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      The Company is currently engaged in the manufacture, sale and distribution of men's belts, leather accessories, suspenders, and men's jewelry. These products are sold both domestically and internationally, principally through department stores, and also through specialty stores and mass merchandisers. The Company operates a number of factory outlet stores primarily to distribute excess and out of line merchandise.

      During 2002, the Company adopted Emerging Issues Task Force Issue No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products" ("EITF 01-9"). As a result of adopting EITF 01-9, the Company has reclassified certain cooperative advertising costs against net revenue and in-store fixturing and display expenditures to cost of goods sold. Both items had previously been classified as promotional expenditures within selling and administrative expense. The Company's adoption of EITF 01-9 reduced net sales for the quarter ended March 31, 2003 by $175,000; increased cost of sales by $49,000; and reduced selling and administrative expense by $224,000. For the quarter ended March 31, 2002, the adoption of EITF 01-9 reduced net sales by $115,000; increased cost of sales by $74,000; and reduced selling and administrative expense by $189,000.

      The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company experienced operating losses and negative cash flows from operating activities for the years ended December 31, 2000, 2001 and 2002, and the three months ended March 31, 2003. The Company has funded these losses with the cash proceeds and savings from the closing of its Attleboro, Massachusetts and Cartago, Costa Rica jewelry manufacturing facilities in 2000 and 2001, respectively; entering into a sale-leaseback transaction in 2001 with respect to its South Norwalk, Connecticut manufacturing facility; selling certain assets and contemporaneously discontinuing the remaining operations associated with its women's costume jewelry division during 2001; instituting a number of process improvements designed to eliminate waste an d improve operating efficiencies; tax refunds, and from bank financing (see Note 5). These factors raise substantial doubt about the ability of the Company to continue to operate as a going concern. Although no assurances can be given, the Company believes that attaining adequate sales revenue, continuing the current program of cost control initiatives, and maintaining cash requirements within the terms of its revolving credit agreement will enable the Company to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or liabilities or any other adjustments that would be necessary should the Company be unable to continue to operate as a going concern.

      As is customary in the fashion accessories industry, the Company makes modifications to its lines coinciding with the Spring (approximately January - June) and Fall (approximately July - December) seasons. The Company believes that results of operations are more meaningful on a seasonal basis than on a quarterly basis. The timing of shipments can be affected by the availability of materials, retail sales, and fashion trends. These factors may shift volume between quarters within a season differently in one year than in another. Due to seasonality and other factors, the results of the quarter are not necessarily indicative of the results to be expected for the full year.

      Net sales for the quarter ended March 31, 2003 decreased $2,720,000 or 12.9% compared to the quarter ended March 31, 2002. The decrease was primarily due to lower shipments of personal leather goods and belts to the Company's department and specialty store customers offset in part by increased shipments to certain special markets accounts. The decrease in net sales to the department store class of trade during the quarter was mainly due to relatively heavy shipments made during last year's first quarter in connection with rollouts of new merchandise and packaging concepts associated with the Company's Geoffrey Beene and Tommy Hilfiger branded collections as well as certain private label programs. Shipments for the quarter were also adversely affected by a generally soft economic environment fueled largely by concerns over the military conflict in Iraq and volatile capital markets. In addition, the relatively disappointing holiday sea son left many retailers with higher than anticipated inventories at the start of the spring

selling season, dampening the demand for orders of fresh merchandise. These factors impacted the department store retail segment more severely than other retailers. The increase in sales to special markets customers was mainly due to increased shipments of personal leather goods to certain labels for less accounts.

      The increase in gross profit expressed as a percentage of net sales for the quarter ended March 31, 2003 was due to lower product costs on sales to special markets customers resulting from changes in the Company's global sourcing strategy and a more favorable mix that favored sales of higher margin product. The improvement was also due to reductions in both royalty expense and unfavorable production variances at the Company's Norwalk, CT belt manufacturing facility partially offset by increases in inventory control costs associated with sales of excess and discontinued inventory. Since last fall, the Company has attempted to reduce its manufacturing overhead consistent with anticipated production requirements in 2003. The Company generally has been reducing the quantity of belts manufactured domestically in favor of a broader sourcing strategy that resulted in increased purchases from third-party suppliers. Royalty expense fell due to decreases in certai n minimum royalty obligations in 2003 and the expiration of a license. Inventory control costs were higher during the quarter, reflecting an increase in the volume of out of line merchandise shipped to labels for less customers compared to the prior year.

      Selling and administrative expenses decreased $720,000 or 9.3% for the quarter ended March 31, 2003, compared to the same period in 2002.

      Selling expenses decreased $580,000 or 11.0% for the quarter compared to the prior year. Selling expenses expressed as a percentage of net sales were 25.7% for the quarter ended March 31, 2003, compared to 25.2% for the quarter ended March 31, 2002. The decrease in selling expenses for the quarter ended March 31, 2003, was mainly due to reductions in variable selling and distribution costs and decreased advertising accruals associated with the Company's licensing arrangements. These agreements generally require the Company to provide various forms of advertising and promotional support to its licensors determined as a percentage of annual net sales of licensed merchandise. The increase in selling expenses expressed as a percentage of net sales was primarily due to the decrease in net sales.

      Administrative expenses decreased $140,000 or 5.8% for the quarter ended March 31, 2003 compared to the quarter ended March 31, 2002. Administrative expenses expressed as a percentage of net sales were 12.5% and 11.5% for the quarters ended March 31, 2003 and 2002, respectively. The decrease in administrative expenses during the quarter is mainly due to reductions in compensation-related expenses offset in part by increased insurance costs.

Interest Expense

      Net interest expense decreased by $58,000 or 22.7% for the quarter ended March 31, 2003 compared to the same period last year. The decrease for the quarter was due to lower borrowings and a reduction in the Company's average borrowing costs compared to the first quarter of 2002.

      In April 2003, as a result of net operating loss carrybacks, the Company received a federal income tax refund of approximately $1,365,000, offset by Internal Revenue Service audit adjustments in connection with fiscal years 1996 through 2001 of approximately $632,000. The Company anticipates receiving an additional federal income tax refund of $283,000 during 2003. At December 31, 2002 and March 31, 2003, the Company recorded a valuation allowance equal to its net deferred tax assets of $9,565,000. The amount of the deferred tax assets considered realizable could be adjusted in the future if estimates of taxable income or loss for future years are revised based on actual results.

      As is customary in the fashion accessories industry, substantial percentages of the Company's sales and earnings occur in the months of September, October and November, during which the Company makes significant shipments of its products to retailers for sale during the holiday season. As a result, accounts receivable peak in the fourth quarter. The Company builds its inventory during the year to meet the demand for the holiday season. The required cash is provided by a revolving credit facility.

      On April 17, 2003, the Company signed the new three year 2003 Loan Agreement. The new financing replaced the Company's Revolving Credit and Security Agreement dated July 27, 1998 with PNC Bank, National Association and is collateralized by substantially all of the Company's assets including domestic accounts receivable, inventory, and machinery and equipment. In addition, the 2003 Loan Agreement prohibits the Company from paying dividends, imposes limits on additional indebtedness for borrowed money, and contains minimum monthly earnings before interest, taxes, depreciation, and amortization (EBITDA) requirements. The terms of the 2003 Loan Agreement permit the Company to borrow against a percentage of eligible accounts receivable and eligible inventory at a maximum interest rate equal to Wachovia Bank, National Association's ("Wachovia") prime lending rate plus 1.25%, or at Wachovia's Eurodollar rate plus 3.25%. The Company is requi red to pay a monthly unused line fee of .5% on the amount by which $25,000,000 exceeds the average daily balance of loans and letters of credit outstanding.

      The Company's working capital decreased by $2,719,000 during the quarter ended March 31, 2003 compared to a decrease of $1,371,000 for the quarter ended March 31, 2002. The decrease in the first quarter of 2003 was principally due to increases in bank borrowings and accounts payable, offset in part by decreases in all other current liabilities.

      Cash used in operations decreased to $2,965,000 from $8,307,000 for the quarters ended March 31, 2003 and 2002, respectively. Cash from operations during the quarter ended March 31, 2003 was provided by depreciation and amortization, decreases in accounts receivable and increases in accounts payable and other accruals. Cash used reflects the net loss for the quarter and increases in inventory and prepaid items and a decrease in long-term obligations. Cash provided by operations for the quarter ended March 31, 2002 reflects depreciation and amortization and decreases in inventory, offset by the net loss, increases in accounts receivable and recoverable income taxes, and decreases in accounts payable, accruals, and other long term obligations.

      Cash used in investing activities during the quarter ended March 31, 2003 reflects capital expenditures and premiums on life insurance contracts owned by the Company. Cash provided by investing activities for the quarter ended March 31, 2002 was derived mainly from the sale of a common stock investment and the surrender of certain life insurance policies, the proceeds of which were used to fund withdrawals from the Company's deferred compensation plan.

      Cash provided by financing activities fell to $2,532,000 from $6,921,000 for the quarters ended March 31, 2003 and 2002, respectively. Cash was provided in both years by net borrowings under the Company's revolving credit arrangements.

Item 2. Management's Discussion and Analysis of the Financial Conditions and Results of Operations (continued)

      In the ordinary course of business, the Company is contingently liable for performance under letters of credit (approximately $1,442,000 at March 31, 2003). The Company is required to pay a fee quarterly equal to 2.25% per annum on outstanding letters of credit.

      The following chart summarizes the Company's contractual obligations as of December 31, 2002 (in thousands):

      There have been no material changes outside the ordinary course of the Company's business in the contractual obligations described above during the quarter ended March 31, 2003.

      Certain of the preceding paragraphs contain "forward looking statements" under the securities laws of the United States. Actual results may vary from anticipated results as a result of various risks and uncertainties, including sales patterns, overall economic conditions, competition, pricing, consumer buying trends and other factors.

      During the quarter ended March 31, 2003, there were no material changes in the information called for by this item from the information contained in Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002.