs Europe in July 1996 as the exclusive licensee of Beverly Hills Polo
Club-Registered Trademark- sportswear in Europe. Isaacs Europe did not have any
significant revenue or expenses in 1997 or 1998. All intercompany balances and
transactions have been eliminated. Also, ICI terminated its Subchapter S
corporation status on December 22, 1997, and became subject to federal, state
and local income taxes.

BUSINESS DESCRIPTION

The Company, which operates in one business segment, designs, manufactures
and markets full lines of sportswear for young men, women and boys under the
BOSS-Registered Trademark- brand in the United States and Puerto Rico and for
men and women under the Beverly Hills Polo Club-Registered Trademark- brand in
the United States, Puerto Rico and Europe. In May 1998, the Company entered into
an exclusive license agreement to manufacture and market boys sportswear under
the Beverly Hills Polo Club-Registered Trademark- brand in the United States and
Puerto Rico. The Company intends to begin marketing boys sportswear under the
Beverly Hills Polo Club-Registered Trademark- brand in the first half of 1999.
In February 1998, the Company began offering collections of men's sportswear
under the Girbaud-Registered Trademark- brand in the United States and Puerto
Rico. The Company began marketing women's sportswear under the
Girbaud-Registered Trademark- brand in the second quarter of 1998 for delivery
during the 1998 holiday season. The Company also manufactures and markets
women's sportswear under various other Company-owned brand names as well as
under third-party private labels.

INTERIM FINANCIAL INFORMATION

In the opinion of management, the interim financial information as of June
30, 1998 and for the six months ended June 30, 1997 and 1998 contains all
adjustments,consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such periods. Results for interim periods
are not necessarily indicative of results to be expected for an entire year.

RISKS AND UNCERTAINTIES

The apparel industry is highly competitive. The Company competes primarily
with larger, well capitalized companies which may seek to increase market share
through price reductions. The risk to the Company is that such a strategy may
ultimately lead to reduced profit margins. In the past several years, many of
the Company's competitors have switched much of their apparel manufacturing from
the United States to foreign locations such as Mexico, the Dominican Republic
and throughout Asia. As competitors lower production costs it gives them greater
flexibility to alter prices. Over the last several years, the Company has
switched a significant portion of its production to contractors outside the
United States to reduce costs. Management believes that it will continue this
strategy for the foreseeable future.

The Company faces other risks inherent in the apparel industry. These risks
include changes in fashion trends and related consumer acceptance and the
continuing consolidation in the retail segment of

4
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I.C. ISAACS & COMPANY, INC.

SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

the apparel industry. The Company's ability, or inability, to manage these risk
factors could influence future financial and operating results.

USE OF ESTIMATES

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

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable. The Company's
customer base is not concentrated in any specific geographic region, but is
concentrated in the retail industry. For the six months ended June 30, 1997 and
1998 sales to one customer were 13% and 21%, respectively. The significant
customer was the same during both periods. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. The Company's actual credit
losses as a percentage of net sales have been less than 1.4%.

The Company is also subject to concentrations of credit risk with respect to
its cash and cash equivalents, which it minimizes by placing these funds with
high-quality institutions.

The Company is exposed to credit losses in the event of nonperformance by
the counterparties to the letter of credit agreements, but it does not expect
any financial institutions to fail to meet their obligation given their high
credit rating.

INCOME TAXES

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

EARNINGS PER SHARE

Pro forma earnings per share for the period ended June 30, 1997 are based on
pro forma net income and the weighted average number of shares of common stock
outstanding (4,000,000) adjusted to include the number of shares (930,000) sold
by the Company which would be necessary to fund the distribution of $9.3 million
of previously earned but undistributed Subchapter S corporation earnings.

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 provides a different method of calculating earnings per share than is
currently used in APB Opinion 15. SFAS 128 provides for the calculation of basic
and diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to existing fully diluted earnings
per share. As required by the policies of the Securities and Exchange
Commission, the Company treated the shares sold to fund the S Corporation
Distribution as outstanding prior to the initial public offering completed in
December, 1997. There is no difference in basic and diluted earnings per share.

5
<PAGE>
I.C. ISAACS & COMPANY, INC.

SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 will begin to affect the Company in fiscal
1998 if it grants stock options in accordance with the 1997 Omnibus Stock Plan.
The Company will adopt only the disclosure provisions of SFAS 123 and account
for stock-based compensation using the intrinsic value method set forth in APB
Opinion 25.

In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. The Company's results of operations and financial position
will be unaffected by implementation of these new standards.

Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are required to be recognized
under current accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements.

Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of a Business Enterprise" ("SFAS 131"), establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.

Both SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Management believes the impact, if any, would
not be material to the financial statement disclosures. Results of operations
and financial position, however, will be unaffected by implementation of these
standards.

In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers Disclosures about Pensions
and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 revised employers'
disclosures about pension and other postretirement benefit plans but does not
change measurement or recognition of those plans. Also, SFAS 132 requires
additional information on changes in the benefit obligations and fair values of
plan assets. Presently, the Company does not offer postretirement benefits.
Adoption of SFAS 132 will not have an effect on reported financial and operating
results.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments"
("SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS 133 requires that an
entity recognize all derivatives as either assets or liabilities and measure
those instruments at fair market value. Under certain circumstances, a portion
of the derivative's gain or loss is initially reported as a component of other
comprehensive income and subsequently reclassified into income when the
transaction affects earnings. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
Presently, the Company does not use derivative instruments either in hedging
activities or as investments. Accordingly, the Company believes that adoption of
SFAS 133 will have no impact on its financial position or results of operations.

6
<PAGE>
I.C. ISAACS & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------- -------------
<S> <C> <C>
Raw Materials.................................................. $ 4,742,653 $ 4,321,046
Work-in-process................................................ 1,864,569 2,177,257
Finished Goods................................................. 17,329,004 21,429,271
------------- -------------
$ 23,936,226 $ 27,927,574
------------- -------------
------------- -------------
</TABLE>

2. LONG-TERM DEBT

In May 1998, the Company amended the revolving line of credit and letter of
credit agreement. The amended agreement provides that the Company may borrow up
to 85%, formerly 80%, of the net eligible accounts receivable and a portion of
imported inventory, as defined in the financing agreement. Borrowings under the
revolving line of credit may not exceed $30.0 million including outstanding
letters of credit which are limited to $12.0 million, formerly $8.0 million, and
bear interest at the lender's prime rate of interest less 0.25%. The amended
agreement expires on June 30, 1999.

3. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
<S> <C> <C>
Royalties........................................................ $ 901,925 $ 1,246,387
Accrued professional fees........................................ 150,000 66,000
Payable to salesmen.............................................. 127,634 125,900
Reserve for plant closing........................................ -- 28,011
Payroll tax withholdings......................................... 139,214 233,986
Customer credit balances......................................... 240,530 217,900
Property taxes................................................... 136,700 79,839
Accrued interest................................................. 174,401 191,353
Other............................................................ 108,960 121,434
------------ ------------
$1,979,364 $ 2,310,810
------------ ------------
------------ ------------
</TABLE>

4. INCOME TAXES

The Company recorded an income tax benefit in the quarter ended June 30,
1998 to reflect partial reversal of the income tax provision recorded in the
quarter ended March 31, 1998 and to recognize a tax benefit for the carryback of
net operating losses to recover income taxes paid during 1997. The Company does
not expect to record any additional provision or benefit for income taxes during
the third or fourth quarters of 1998.

7
<PAGE>
I.C. ISAACS & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. STOCKHOLDERS' EQUITY

In June 1998, the Company's Board of Directors authorized a stock repurchase
program. Under this program the Company may repurchase up to $3.0 million of its
common stock. As of June 30, 1998, the Company had purchased 45,500 shares at a
cost of $161,213. Subsequent to June 30, 1998 the Company repurchased 377,500
shares at a cost of $1,065,749.

6. STOCK OPTIONS

In May 1997, ICI adopted the 1997 Omnibus Stock Plan. Under the 1997 Omnibus
Stock Plan, ICI may grant qualified and nonqualified stock options, stock
appreciation rights, restricted stock or performance awards, payable in cash or
shares of common stock, to selected employees. The 1997 Omnibus Stock Plan will
be administered by the Board of Directors. The Company has reserved 500,000
shares of common stock for issuance under the 1997 Omnibus Stock Plan.

7. COMMITMENTS AND CONTINGENCIES

In November 1997 and as further amended in March 1998, the Company entered
into an exclusive license agreement with Girbaud Design, Inc. and its affiliate
to manufacture and market men's jeanswear, casual wear, outerwear and active
influenced sportswear under the Girbaud-Registered Trademark- brand and certain
related trademarks in the United States, Puerto Rico and the U.S. Virgin
Islands. The agreement has an initial term of two years and may be extended at
the option of the Company for up to a total of ten years. Under the agreement
the Company is required to make payments to the licensor in an amount equal to
6.25% of net sales of regular licensed merchandise and 3.0% of certain irregular
and closeout licensed merchandise. Payments are subject to guaranteed minimum
annual royalties as follows:

Beginning with the first quarter of 1998, the Company became obligated to
pay the greater of actual royalties earned or the minimum guaranteed royalties
for that year. The Company is required to spend at least $350,000 in advertising
for the men's Girbaud-Registered Trademark- brand in 1998 and $500,000 each year
thereafter while the agreement is in effect.

In March 1998, the Company entered into an exclusive license agreement with
Girbaud Design, Inc. and its affiliate to manufacture and market women's
jeanswear, casual wear and active influenced sportswear under the
Girbaud-Registered Trademark- brand and certain related trademarks in the United
States, Puerto Rico and the U.S. Virgin Islands. The agreement has an initial
term of two years and may be extended at the option of the Company for up to a
total of ten years. The Company paid an initial license fee of $600,000. Under
the agreement, the Company is required to make payments to the licensor in an
amount equal to 6.25% of net sales of regular licensed merchandise and 3.0% of
certain irregular and closeout licensed merchandise. Payments are subject to
guaranteed minimum annual royalties as follows:

Beginning with the first quarter of 1999, the Company is obligated to pay
the greater of actual royalties earned or the minimum guaranteed royalties for
that year. The Company is required to spend at least $550,000 in advertising for
the women's Girbaud-Registered Trademark- brand in 1998 and $400,000 each year
thereafter

8
<PAGE>
I.C. ISAACS & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
while the agreement is in effect. In addition, while the agreement is in effect
the Company is required to pay $190,000 per year to the licensor for advertising
and promotional expenditures related to the Girbaud-Registered Trademark- brand.

In May 1998, the Company entered into a license agreement with BHPC
Marketing, Inc., to manufacture and market boys knitted and woven shirts, cotton
pants, jeanswear, shorts, swimwear and outerwear under the Beverly Hills Polo
Club-Registered Trademark- brand in the United States and Puerto Rico. The
initial term of the agreement is three years, commencing January 1, 1999, with
renewal options for a total of six years. Under the agreement the Company is
required to make payments to the licensor in an amount equal to 5.0% of net
sales. Payments are subject to guaranteed minimum annual royalties as follows:

In February 1998, the Company announced that it intended to close its
Newton, Mississippi manufacturing facility. This closure will occur during the
second quarter of 1998, resulting in a charge of $226,326 against earnings in
the first quarter of 1998. The closure occurred during the second quarter of
1998. The production in this facility, the majority of which is jeans, was
transferred to third party independent contractor facilities in Mexico where the
Company currently has jeans manufactured. The actual expenses incurred were not
significantly different from the reserve provided at March 31, 1998.

9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Those statements
include indications regarding the intent, belief or current expectations of the
Company and its management. Such statements are subject to a variety of risks
and uncertainties, many of which are beyond the Company's control, which could
cause actual results to differ materially from those contemplated in such
forward-looking statements, including in particular the risks and uncertainties
described under "Risk Factors" in the Company's Prospectus which include, among
other things, (i) changes in the marketplace for the Company's products,
including customer tastes, (ii) the introduction of new products or pricing
changes by the Company's competitors, (iii) changes in the economy, and (iv)
termination of one or more of its agreements for use of the
BOSS-Registered Trademark-, Beverly Hills Polo Club-Registered Trademark- and
Girbaud-Registered Trademark- brand names and images in the manufacture and sale
of the Company's products. Existing and prospective investors are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to update or revise the
information contained in this Quarterly Report on Form 10-Q, whether as a result
of new information, future events or circumstances or otherwise.

RESULTS OF OPERATIONS

The following tables set forth, for the periods indicated, the Company's net
sales categorized by brand and product category and the percentage relationship
to net sales of certain items in the Company's consolidated financial statements
for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
--------- --------- --------- ---------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
MEN'S (1)
BOSS Bottoms.................................... $ 14,821 $ 8,338 $ 29,075 $ 17,782
BOSS Tops....................................... 8,561 7,763 19,447 19,686
BOSS Boys....................................... 3,872 3,631 6,771 6,838
Men's BHPC...................................... 5,144 3,159 11,822 8,174
Girbaud Men's................................... -- 802 -- 802
Men's Other..................................... 23 27 50 50
--------- --------- --------- ---------
Men's net sales............................... 32,422 23,720 67,165 53,333
--------- --------- --------- ---------
WOMEN'S (1)
BOSS Juniors.................................... 1,227 891 1,954 1,953
Women's BHPC.................................... 454 171 819 404
Women's Other (2)............................... 4,296 2,052 7,772 5,415
--------- --------- --------- ---------
Women's net sales............................. 5,976 3,115 10,545 7,772
--------- --------- --------- ---------
Total net sales............................. $ 38,398 $ 26,834 $ 77,709 $ 61,105
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

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

(1) The net sales totals incorporate product returns allocated in proportion to
gross sales.

(2) Includes Company-owned brands and third-party private labels.

10
<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Net sales.................................................................... 100.0% 100.0%
Cost of sales................................................................ 66.9 72.5
--------- ---------
Gross profit................................................................. 33.1 27.5
Selling expenses............................................................. 10.3 14.2
License fees................................................................. 4.7 5.3
Distribution and shipping expenses........................................... 2.5 3.3
General and administrative expenses.......................................... 4.2 8.5
--------- ---------
Operating income............................................................. 11.4% (3.8)%
--------- ---------
--------- ---------
</TABLE>

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997

NET SALES.

Net sales decreased 30.1% to $26.8 million in the three months ended June
30, 1998 from $38.4 million in the three months ended June 30, 1997. The
decrease was primarily due to increased competition compounded by the delay in
the introduction of the Fall 1998 men's lines. Net sales of
BOSS-Registered Trademark- sportswear decreased $7.9 million or 27.6% to $20.6
million due to the impact of increased competition and the delay in merchandise
introduction. Net sales of the BOSS tops segment were $7.8 million in the three
months ended June 30, 1998 compared to $8.6 million for the three months ended
June 30, 1997. Net sales of Beverly Hills Polo Club-Registered Trademark-
sportswear decreased $2.3 million or 40.5% to $3.3 million due to lower demand
for men's bottoms and tops. The delay in introducing the Fall 1998 men's lines
also adversely impacted sales of Beverly Hills Polo Club sportswear. The Company
believes the delay in introduction will continue to adversely impact sales and
overall profitability in the third quarter of 1998. Net sales for the new
Girbaud-Registered Trademark- sportswear were $0.8 million for the three months
ended June 30, 1998. The Company began to recognize revenue from shipments of
Girbaud men's sportswear in the second quarter of 1998. The Company will begin
to ship Girbaud sportswear for women in the third quarter of 1998. The Company's
private label sales decreased 51.9% to $2.1 million for the three months ended
June 30, 1998. In May 1998, the Company entered into an exclusive license
agreement to manufacture and market boys sportswear under the Beverly Hills Polo
Club brand in the United States and Puerto Rico. The Company intends to begin
marketing boys sportswear under the Beverly Hills Polo Club brand in the first
half of 1999.

GROSS PROFIT.

Gross profit decreased 60.0% to $6.1 million in the three months ended June
30, 1998. Gross profit as a percentage of net sales decreased from 32.2% to
22.6% over the same period. The decrease in gross profit was primarily due to
the reduction in net sales coupled with excess capacity at its manufacturing
facilities due to the reduction in customer orders. Generally, the Company
manufactures goods based on orders. Consequently, a decline in the level of
customer orders increases overhead allocated to goods manufactured and generates
a lower gross profit on such goods. In addition, to reduce inventory levels, a
significant amount of sales were made at lower gross profit margins. The decline
in gross profit was partially offset by the continued shift of production of
denim bottoms from the United States to Mexico to take advantage of lower labor
and overhead costs.

SELLING, DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES.

Selling, distribution, general and administrative expenses ("SG&A")
increased 22.8% to $8.1 million in the three months ended June 30, 1998 from
$6.6 million in the three months ended June 30, 1997. As a percentage of net
sales, SG&A expenses increased to 26.0% from 17.0% over the same period due to

11
<PAGE>
lower net sale, higher advertising expenditures and higher costs of merchandise
samples offset somewhat by lower commissions to the Company's salespersons.
Advertising expenditures increased $0.6 million to $1.5 million as the Company
continued to focus on enhancing the identity and image of its brands through
increased media exposure. Also, the Company is required to spend $0.9 million in
advertising for the women's and men's Girbaud brands in 1998. Distribution and
shipping expenses remained essentially unchanged at $0.9 million over the same
period. The Company experienced a reduction in overtime wages due to decreased
additional temporary labor at its warehouse facility. General and administrative
expenses increased $1.2 million to $2.8 million due to amortization expense
related to the BOSS trademark acquired in November 1997, salary increases for
existing employees and costs associated with the hiring of new management.

LICENSE FEES.

License fees decreased $0.3 million to $1.5 million in the three months
ended June 30, 1998 from $1.8 million in the three months ended June 30, 1997.
As a percentage of net sales, license fees increased from 4.7% to 5.4%. The
decrease in license fees was not in proportion to the decrease in net sales due
to higher royalty rates, at the current level of net sales, under new BOSS
foreign rights agreement executed in November 1997 and minimum royalties of
$100,000 per month paid under the Girbaud men's license agreement, which
commenced in January 1998.

OPERATING INCOME (LOSS).

Operating income (loss) decreased 187.7% to ($3.5) million in the three
months ended June 30, 1998 from $4.0 million in the three months ended June 30,
1997. The decline was due to lower sales and gross profit and to a lesser extent
an increase in operating expenses.

INTEREST EXPENSE.

Interest expense decreased $0.2 million to $0.3 million in the three months
ended June 30, 1998. Borrowings under the line of credit have been insignificant
in the three months ended June 30,1998. However, the Company incurred interest
expense related to the $11.25 million note payable associated with its purchase
of the BOSS trademark in November 1997. This expense of $0.3 million was
partially offset by interest income of $0.1 million earned on available cash.
The Company invests its excess cash in short-term investments.

INCOME TAXES.

The Company recorded an income tax benefit in the three months ended June
30,1998 to recognize a tax benefit for the carryback of net operating losses to
recover income taxes paid during 1997, and estimated tax payments made in the
first three months of 1998. The Company does not expect to record any additional
provision or benefit for income taxes during the final two quarters of 1998.
Prior to its initial public offering, the Company's earnings were not subject to
federal, state and local taxes since it elected to be treated as a Subchapter S
Corporation. The Company terminated its Subchapter S Corporation status in
December 1997.

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

NET SALES.

Net sales decreased 21.4% to $61.1 million in the six months ended June 30,
1998 from $77.7 million in the six months ended June 30, 1997. The decrease was
primarily due to increased competition coupled by the delay in the introduction
of the Fall men's lines. Net sales of BOSS sportswear decreased $11.0 million or
19.5% to $46.3 million due to continued softness in the men's jean segment plus
the impact of increased competition and the delay in merchandise introduction.
Net sales of the BOSS tops segment

12
<PAGE>
were $19.7 million in the six months ended June 30, 1998 compared to $19.5
million for the six months ended June 30, 1997. Net sales of Beverly Hills Polo
Club sportswear decreased $4.1 million or 32.1% to $8.6 million due to lower
demand for men's bottoms and tops. The delay in introducing the fall 1998
product lines also adversely impacted sales of Beverly Hills Polo Club
sportswear. The Company believes the delay in introduction will continue to
adversely impact sales and overall productivity in the third quarter of 1998.
Net sales for the new Girbaud sportswear were $0.8 million for the six months
ended June 30, 1998. The Company began to recognize revenue from shipments of
Girbaud men's sportswear in the second quarter of 1998. The Company will begin
to ship Girbaud sportswear for women in the third quarter of 1998. The Company's
private label sales decreased 30.0% to $5.5 million for the six months ended
June 30, 1998. In May 1998, the Company entered into an exclusive license
agreement to manufacture and market boys sportswear under the Beverly Hills Polo
Club brand in the United States and Puerto Rico. The Company intends to begin
marketing boys sportswear under the Beverly Hills Polo Club brand in the first
half of 1999.

GROSS PROFIT.

Gross profit decreased 34.7% to $16.8 million in the six months ended June
30, 1998. Gross profit as a percentage of net sales decreased from 33.1% to
27.5% over the same period. The decrease in gross profit was primarily due to
the reduction in net sales coupled with excess capacity at its manufacturing
facilities due to the reduction in customer orders. Generally, the Company
manufactures goods based on orders. Consequently, a decline in the level of
customer orders increases overhead allocated to goods manufactured and generates
a lower gross profit on such goods. In addition, to reduce inventory levels, a
significant amount of sales were made at lower gross profit margins. The decline
in gross profit was partially offset by the continued shift of production of
denim bottoms from the United States to Mexico to take advantage of lower labor
and overhead costs.

SELLING, DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES.

SG&A increased 17.2% to $15.6 million in the six months ended June 30, 1998
from $13.3 million in the six months ended June 30, 1997. As a percentage of net
sales, SG&A expenses increased to 25.6% from 17.2% over the same period due to
lower net sales, higher advertising expenditures and higher costs of merchandise
samples offset somewhat by lower commissions to the Company's salespersons.
Advertising expenditures increased $0.8 million to $2.6 million as the Company
continued to focus on enhancing the identity and image of its brands through
increased media exposure. Also, the Company is required to spend $0.9 million in
advertising for the women's and men's Girbaud brands in 1998. Distribution and
shipping expenses remained essentially unchanged at $2.0 million over the same
period. The Company experienced a reduction in overtime wages due to decreased
additional temporary labor at its warehouse facility. General and administrative
expenses increased $1.9 million to $4.9 million due to amortization expense
related to the BOSS trademark acquired in November 1997, a $0.2 million loss
provision for estimated costs associated with closing the Newton, Mississippi
manufacturing facility, salary increases for existing employee and costs
associated with the hiring of new management. The loss provision relates
primarily to severance pay for employees.

13
<PAGE>
LICENSE FEES.

License fees decreased $0.5 million to $3.2 million in the six months ended
June 30, 1998 from $3.7 million in the six months ended June 30, 1997. As a
percentage of net sales, license fees increased from 4.7% to 5.3%. The decrease
in license fees was not in proportion to the decrease in net sales due to higher
royalty rates, at the current level of net sales, under the BOSS foreign rights
agreement executed in November 1997 and minimum royalties of $100,000 per month
paid under the Girbaud men's license agreement, which commenced in January 1998.

OPERATING INCOME (LOSS).

Operating income (loss) decreased 126.1% to ($2.3) million in the six months
ended June 30, 1998 from $8.8 million in the six months ended June 30, 1997. The
decline was due to lower sales and gross profit and to a lesser extent an
increase in operating expenses.

INTEREST EXPENSE.

Interest expense decreased $0.2 million to $0.8 million in the six months
ended June 30, 1998. The Company repaid its asset-based line of credit with a
portion of the proceeds of its initial public offering completed in December
1997. Borrowings under the line of credit has been insignificant in the first
six months of 1998. However, the Company incurred interest expense related to
the $11.25 million note payable associated with its purchase of the BOSS
trademark in November 1997. This expense of $.6 million was partially offset by
interest income of $0.2 million earned on available cash. The Company invests
its excess cash in short-term investments.

OTHER INCOME.

The Company recognized $0.3 million of income in the six months ended June
30, 1998 related to a refund of excess premiums paid on its employee health
insurance plan. There was no comparable refund in 1997.

INCOME TAXES.

The Company recorded an income tax benefit in the first six months of 1998
to recognize a tax benefit for the carryback of net operating losses to recover
income taxes paid during 1997, and estimated tax payments made in the first
three months of 1998. The Company does not expect to record any additional
provision or benefit for income taxes during the final two quarters of 1998.
Prior to its initial public offering, the Company's earnings were not subject to
federal, state and local taxes since it elected to be treated as a Subchapter S
Corporation. The Company terminated its Subchapter S Corporation status in
December 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company has relied primarily on internally generated funds, trade credit
and asset based borrowings to finance its operations and expansion. The
Company's capital requirements primarily result from working capital needed to
support increases in inventory and accounts receivable. The Company's working
capital improved significantly during the first six months of 1998 compared to
the first six months of 1997, primarily due to receipt and utilization of the
net proceeds from its initial public offering in December 1997 and the exercise
of the over-allotment option in January 1998. As of June 30, 1998, the Company
had cash, including temporary investments of $4.1 million and working capital of
$47.7 million compared to $1.5 and $19.4 million, respectively as of June 30,
1997.

14
<PAGE>
OPERATING CASH FLOW.

Cash used by operations totaled $6.8 million for the first six months of
1998 due to increases in inventories and refundable income taxes and a decrease
in accounts payable. These increases were partially offset by the decrease in
accounts receivable. Cash used for investing activities for the first six months
of 1998 totaled $1.9 million and was used primarily to purchase the land and
initiate architectural work related to construction of a new additional
distribution center in Milford, Delaware, as well as the purchase of machinery
for the Company's factories and upgrading computer equipment to help ensure year
2000 compliance. In addition, the Company paid an initial fee of $0.6 million
for the women's Girbaud license. Cash provided by financing activities totaled
$5.3 million for the first six months of 1998, resulting primarily from the
exercise of the over-allotment option on its initial public offering in January
1998.

Inventory increased $4.0 million from December 31, 1997 to June 30, 1998,
compared to an increase of $8.7 million from December 31, 1996 to June 30, 1997.
The increase in 1998 was due to the buildup of finished goods because of the
decline in net sales of BOSS men's and Beverly Hills Polo Club sportswear
coupled with the $1.0 million in Girbaud inventory recently manufactured but not
yet sold. Accounts receivable decreased due to the decline in net sales.

The increase in refundable income taxes results from the expected return of
estimated income taxes paid in the first quarter of 1998 and a refund of income
taxes paid in 1997. The refunds result from the planned carryback of net
operating losses to 1997.

Capital expenditures were $1.3 million for the first six months of 1998
compared to $.6 million for the first six months of 1997. The Company's capital
expenditures were primarily for the purchase of land and architectural fees
related to construction of a new distribution center in Milford, Delaware as
well as the purchase of machinery for the Company's factories and upgrading
computer equipment to help ensure year 2000 compliance. In the second quarter of
1998, the Company decided to delay the construction of the distribution center
in Milford, Delaware. Construction is scheduled to begin in the second half of
1999 and should be completed in 2000. The Company expects to spend up to $0.5
million to upgrade its computer software programs to ensure year 2000
compliance. The Company expects conversion of its primary software programs to
be completed in November 1998 with testing to follow in early 1999. The Company
purchased new versions of the two secondary software programs which have been
updated for year 2000 compliance. The Company has expensed all consulting fees
related to the year 2000 conversion. The Company does not currently have
commitments for any other capital expenditures in 1998. However, as part of the
Company's expanded relationship with Girbaud, the Company is required to open a
Girbaud flagship store in Manhattan, New York City, with a target selling space
of no less than approximately 7,800 square feet by October 15, 1999. The Company
intends to lease the required space for the store. Currently, the Company is
still searching for a suitable site and cannot determine the amount of capital
expenditures that may be required to appropriately fixture the store or, if it
ultimately decided to do so, to construct the store. The Company does not expect
to make any significant expenditures related to the Girbaud store in 1998. In
addition, in March 1998 the Company paid an initial license fee of $0.6 million
for the women's Girbaud license.

In second quarter of 1998, the Company closed its Newton, Mississippi
manufacturing facility. This closure resulted in a charge of $0.2 million
against earnings for the period ended June 30, 1998. The production in this
facility, the majority of which is jeans, was transferred to third party
independent contractors facilities in Mexico where the Company currently has
jeans manufactured. The Company anticipates annual cost savings in the range of
$0.3 million to $0.6 million after the transfer of production to Mexico as a
result of lower labor and overhead costs. The actual expenses incurred were not
significantly different than the reserve provided by the Company in the first
quarter of 1998.

15
<PAGE>
CREDIT FACILITIES.

In May 1998, the Company amended the revolving line of credit and letter of
credit agreement with Congress Financial Corporation. The amended agreement
provides that the Company may borrow up to 85%, formerly 80%, of the net
eligible accounts receivable and a portion of imported inventory, as defined in
the financing agreement. Borrowings under the revolving line of credit may not
exceed $30.0 million (unchanged from the previous agreement) including
outstanding letters of credit which are limited to $12.0 million, formerly $8.0
million, and bear interest at the lender's prime rate of interest less .25%. The
amended agreement expires on June 30, 1999. As of June 30, 1998, the Company had
$0.8 million in outstanding borrowings under its revolving line of credit and
term loan facility compared to $18.0 million as of June 30, 1997.

In November 1997, the Company borrowed $11.25 million from Ambra, Inc. to
finance the acquisition of certain BOSS trademark rights. This obligation is
evidenced by a secured limited recourse promissory note which matures on
December 31, 2007 (the "Note"). The Note bears interest at 10.0% per annum,
payable quarterly; principal is payable in full upon maturity of the Note.

The Company extends credit to its customers. Accordingly, the Company may
have significant risk in collecting accounts receivable from its customers. The
Company has credit policies and procedures which it uses to minimize exposure to
credit losses. The Company's collection personnel regularly contact customers
with receivable balances outstanding beyond 30 days to expedite collection. If
these collection efforts are unsuccessful, the Company may discontinue
merchandise shipments until the outstanding balance is paid. Ultimately, the
Company may engage an outside collection organization to collect past due
accounts. Timely contact with customers by collection personnel has been
effective in reducing credit losses to an immaterial amount. For the six months
ended June 30, 1997 and 1998, the Company's credit losses were $0.6 and $0.9,
respectively. The Company's actual credit losses as a percentage of net sales
were 0.7% and 1.4% respectively.

The Company believes that current levels of cash and cash equivalents ($4.1
million at June 30, 1998) together with cash from operations and existing credit
facilities, will be sufficient to meet its capital requirements for the next 12
months.

SEASONALITY

The Company's business is impacted by the general seasonal trends that are
characteristic of the apparel and retail industries. In the Company's segment of
the apparel industry, sales are generally higher in the first and third
quarters. Historically, the Company has taken greater markdowns in the second
and fourth quarters. The Company generally receives orders for its products
three to five months prior to the time the products are delivered to stores. As
of June 30, 1998, the Company had unfilled orders of approximately $41 million,
compared to approximately $60 million of such orders as of June 30, 1997. The
backlog of orders at any given time is affected by a number of factors,
including seasonality, weather conditions, scheduling of manufacturing and
shipment of products. As the timing of the shipment of products may vary from
year to year, the results for any particular quarter may not be indicative of
the results for the full year.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 will begin to affect the Company in fiscal
1998 with the granting of stock options to employees under the 1997 Omnibus
Stock Plan. The Company will adopt only the disclosure provisions of SFAS 123
and account for stock-based compensation using the intrinsic value method set
forth in APB opinion 25.

16
<PAGE>
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. The Company's results of operations and financial position
will be unaffected by implementation of these new standards.

Both SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Management believes that impact, if any, would
not be material to the financial statement disclosures. Results of operations
and financial position, however, will be unaffected by implementation of these
standards.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting For Derivative Instruments"
("SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS 133 requires that an
entity recognize all derivatives as either assets or liabilities and measure
those instruments at fair market value. Under certain circumstances, a portion
of the derivative's gain or loss is initially reported as a component of other
comprehensive income and subsequently reclassified into income when the
transaction affects earnings. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
Presently, the Company does not use derivative instruments either in hedging
activities or as investments. Accordingly, the Company believes that adoption of
SFAS 133 will have no impact on its financial position or results of operations.

17
<PAGE>
PART II--OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

Exhibit 10.32 Amendment No. 1 dated June 18, 1998 to Girbaud Trademark and
Technical

Assistance Agreement for Women's Collection

Exhibit 10.33 Fourteenth Amendment to Financing Agreement dated July 31,
1997

Exhibit 10.34 Fifteenth Amendment to Financing Agreements dated May 1, 1998

(b) Reports on Form 8-K.

None

18
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

I.C. ISAACS & COMPANY, INC.

By: /s/ ROBERT J. ARNOT
-----------------------------------------
Robert J. Arnot
CHAIRMAN OF THE BOARD AND
CO-CHIEF EXECUTIVE OFFICER

Dated: August 12, 1998

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

NAME CAPACITY DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board,
/s/ ROBERT J. ARNOT Co-Chief Executive
- ------------------------------ Officer August 12, 1998
Robert J. Arnot and Director (Principal
Executive Officer)

Vice President and Chief
/s/ EUGENE C. WIELEPSKI Financial Officer and
- ------------------------------ Director (Principal August 12, 1998
Eugene C. Wielepski Financial and Accounting
Officer)

<PAGE>

Amendment No. 1 To
Trademark License And Technical Assistance Agreement

This is Amendment No. 1 to the Trademark License and Technical
Assistance Agreement for Women's Collections dated March 4, 1998 [sic] by and
between Latitude Licensing Corp. and I.C. Isaacs & Co., L.P. covering Women's
Products (the "Agreement"). Capitalized terms used herein have the meaning
ascribed to them in the Agreement unless otherwise indicated.

For good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree to amend the Agreement as follows:

Paragraph 8.9(a) is amended to read as follows:

Licensee agrees to open a flagship store (the "Boutique") for sale of
Licensor's men's and women's lines and other Girbaud licensed merchandise in
a mutually agreed location in the borough of Manhattan, New York City, with a
target selling space of no less than 800 square meters. The parties agree
that Licensee shall look for a suitable space beginning not later than
October 15, 1998 and have secured a space and signed a lease agreement for
such space by the date of January 15, 1999. The target date for the opening
of the Boutique shall be discussed and agreed upon among the parties, but
shall be no later than October 15, 1999. Girbaud representatives, as
designated by Licensor shall participate in all preparatory meetings with
space owners, brokers, etc.

This Amendment is effective as of June 18, 1998.

LATITUDE LICENSING CORP. I.C. ISAACS & CO., L.L.P.

By: /s/Francois Girbaud By: /s/Robert J. Arnot
------------------- ------------------
Title: Title: Chairman & Co-CEO

<PAGE>

July 31, 1997

Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036

Re: Fourteenth Amendment to Financing Agreements

Gentlemen:

Reference is made to the Accounts Financing Agreement
[Security Agreement] between Congress Financial Corporation ("Congress") and
I.C. Isaacs & Company L.P. ("Borrower") dated as of June 16, 1992, as amended
(the "Accounts Agreement") and all supplements thereto, and all other
agreements, documents and instruments related thereto and executed in
connection therewith (collectively, all of the foregoing, as the same now
exist or may hereafter be further amended, modified, supplemented, extended
renewed, restated or replaced, the "Financing Agreements"). Capitalized terms
used herein, unless otherwise defined herein, shall have the meaning set
forth in the Financing Agreements.

Borrower has requested certain modifications to the Financing
Agreements and Congress is willing to agree to such modifications, subject to
the terms and conditions set forth herein.

In consideration of the foregoing, and the mutual agreements and
covenants contained herein and for other good and valuable consideration,
Borrower and Congress hereby agree as follows:

1. Definitions. For purposes of this Amendment, unless
otherwise defined herein, all terms used herein, including, but not limited
to, those terms used and/or defined in the recitals hereto, shall have the
respective meanings assigned to such terms in the other Financing Agreements.

2. Maximum Credit. Effective as of May 19, 1997, all
references to the term "Maximum Credit" in the Financing Agreements,
including, but not limited to, Section 1.7 of the Accounts Agreement, shall
be deemed and each such reference is hereby amended to mean "$30,000,000,"
and the reference to the amount "$25,000,000" in such Section 1.7 is hereby
deleted and replaced with the amount "$30,000,000."

3. Letter of Credit Sublimit. Effective May 19, 1997, Section
1.5 of the Trade Financing Agreement Supplement to Accounts Agreement, dated
June 16, 1992, by Borrower in favor of Congress is hereby further amended by
deleting the reference

<PAGE>

therein to the amount "$8,000,000" and replacing the same with the amount
"$10,000,000."

4. Accounts Advances. Effective as of May 19, 1997, Section
2.1 of the Accounts Agreement, as previously amended, is hereby deleted in
its entirety and replaced with the following:

"2.1 You shall, in you discretion, make loans to us from
time to time, at our request, of up to eighty (80%) percent of
the Net Amount of Eligible Accounts (or such greater or lesser
percentage thereof as you shall in your sole discretion
determine from time to time); provided, that, for the periods
from and including June 1, 1997 through and including August
30, 1997 and from and including December 10, 1997 through and
including January 3, 1998, you shall, in your discretion, make
loans to us from time to time, at our request, of up to
eighty-five (85%) percent of the Net Amount of Eligible
Accounts (or such greater or lesser percentage thereof as you
shall in your sole discretion as determined from time to
time)."

5. Credit Line Increase Fee. In partial consideration of the
increase in the Maximum Credit, the increase in the letter of credit sublimit
and the seasonal credit uplift provided for herein, Borrower agrees to pay to
Congress a credit line increase fee in the amount of $35,000, payable as of
May 19, 1997, which fee is as of such date fully earned. At Congress' option,
Congress may, on or after May 19, 1997, charge such fee directly to
Borrower's account.

6. Conditions Precedent. The amendments to the Financing
Agreements provided for herein shall only be effective upon the satisfaction
of each of the following conditions precedent in a manner satisfactory to
Congress:

(a) no Event of Default shall have occurred and be continuing
and no event shall have occurred or condition be existing and continuing
which, with notice or passage of time or both, would constitute and Event of
Default; and

(b) Congress shall have received, in form and substance
satisfactory to Congress, an original of this Amendment, duly authorized,
executed and delivered by Borrower, Ira Hechler, Robert Arnot, Gerald Lear,
Eugene Wielepski, Gary Brashers and Stanley Keller.

7. Effect and Entirety of this Amendment. Except as
specifically modified pursuant hereto, no other changes or modifications to
the Financing Agreements are intended or implied and, in all other respects,
the Financing Agreements are hereby ratified and confirmed by all parties
hereto as of the date

<PAGE>

hereof. This Amendment represents and incorporates the entire understanding
and agreements of the parties with respect to the matters set forth herein
and the parties hereto agree that there are no representations, warranties,
covenants or understandings of any kind, nature or description whatsoever
made by Congress to Borrower with respect to this Amendment, except as
specifically set forth herein. This Amendment represents the final agreement
between the parties as to the subject matter hereof and may not be
contradicted by evidence or prior, contemporaneous or subsequent oral
agreements of the parties.

8. Waiver, Modification, Etc. No provision or term hereof may
be modified, altered, waived, discharged or terminated orally, but only by an
instrument in writing executed by the party against whom such modification,
alteration, waiver, discharge or termination is sought.

9. Further Assurances. The parties hereto shall execute and
deliver such additional documents and take such additional action as may be
necessary to effectuate the provisions and purposes of this Amendment.

10. Counterparts. This Amendment may be executed in one or more
counterparts which, taken together, shall constitute the agreement of the
parties.

Very truly yours,

I.C. ISAACS & COMPANY L.P.

By: I.G. DESIGN, INC.,
formerly known as Isbuyco, Inc.,
General Partner

By: /s/Robert J. Arnot
----------------------
Title: Chairman & Co-CEO
-------------------

Agreed and Accepted:

CONGRESS FINANCIAL CORPORATION

By: /s/E.S.M.
-----------------
Title: Vice President
--------------

[SIGNATURES CONTINUE ON NEXT PAGE]

<PAGE>

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

ACKNOWLEDGED:

/s/Ira Hechler
- ---------------------------
IRA HECHLER,
by John Hechler, pursuant to
the attached Power-of-Attorney

/s/Robert Arnot
- ---------------------------
ROBERT ARNOT

/s/Gerald Lear
- ---------------------------
GERALD LEAR

/s/Eugene Wielepski
- ---------------------------
EUGENE WIELEPSKI

/s/Gary Brashers
- ---------------------------
GARY BRASHERS

- ---------------------------
STANLEY KELLER

<PAGE>

Effective as of
May 1, 1998

Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036

Re: Fifteenth Amendment to Financing Agreements

Gentlemen:

Reference is made to the Accounts Financing Agreement
[Security Agreement] between Congress Financial Corporation ("Congress") and
I.C. Issacs & Company L.P. ("Borrower"), dated June 16, 1992 (as amended, the
"Accounts Agreement"), the Covenant Supplement to the Accounts Agreement
between Congress and Borrower, dated June 16, 1992 (as amended, the "Covenant
Supplement"), the letter re Inventory Loans between Congress and Borrower,
dated December 31, 1994 (as amended, the "Inventory Loan Letter"), the Trade
Financing Agreement Supplement to the Accounts Agreement between Congress and
Borrower, dated June 16, 1992 (as amended, the "Trade Financing Agreement
Supplement"), and all other agreements, supplements, instruments and documents
related thereto and executed in connection therewith (collectively, all of
the foregoing, as the same now exist or may hereafter be further amended,
modified, supplemented, extended, renewed, restated or replaced, the
"Financing Agreements." Capitalized terms used herein, unless otherwise
defined herein, shall have the meanings ascribed thereto in the Financing
Agreements.

Borrower has requested certain modifications and amendments to
the Financing Agreements and Congress is willing to agree to such
modifications, subject to the terms and conditions set forth herein.

In consideration of the foregoing, the mutual agreements and
covenants contained herein and for other good and valuable consideration,
Borrower and Congress hereby agree as follows:

1. Accounts Agreement. The Accounts Agreement shall be and is
hereby amended as follows, effective as of May 1, 1998:

a. In Section 2.1 of the Accounts Agreement, the percentage of
"eighty (80%) percent" shall be deleted and the

<PAGE>

percentage of "eighty-five (85%) percent" shall be inserted in its stead;

b. The first sentence of Section 3.1 of the Accounts Agreement
is deleted and the following is inserted in its stead:

"Interest shall be payable by us to you on the first
day of each month upon the closing daily balances in our
loan account for each day during the immediately preceding
month at a rate equal to one quarter of one (.25%) percent
per annum below the rate from time to time publicly announced
by CoreStates Bank, N.A., or its successors, at its office
in Philadelphia, Pennsylvania, as its prime rate, whether
or not such announced rate is the best rate available at
such bank."

c. The term "Renewal Date" as defined in Section 9.1 of the
Accounts Agreement shall be amended to mean June 30, 1999;

d. Borrower shall only be required to provide Congress with a
schedule of Accounts, which shall be in form and substance satisfactory to
Congress, once each week based upon the end of the immediately preceding
week, provided however, if Borrower's unused loan availability under the
formulas and sublimits set forth in the Financing Agreements is less than
$5,000,000, Congress may require that it be provided with schedules of
Accounts on a more frequent basis.

2. Inventory Loan Sublimit. In Section 3 of the Inventory Loan
Letter, the figure of "$4,000,000" is deleted and the figure of "$6,000,000"
is inserted in its stead.

3. Letter of Credit Sublimit. In Section 1.5 of the Trade
Financing Agreement Supplement, the figure of "$10,000,000" is deleted and
the figure of "$12,000,000" is inserted in its stead.

4. Termination of Personal Guaranties. The personal guaranties of
Borrower's obligations and indebtedness to Congress executed by,
respectively, Ira Hechler, Robert Arnot, Gerald Lear, Eugene Wielepski, Gary
Brashers and Stanley Keller shall be and are hereby terminated, discharged and
released in their entirety.

5. Conditions Precedent. This Amendment shall be effective on May
1, 1998 and upon the satisfaction of each of the following conditions
precedent in a manner satisfactory to Congress:

a. no Event of Default shall have occurred and be continuing
and no event shall have occurred or condition be

<PAGE>

existing and continuing which, with notice or passage of time or both, would
constitute an Event of Default; and

b. Congress shall have received, in form and substance
satisfactory to Congress, an original of this Amendment, duly authorized,
executed and delivered by Borrower.

6. Effect of this Amendment. Except as specifically modified
pursuant hereto, no other changes or modifications to the Financing
Agreements are intended or implied and, in all other respects, the Financing
Agreements are hereby ratified and confirmed by all parties hereto as of the
date hereof. This Amendment represents and incorporates the entire
understanding and agreements of the parties with respect to the matters set
forth herein and the parties hereto agree that there are no representations,
warranties, covenants or understandings of any kind, nature or description
whatsoever made by Congress to Borrower with respect to this Amendment,
except as specifically set forth herein. This Amendment represents the final
agreement between the parties as to the subject matter hereof and may not be
contradicted by evidence or prior, contemporaneous or subsequent oral
agreements of the parties.

7. Waiver, Modification, Etc. No provision or term hereof may be
modified, altered, waived, discharged or terminated orally, but only by an
instrument in writing executed by the party against whom such modification,
alteration, waiver, discharge or termination is sought.

8. Further Assurances. The parties hereto shall execute and
deliver such additional documents and take such additional action as may be
necessary to effectuate the provisions and purposes of this Amendment.

9. Counterparts. This Amendment may be executed in one or more
counterparts which, taken together, shall constitute the agreement of the
parties.

Very truly yours,

I.C. ISAACS & COMPANY, INC., L.P.

By: I.C. ISAACS & COMPANY,
INC.,
Agreed and Accepted formerly known as
Isbuyco, Inc.,
CONGRESS FINANCIAL CORPORATION General Partner

By: /s/ Lawrence S. Forte By: /s/ Eugene C. Wielepski
------------------------------ ---------------------------

Title: First Vice President Title: Vice President
--------------------------- ------------------------