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

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

For the fiscal year ended December 31, 2004

Commission File No. 0-23379

I.C. ISAACS & COMPANY, INC.
(Exact name of registrant as specified in charter)

Delaware 52-1377061
(State or other jurisdiction of (IRS employer
incorporation or organization) 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 Registered Pursuant to Section 12(b) of the Act:
None

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

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

Common Stock, $.0001 par value per share

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. |X|

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

The aggregate market value of the voting common stock held by non-affiliates of
the Registrant as of the last business day of the Registrant's most recently
completed second fiscal quarter, at June 30, 2004, was approximately $7,172,000
based on the average closing price of the Common Stock as reported by the OTC
Bulletin Board on that day. Solely for purposes of the foregoing calculation all
of the Registrant's directors and officers are deemed to be affiliates. The
Registrant does not have outstanding any non-voting common stock.

As of March 29, 2005, 11,696,073 shares of Common Stock were outstanding.

Document Incorporated by Reference

Specified portions of the definitive Proxy Statement for the 2005 Annual Meeting
of Stockholders of I.C. Isaacs & Company, Inc. for the year ending December 31,
2004 are incorporated by this reference into Part III hereof.

1





I.C. ISAACS & COMPANY, INC.

FORM 10-K

TABLE OF CONTENTS

Page

PART I


ITEM 1. BUSINESS 4
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
11

ITEM 6. SELECTED FINANCIAL DATA 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
14

ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 21
ITEM 9A. CONTROLS AND PROCEDURES 21
ITEM 9B. OTHER INFORMATION 22

PART III

*ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 23
*ITEM 11. EXECUTIVE COMPENSATION 23
*ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 23
*ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 23
*ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 23
PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 24

SIGNATURES 26


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

* Incorporated by reference to the Registrant's definitive Proxy Statement on
Schedule 14A (the "Proxy Statement") for the 2005 Annual Meeting of
Stockholders. The Proxy Statement will be filed not later than 120 days
after the end of the fiscal year covered by this Annual Report on Form
10-K.



2



"I.C. Isaacs" and "I.G. Design" are trademarks of I.C. Isaacs &
Company, Inc. All other trademarks or service marks, including "Girbaud" and
"Marithe and Francois Girbaud", appearing in this Annual Report on Form 10-K are
the property of their respective owners and are not the property of the Company.

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

IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

Access to Company Reports

Investors may read and copy any document that the Company files under the
Securities and Exchange Act of 1934 (including annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments
to these reports) at the Securities and Exchange Commission (SEC) Public
Reference Room at 450 5th Street, NW, Room 130, Washington, DC 20549. In
addition, the SEC maintains an internet site at www.sec.gov that contains
reports and other information regarding issuers that can be accessed
electronically. The Company maintains a website at www.icisaacs.com that
contains some of the more recent (but not all of the) 10-K, 10-Q and 8-K reports
about the Company that may be found at the SEC's website.

3



PART I

ITEM 1. BUSINESS

Introduction

I.C. Isaacs & Company, Inc. ("Isaacs"), together with its predecessors
and subsidiaries, including I.C. Isaacs & Company L.P. (the "LP"), and Isaacs
Design, Inc. (collectively the "Company") is a designer and marketer of branded
jeanswear and sportswear. Founded in 1913, the Company offers collections of
men's and women's jeanswear and sportswear under the Marithe and Francois
Girbaud designer brand ("Girbaud brand" or "Girbaud branded") in the United
States and Puerto Rico. The Girbaud brand is an internationally recognized
designer label with a distinct European influence. The Company has positioned
its Girbaud branded line with a broad assortment of products, styles and
fabrications reflecting a contemporary European look. The Company markets a full
collection of men's jeanswear and sportswear under the Girbaud brand, including
a broad array of bottoms, tops and outerwear. The Company also offers a women's
sportswear collection under the Girbaud brand, which also includes a wide
assortment of bottoms, tops and outerwear. Sales of Girbaud branded products
accounted for all of the Company's net sales in 2004 and 2003.

Products

The Company's jeanswear and sportswear collections under the Girbaud
brand include a broad range of product offerings for young men and women,
including a variety of tops, bottoms and outerwear. These collections are
targeted to consumers who are seeking quality, fashionable products at
competitive prices. Girbaud is an internationally recognized designer brand. The
Company markets innovative European-inspired men's and women's jeanswear and
sportswear collections under the Girbaud label. The Company's Girbaud
collections include full lines of bottoms consisting of jeans and casual pants
in a variety of fabrications, including denim, stretch denim, cotton twill and
nylon, cotton t-shirts, polo shirts, knit and woven tops, sweaters, outerwear
and leather sportswear. Reflecting contemporary European design, each of these
collections is characterized by innovative styling and fabrication and is
targeted to consumers ages 16 to 50. Estimated retail prices range from $24 to
$38 for t-shirts, $49 to $138 for tops and bottoms, $60 to $128 for sweaters and
$80 to $300 for outerwear.

Customers and Sales

The Company's products are sold in over 2,100 specialty stores,
specialty store chains and department stores. The Company uses both sales
representatives and distributors for the sale of its products. Sales
representatives include employees of the Company as well as independent
contractors. Each of the Company's non-employee sales representatives has an
agreement with the Company pursuant to which the sales representative serves as
the sales representative of specified products of the Company within a specified
territory. The Company does not have long-term contracts with any of its
customers. Instead, its customers purchase the Company's products pursuant to
purchase orders and are under no obligation to continue to purchase the
Company's products.

The Company began marketing men's sportswear under the Girbaud brand in
early 1998 and introduced a women's sportswear collection under the Girbaud
brand in the second quarter of 1998. The Company's Girbaud men's products are
sold to approximately 1,600 stores in the United States and Puerto Rico,
including major department stores such as Macy's East, Macy's West, Burdines,
Dayton Hudson, Saks, Inc, and Carson Pirie Scott, and many prominent specialty
stores such as The Lark. The Company's Girbaud women's line is sold to more than
800 stores. None of the Company's customers accounted for 10% or more of sales
in 2004 or 2003. The Company's Girbaud brand products are sold and marketed
domestically under the direction of a 12 person sales force headquartered in New
York.

4



Design and Merchandising

The Company's designers and merchandisers are provided with the
Girbaud collections from Europe twice a year and they collaborate with Marithe
and Francois Girbaud and their staff in the development of the Company's Girbaud
product lines for sale in the United States. Merchandisers also regularly meet
with sales management to gain additional market insight and further refine the
products to be consistent with the needs of each of the Company's markets. The
Company's in-house design and product development is carried out by
merchandising departments in New York. Many of the Company's products are
developed using computer-aided design equipment, which allows designers to view
and easily modify images of a new design. The Company currently has 8 people on
the design staff in New York City. Design expenditures were approximately $1.6
million in 2004 and $1.4 million in 2003.

Advertising and Marketing

The Company communicates and reinforces the brand and image of its
Girbaud products through creative and innovative advertising and marketing
efforts. The Company's advertising and marketing strategies are directed by its
New York sales office and developed in collaboration with advertising agencies
and with Girbaud's European offices and Paris advertising agency. The Company's
advertising strategy is geared toward its youthful and contemporary consumers,
whose lifestyles are influenced by music, sports and fashion. Its advertising
campaigns have evolved from trade magazines to a wide variety of media,
including billboards, fashion magazines and special events. In 2004 and 2003,
the Company continued to utilize advertising media to promote its products at
moderate levels of spending. The Company's advertising expenditures were
approximately $0.7 million, or 0.9% of net sales, in 2004 and $0.5 million, or
0.8% of net sales, in 2003.

Product Sourcing

General

All of the manufacturing and sourcing of the Company's products in 2004
were done by domestic and foreign independent contractors. Each of the Company's
independent contractors and independent buying agents has an agreement with the
Company pursuant to which it performs manufacturing or purchasing services for
the Company on a non-exclusive basis. The Company evaluates its contractors
frequently and believes that there are a number of manufacturers capable of
producing products that meet the Company's quality standards. The Company's
production requirements account for all or a significant portion of many of its
contractors' production capacity. The Company has the ability to terminate its
arrangements with each of its contractors at any time. A change in suppliers,
however, could cause a delay in manufacturing and a possible loss of sales which
could adversely affect operating results.

Asia

Virtually all of the Company's sportswear products other than t-shirts
are produced by approximately 16 different manufacturers in nine countries in
Asia. During 2004, three of the Company's Asian contractors accounted for
approximately 41%, 10% and 5% of the Company's total unit production. The
Company has well established relationships with many of its contractors,
although it does not have written agreements with them. The Company retains
independent buying agents in various countries in Asia to assist in selecting
and overseeing independent manufacturers, sourcing fabric, trim and other
materials and monitoring quotas. Independent buying agents also perform quality
control functions on behalf of the Company, including inspecting materials and
manufactured products prior to accepting delivery. The sourcing and
merchandising staffs in the Company's New York offices oversee Asian fabric and
product development, apparel manufacturing, price negotiation and quality
control, as well as the research and development of new Asian sources of supply.
Asian production represented approximately 81% of the Company's total unit
production in 2004. Purchasing from Asian contractors requires the Company to
estimate sales and issue purchase orders for inventory well in advance of
receiving firm orders from its customers. A risk to the Company is that its
estimates may differ from actual orders. If this happens, the Company may miss
sales because it did not order enough, or it may have to sell excess inventory
at reduced prices.

5



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

The tsunami that devastated parts of Asia during the last days of 2004
did not have, and is not expected to have, a material effect on the Company. In
an effort to broaden its sourcing capabilities, the Company, during late 2004,
switched some of its Asian production to a manufacturer located in Kenya.

United States and Mexico

To take advantage of the shorter production time associated with
T-shirt products, the Company purchases substantially all of its T-shirt blanks
from a supplier in Mexico. This supplier maintains T-shirt blanks at its
location and provides both full service packaging services for finished T-shirts
and also drop ships T-shirt blanks directly to various independent contractors
within the United States to be screen printed, embroidered or both, before being
sent to the Company as a finished product to fulfill orders. T-shirt production
represented approximately 19% of the Company's total unit production in 2004.
During 2004, two of the Company's domestic contractors accounted for
approximately 15% and 3% of the Company's total unit production.

Warehousing and Distribution

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

Quality Control

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

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

Backlog and Seasonality

The Company's business is impacted by the general seasonal trends that are
characteristic of the apparel and retail industries. In the Company's segment of
the apparel industry, sales are generally higher in the first and third
quarters. The Company generally receives orders for its products three to five
months prior to the time the products are delivered to the stores. As of

6



December 31, 2004, the Company had an order backlog of approximately $27.4
million, compared to approximately $18.3 million of such orders as of December
31, 2003. Starting in March 2004 for the Fall 2004 delivery season, the Company
instituted an optimal calendar for its sales and production departments whereby
its management teams secured customer orders earlier in the season to improve
product decisions and provide better delivery to its customers. In addition to
improving product decision making and product deliveries, implementation of the
optimal calendar has also accelerated the timeframe during which sales efforts
are now being undertaken by the Company's sales representatives. That
accelerated timeframe, along with increased sales in general, were the reasons
for the improvement in order backlog achieved by the Company in 2004. In the
view of the Company's management, implementation of the optimal calendar
resulted in a larger than normal one-time change in the size of the Company's
backlog. That change, which resulted from an increase in the number of days in
the time window for order placement in 2004 over the size of that same time
window in 2003, caused a greater increase in the size of the order backlog in
2004 than the Company is likely to incur in and after 2005 (which will have
order placement time windows of approximately the same size as the 2004 time
windows).

The Company does not expect the improvement in its order backlog to be
as significant in 2005 compared to 2004 as it experienced in 2004 over 2003. The
backlog of orders at any given time is affected by a number of factors,
including seasonality, weather conditions, scheduling of manufacturing and
shipment of products. All such orders are subject to cancellation for reasons
such as late delivery.

Licenses and Other Rights Agreements

Girbaud

In November 1997, the Company entered into an exclusive license
agreement (the "Girbaud Men's Agreement") with Girbaud Design, Inc. and its
affiliate Wurzburg Holding S.A. ("Wurzburg") to manufacture and market men's
jeanswear, casualwear and outerwear under the Girbaud brand and certain related
trademarks (the "Girbaud Marks") in all channels of distribution in the United
States, including Puerto Rico and the U.S. Virgin Islands. In March 1998, the
Girbaud Men's Agreement was amended and restated to include active influenced
sportswear as a licensed product category and to name Latitude Licensing Corp.
as the licensor (the "Licensor"). Also in March 1998, the Company entered into
an exclusive license agreement (the "Girbaud Women's Agreement" and, together
with the Girbaud Men's Agreement, the "Girbaud Agreements") with the Licensor to
manufacture and market women's jeanswear, casualwear and outerwear, including
active influenced sportswear, under the Girbaud Marks in all channels of
distribution in the United States, including Puerto Rico and the U.S. Virgin
Islands. The Girbaud Agreements, as amended, include the right to manufacture
the licensed products in a number of foreign countries through 2007.

Licensor Ownership

In 2002, Textile Investment International S.A. ("Textile"), an
affiliate of the Licensor, acquired 666,667 shares of common stock, preferred
stock which it converted into 3,300,000 shares of common stock and a note
payable issued by the Company, from a former licensor. As a result of those
transactions, Textile and Wurzburg (which owned 582,500 shares of the Company's
common stock prior to the transactions) own approximately 39% of the common
stock of the Company outstanding as of the date of this Report.

Girbaud Domestic Licenses

The terms of the Girbaud Agreements will expire at the end of 2007. The
Licensee has the option to extend the terms of either or both of the Girbaud
Agreements through the end of 2011. The Girbaud Agreements generally allow the
Company to use the Girbaud Marks on apparel designed by or for the Company or
based on designs and styles previously associated with the Girbaud brand,
subject to quality control by the Licensor over the final designs of the
products, marketing and advertising material and manufacturing premises. The
Girbaud Agreements provide that they may be terminated by the Licensor upon the
occurrence of certain events, including, but not limited to, a breach by the
Company of certain obligations under the agreements that remain uncured
following certain specified grace periods.

7



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

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

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

The Company is obligated to pay a minimum of $7.4 million during 2005
in the form of minimum and deferred royalty payments, fashion show and
advertising and promotional expenses pursuant to the Girbaud Agreements. In
2005, the Company expects that substantially all of its net sales will come from
apparel associated with the Girbaud licenses.

In connection with the refinancing of the Company's credit facility in
December 2004, the Licensor and the Company agreed to defer approximately $2.3
million of the 2004 minimum and additional royalty payments to 2005. The Company
expects to pay these amounts in the first half of 2005 and pay all 2005 royalty
payments as they become due. In 2004, the Company made royalty payments of $4.2
million.

Credit Control

The Company manages its own credit and collection functions and has
never used a factoring service or outside credit insurance. The Company sells to
approximately 2,100 accounts throughout the United States and Puerto Rico. All
of the functions necessary to service this large volume of accounts are handled
by the Company's in-house credit department in Baltimore, Maryland. The Company
extends credit to its customers. Accordingly, the Company may have significant
risk in collecting accounts receivable from its customers. The Company has
credit policies and procedures which it uses to minimize exposure to credit
losses. The Company currently employs three people in its credit department and
believes that managing its own credit gives it unique flexibility as to which
customers the Company should sell and how much business it should do with each.
The Company obtains and periodically updates information regarding the financial
condition and credit histories of customers. The Company's collection personnel
evaluate this information and, if appropriate, establish a line of credit.
Credit personnel track payment activity for each customer using customized
computer software and directly contact customers with receivable balances
outstanding beyond 30 days. If these collection efforts are unsuccessful, the
Company may discontinue merchandise shipments until the outstanding balance is
paid. Ultimately, the Company may engage an outside collection organization to
collect past due accounts. Timely contact with customers has been effective in
minimizing the Company's credit losses.

8



Competition

The apparel industry is highly competitive and fragmented. The Company competes
against numerous apparel brands and distributors.

Principal competitive factors include:

o developing quality products with consistent fits, finishes, fabrics
and style;
o anticipating and responding to changing consumer demands in a timely
manner;
o Providing compelling value in our products for the price;
o continuing to generate competitive margins and inventory turns for our
retail customers by providing timely delivery; and
o providing strong effective marketing support.

The Company believes its competitive strengths lie in the quality of its design
and its ability to provide compelling value for products.

Management Information Systems

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

Employees

As of March 24, 2005, the Company had approximately 100 full-time
employees. The Company is not a party to any labor agreements, and none of its
employees is represented by a labor union. The Company considers its
relationship with its employees to be good and has not experienced any material
interruption of its operations due to labor disputes.

Environmental Matters

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

9



ITEM 2. PROPERTIES


Certain information concerning the Company's principal facilities is
set forth below:

Leased or Approximate Area
Location Owned Use in Square Feet
- --------------- ------------ -------------------------------------------- ------------------

Administrative Headquarters and Office
Baltimore, MD Owned Facilities 40,000
Management, Sales, Merchandising, Marketing
New York, NY Leased and Sourcing 13,500
Milford, DE Owned Distribution Center 70,000


The Company believes that its existing facilities are well maintained
and in good operating condition. See "ITEM 1. Business--Warehousing and
Distribution".

In July 2004, the Company signed a 10 year lease to relocate its New
York City offices and showrooms. It vacated its former New York City premises
and moved into its new facilities in January 2005.

ITEM 3. LEGAL PROCEEDINGS

The Company is not presently a party to any litigation.

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

During the fourth quarter of 2004, there were no matters submitted to a
vote of the Company's stockholders.

10



PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The market for the Company's common stock is not an exchange but is the
OTC Bulletin Board, an established quotation service regulated by the National
Association of Securities Dealers. As of March 29, 2005, the Company had
approximately 1,000 holders of record of its common stock.

Shares of the Company's common stock are traded on the OTC Bulletin
Board under the ticker symbol "ISAC.OB". The reported last sale price of the
common stock on the OTC Bulletin Board on March 29, 2005 was $7.70. The table
below sets forth the high and low bid prices of the Company's common stock for
the periods indicated, as quoted by the OTC Bulletin Board Research Service.
Such quotations reflect inter-dealer prices, without retail markup, markdown or
commission, and may not represent actual transactions.

Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
2004 2003
----------------------------------------------------------

March 31 $1.01 $0.70 $0.70 $0.51
June 30 $1.35 $0.36 $0.75 $0.40
September 30 $3.60 $1.07 $1.12 $0.21
December 31 $4.55 $2.65 $1.10 $0.70


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

On May 15, 1997, the Board of Directors of the Company and the
Company's stockholders adopted the 1997 Omnibus Stock Plan (the "Plan"). The
Plan was amended and restated pursuant to authority granted by the Company's
stockholders at the 2003 annual meeting of stockholders to increase the shares
of Common Stock that may be issued with respect to awards granted under the Plan
to an aggregate of 2.2 million shares. The Plan is administered by the
Compensation Committee of the Board of Directors. Participation in the Plan is
open to all employees, officers, directors and consultants of the Company or any
of its affiliates, as may be selected by the Compensation Committee from time to
time. The Plan allows for stock options, stock appreciation rights, stock
awards, phantom stock awards and performance awards to be granted. The
Compensation Committee will determine the prices, vesting schedules, expiration
dates and other material conditions upon which such awards may be exercised.
Through December 31, 2004, the Company had granted stock options under the Plan
exercisable upon vesting for an aggregate of 2,070,250 shares of common stock
with a weighted average exercise price of $1.08 per share. Through December 31,
2004, options to purchase 479,433 shares had been exercised at a weighted
average exercise price of $0.92 per share. As of December 31, 2004, 1,590,817
stock options remained outstanding with a weighted average exercise price of
$1.10 per share. The issuance of such stock options was exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereunder. The Company previously filed a Registration Statement
on Form S-8 to register the shares of its common stock issuable pursuant to
awards granted under the Plan.

11



ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below and on the following page
have been derived from the consolidated financial statements of the Company and
the related notes thereto. The statement of operations data for the years ended
December 31, 2004, 2003 and 2002 and the balance sheet data as of December 31,
2004 and 2003 are derived from the consolidated financial statements of the
Company which have been audited by BDO Seidman, LLP, independent registered
public accountants, included elsewhere herein. The statement of operations data
for the years ended December 31, 2001 and 2000 and the balance sheet data as of
December 31, 2002, 2001 and 2000 are derived from the consolidated financial
statements of the Company, which have been audited but are not contained herein.
The following selected financial data should be read in conjunction with the
Company's consolidated financial statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere herein.


As of December 31,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ------------ ------------ ------------
Balance Sheet Data: (in thousands)


Working capital $8,595 $4,578 $6,154 $11,154 $16,777
Total assets 27,833 20,090 22,448 22,333 36,430
Total debt 6,781 10,782 11,588 6,841 14,813
Redeemable preferred stock -- -- -- 3,300 3,300
Stockholders' equity 12,154 5,547 7,242 8,816 13,503



12




Year Ended December 31,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ------------ ------------ ------------
Statement of Operations Data: (in thousands except per share data)

Net sales $80,649 $64,305 $63,521 $81,189 $95,496
Cost of sales 49,583 43,706 41,776 55,108 67,031
----------- ----------- ------------ ------------ ------------

Gross profit 31,066 20,599 21,745 26,081 28,465
Selling expenses 10,413 9,525 11,486 11,246 14,099
License fees 5,330 4,163 5,018 5,211 8,343
Distribution and shipping expenses 1,968 2,062 2,393 2,976 3,192
General and administrative expenses 7,532 5,244 7,115 7,374 7,614
Termination of license agreement -- -- -- -- 8,068
Impairment of intangibles -- -- -- -- 743
----------- ----------- ------------ ------------ ------------

Operating income (loss) 5,823 (395) (4,267) (726) (13,594)
Interest, net (729) (1,009) (657) (1,307) (1,337)
Loss from sale of property -- (415) -- -- --
Other income (expense) 26 124 (39) (149) 139
----------- ----------- ------------ ------------ ------------

Income (loss) from continuing
operations before income taxes 5,120 (1,695) (4,963) (2,182) (14,792)

Income tax benefit, net 1,045 -- -- -- 48
----------- ----------- ------------ ------------ ------------

Income (loss) from continuing
operations 6,165 (1,695) (4,963) (2,182) (14,744)
----------- ----------- ------------ ------------ ------------

Loss from operations of
discontinued subsidiary -- -- -- (1,310) (503)
Loss from sale of discontinued
subsidiary -- -- -- (1,182) --
----------- ----------- ------------ ------------ ------------

Loss from discontinued operations -- -- -- (2,492) (503)
----------- ----------- ------------ ------------ ------------

Net income (loss) 6,165 (1,695) (4,963) (4,674) (15,247)
----------- ----------- ------------ ------------ ------------

Preferred stock deemed dividend -- -- (596) -- --
----------- ----------- ------------ ------------ ------------

Net income (loss) attributable to
common stockholders $6,165 $(1,695) $(5,559) $(4,674) $(15,247)
=========== =========== ============ ============ ============

Basic income (loss) per share from
continuing operations $0.55 $(0.15) $(0.61) $(0.28) $(1.93)

Basic loss per share from
discontinued operations -- -- -- (0.32) (0.07)

Preferred stock deemed dividend -- -- (0.07) -- --

----------- ----------- ------------ ------------ ------------
Basic income (loss) per share $0.55 $( 0.15) $( 0.68) $( 0.60) $(2.00)
=========== =========== ============ ============ ============

Basic weighted average common
shares outstanding 11,264 11,135 8,160 7,854 7,639

Diluted income (loss) per share $0.46 $( 0.15) $( 0.68) $( 0.60) $(2.00)
=========== =========== ============ ============ ============

Diluted weighted average common
shares outstanding 13,355 11,135 8,160 7,854 7,639

Basic and diluted loss per share are the same for the years 2000
through 2003 as dilutive securities were excluded from the computation of net
loss per share as their inclusion would have been anti-dilutive.


13



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

Overview

The Company, which operates in one business segment, is a designer and
marketer of branded jeanswear and sportswear. The Company offers collections of
jeanswear and sportswear for men and women under the Marithe and Francois
Girbaud brand ("Girbaud brand") in the United States, Puerto Rico and Canada.
The Girbaud brand is an internationally recognized designer label with a
distinct European influence. The Company has positioned its Girbaud brand line
with a broad assortment of products, styles and fabrications reflecting a
contemporary European look. The Company markets a full collection of men's and
women's jeanswear and sportswear under the Girbaud brand, including a broad
array of bottoms, tops and outerwear. The Company focuses its efforts on the
Girbaud brand exclusively which provided all its net sales in 2004, 2003 and
2002.

Critical Accounting Policies and Estimates

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

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

Net revenue is recognized upon the transfer of title and risk of ownership
to customers, which is generally upon shipment as terms are FOB shipping point.
Revenue is recorded net of discounts, as well as provisions for estimated
returns and allowances. The Company estimates the provision for returns by
reviewing trends and returns on a historical basis. On a seasonal basis, the
Company negotiates price adjustments with its retail customers as sales
incentives. The Company estimates the cost of such adjustments on an ongoing
basis considering historical trends, projected seasonal results and an
evaluation of current economic conditions. In the year ended December 31, 2004,
these costs have been recorded as a reduction to net revenue and all prior
period information has been reclassified to reflect this change. These price
adjustments, which were previously classified as selling expenses in prior
years, were $3,777,084, $1,919,809 and $2,276,833 for the years ended December
31, 2004, 2003 and 2002 respectively. This change has no effect on net income or
loss in any period presented.

Shipping and handling fees billed to customers are included in net
sales in the consolidated statements of operations. Shipping and handling costs
incurred are classified in distribution and shipping in the consolidated
statements of operations.

14



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

Results of Operations

Year Ended December 31,
----------------------------------------
2004 2003 2002
----------- ---------- -----------

Net sales 100.0% 100.0% 100.0%
Cost of sales 61.5% 68.0% 65.8%
----------- ---------- -----------

Gross profit 38.5% 32.0% 34.2%
----------- ---------- -----------

Selling expenses 12.9% 14.8% 18.1%
License fees 6.6% 6.5% 7.9%
Distribution and shipping expenses 2.5% 3.3% 3.8%
General and administrative expenses 9.3% 8.1% 11.2%
----------- ---------- -----------

Operating income (loss) 7.2% (0.7%) (6.8%)
=========== ========== ===========


Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Net Sales.

Net sales increased 25.3% to $80.6 million in 2004 from $64.3 million
in 2003. Net sales of the Girbaud men's product line increased $10.4 million, or
18.8%, to $65.8 million while the Girbaud women's product line increased $5.9
million, or 66.3%, to $14.8 million. The improvement was due to strong growth in
the men's and women's divisions, which was the direct result of the strength of
the Company's products in the marketplace, an increase in selling prices and
improved shipping performance (see Gross Profit below).

Gross Profit.

Gross profit increased 51.0% to $31.1 million in 2004 from $20.6
million in 2003. Gross margin, or gross profit as a percentage of net sales,
increased to 38.5% from 32.0% over the same period. Higher gross profit and
gross margins were due to better product performance, improved delivery to
retailers and a higher percentage of sales to customers at full price in 2004, a
year during which unit sales of off-price goods as a percentage of total sales
decreased significantly to 19%, compared to 33% for 2003. Beginning with
shipments in the third quarter of 2004, the Company's management raised the
selling prices of its products in order to increase its gross margin to a level
that it viewed as being consistent with other companies in the industry. In the
absence of further price increases (which management does not expect to
implement in the foreseeable future), it is not likely that gross profit and
gross margin will increase in 2005 and future years as significantly, if at all,
as the gross profit and gross margin changes that occurred in 2004.

15



Selling, Distribution, General and Administrative Expenses.

Operating expenses increased 20.0% to $25.2 million in 2004 from $21.0
million in 2003. As a percentage of net sales, operating expenses decreased
slightly to 31.3% from 32.7% over the same period. The increase in operating
expenses resulted primarily from higher selling expenses and licensing fees
associated with higher sales as well as an increase in administrative expenses.
Selling expenses increased $0.9 million to $10.4 million in 2004 primarily as a
result of higher commissions earned on higher net sales. Advertising and
promotional related expenses remained relatively unchanged at $1.8 million in
2004 and 2003. License fees increased $1.1 million to $5.3 million in 2004 from
$4.2 million in 2003. As a percentage of net sales, license fees remained
relatively unchanged at 6.6% compared to 6.5% during the same periods. The
increase in license fees was primarily due to the increase in net sales levels
resulting in royalty payment obligations in excess of the 2004 minimum
guaranteed royalty payments. Distribution and shipping decreased $0.1 million to
$2.0 million in 2004 from $2.1 million in 2003. General and administrative
expenses increased 44.2% to $7.5 million in 2004 from $5.2 million in 2003. The
increase was attributable to an increase in personnel and related costs in 2004.
The increase in personnel costs was the result of higher salaries associated
with the restructuring of the Company's management in 2003 and bonuses paid or
accrued of $1.3 million based on the Company's 2004 performance.

Operating Income.

Operating income was $5.8 million in 2004 compared to an operating loss
of $0.4 million in 2003. This improvement was due to the overall increases in
sales and in the gross profit margin and was partially offset by the higher
operating expenses as noted above.

Interest Expense.

Interest expense decreased 30.0% to $0.7 million in 2004 from $1.0
million in 2003 as a result of decreased borrowings under the Company's
revolving credit facility. The decrease in borrowings was the result of improved
cash flow due to increased accounts receivable and inventory turnover. Interest
income earned in 2004 and 2003 was insignificant.

Income Taxes.

As of December 31, 2004, the Company had net operating loss
carryforwards of approximately $41.3 million, which begin to expire in 2013. In
prior years, no tax benefit was allowed due to the uncertainty of the Company's
ability to generate future taxable income at that time. As a result of the
income the Company generated in 2004, the Company's management reevaluated its
net operating losses and the related valuation reserves and has recognized a net
income tax benefit of $1.0 million in 2004.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Net Sales.

Net sales increased 1.3% to $64.3 million in 2003 from $63.5 million in
2002. Net sales of Girbaud men's sportswear increased $1.1 million or 2.0% to
$55.4 million. Net sales of Girbaud women's sportswear decreased $0.3 million or
3.3% to $8.9 million.

Gross Profit.

Gross profit decreased 5.1% to $20.6 million in 2003 from $21.7 million
in 2002. Gross profit as a percentage of net sales decreased to 32.0% from 34.2%
over the same period. The decrease in gross profit resulted from sales to
off-price retailers at reduced selling prices and an increase in air freight
costs affecting gross profit margins in 2003. In an effort to decrease the
inventory level and to generate cash for first quarter 2003 working capital
needs, the Company generated significant sales early in 2003 to a mass retailer
at gross profit margins significantly below the margins on goods that are sold
to department and specialty stores. To properly reflect inventory at its net
realizable value at the end of the prior year, the Company had an inventory
writedown of $1.8 million at December 31, 2002. Accordingly, this generated
minimal gross profit associated with these sales to the mass retailer in the
first quarter of 2003. The Company's inventory writedown at the end of 2003 was
$0.3 million. To help identify inventory shortages as well as excess inventory,
the Company monitors inventory levels by product category on a weekly basis.
Personnel look at recent sales data and order backlog to help identify slow
moving inventory items. Further, sales managers continually discuss product
turnover and sales forecasts with sales personnel to aid in identifying product
shortages and overages. Based on the information available, the Company believes
the inventory writedowns were appropriate at December 31, 2003 and 2002,
respectively.

16



Selling, Distribution, General and Administrative Expenses.

Selling, distribution, general and administrative ("SG&A") expenses
decreased 19.2% to $21.0 million in 2003 from $26.0 million in 2002. As a
percentage of net sales, SG&A expenses decreased to 32.7% from 40.4% over the
same period due to overall reduced expenses. Selling expenses decreased 17.4% to
$9.5 million from $11.5 million mainly due to decreases in advertising expense
and in commission expense. License fees decreased 16.0% to $4.2 million in 2003
from $5.0 million in 2002. As a percentage of net sales, license fees decreased
to 6.5% from 7.9%. The decrease in license fees as a percentage of net sales was
primarily due to the $0.5 million reduction of the 2003 minimum royalty payment.
In February 2003, Latitude and the Company agreed to reduce the 2003 minimum
guaranteed annual royalty payments by $450,000. The Company is obligated to pay
the greater of actual royalties earned on net sales of the men's and women's
Girbaud product offering or minimum guaranteed annual royalties through 2007 of
$3,000,000 for men's and $1,500,000 for women's. Distribution and shipping
expenses decreased 12.5% to $2.1 million in 2003 from $2.4 million in 2002 due
to efficiencies and cost reductions achieved at the Company's distribution
center. General and administrative expenses decreased 26.8% to $5.2 million in
2003 from $7.1 million in 2002 due to decreases in professional, consulting and
other fees.

Operating Loss.

Operating loss decreased to $0.4 million in 2003 from $4.3 million in
2002. This improvement is due to a decrease in operating expenses offset
slightly by a decrease in gross profit in 2003.

Interest Expense.

Interest expense increased 42.9% to $1.0 million in 2003 from $0.7
million in 2002 as a result of increased borrowings on the revolving line of
credit as well as an increase in the interest rate charged by the lender during
2003. Interest income earned in 2003 and 2002 was insignificant.

Income Taxes.

The Company has estimated its annual effective tax rate at 0% based on
its estimate of pre-tax loss for 2003. As of December 31, 2003, the Company had
net operating loss carryforwards of approximately $45.6 million, which begin to
expire in 2013, for income tax reporting purposes for which no income tax
benefit has been recorded due to the uncertainty over the level of future
taxable income.

Liquidity and Capital Resources

The Company has relied primarily on asset based borrowings, trade
credit and internally generated funds to finance its operations. The Company
increased its accounts receivable $0.1 million and its inventory $4.5 during
2004. Accounts payable and accrued liabilities increased $5.3 million during
2004. Cash and cash equivalents held by the Company increased to $1.0 million at
December 31, 2004 compared to $0.8 million at December 31, 2003 while its
working capital increased to $8.6 million at December 31, 2004 from $4.6 million
at December 31, 2003. A decrease in demand for the Company's products could have
a material adverse effect on the Company's working capital.

Operating Cash Flow.

Cash provided by operations totaled $6.2 million in 2004 compared to
$1.3 million in 2003. The improvement in 2004 was due primarily to the
substantial increase in the Company's operating income. Cash used in investing
activities totaled $1.9 million mainly due to capital improvements associated
with the new offices and showrooms in New York. Cash provided by investing
activities during 2003 was insignificant, totaling $0.1 million. Cash used in
financing activities totaled $4.1 million in 2004 resulting primarily from the
pay down of the revolving line of credit, cash on deposit to secure a letter of
credit related to the new offices and showrooms, and a decrease in overdrafts.
This was partially offset by payments for common stock issued on the exercise of
options previously granted.

17



Inventories increased $4.5 million from December 31, 2003 to December
31, 2004, compared to a decrease of $2.6 million from December 31, 2002 to
December 31, 2003. With the implementation of the optimal calendar, the
Company's management also decided to secure its product in its distribution
facility by the end of the month prior to the month it expects to deliver to its
retail customers. Therefore, the increase in 2004 inventory levels was the
result of the Company's efforts to meet higher sales demands and to improve its
deliveries to retailers.

Credit Facilities

On December 30, 2004, the Company entered into a three year credit
facility (the "Credit Facility") with Wachovia Bank, National Association
("Wachovia"). The Credit Facility provides that the Company may borrow up to
85% of eligible accounts receivable and a portion of eligible inventory, both
as defined by the Credit Facility. Borrowings under the Credit Facility may not
exceed $25.0 million including outstanding letters of credit which are limited
to $8.0 million at any one time. There were approximately $3.1 million of
outstanding letters of credit at December 31, 2004. The Credit Facility accords
to the Company the right, at its election, to borrow these amounts as either
Prime Rate Loans or LIBOR Loans. Prime Rate Loans bear interest at the prime
rate plus the applicable margin in effect from time to time. LIBOR Loans are
limited to three in total, must be a minimum of $1,000,000 each and in integral
multiples of $500,000 in excess of that amount, and bear interest at the LIBOR
rate plus the applicable margin in effect from time to time. The applicable
margins, as defined by the Credit Facility, fluctuate from 0.00% to 0.75% for
the Prime Loans and 2.00% to 2.75% for LIBOR Loans. The applicable margins are
inversely affected by fluctuations in the amount of "excess availability" - the
unused portion of the amount available under the facility - which are in
staggered increments from less then $2.5 million to $7.5 million. The Prime
Rate and the LIBOR Rate were 5.00% and 3.10% respectively at December 31, 2004.
All the amounts borrowed under the credit facility at December 31, 2004 were
Prime Rate Loans and the effective rate was 7.0% at that time. Starting in
2005, the Credit Facility will also require the Company to comply with certain
covenants expressed as fixed charge coverage ratios and tangible liability to
net worth ratios. As collateral security for its obligations under the Credit
Facility, Isaacs and the LP granted a first priority security interest in all
of their respective assets to Wachovia. The Company paid $79,379 as a facility
fee to Wachovia in connection with the consummation of the Credit Facility.
That fee will be amortized over the life of the Credit Facility.

Prior to December 30, 2004, the Company had an asset-based revolving
line of credit (the "Credit Agreement") with Congress Financial Corporation
("Congress"). This Credit Agreement, as amended, provided that the Company could
have borrowed up to 80.0% of net eligible accounts receivable and a portion of
inventory. Borrowings under the Credit Agreement could not exceed $20.0 million,
including outstanding letters of credit which were limited to either $4.0
million or $6.0 million at various times during the year. These borrowings bore
interest at the lender's prime rate of interest plus 2.25% (effectively 6.50% at
December 30, 2004). In connection with amending the Credit Agreement in December
2002, March 2003 and November 2003, the Company paid and deferred certain
financing fees and either expensed as paid or amortized them over the remaining
life of the amended Credit Agreement, December 2003.

On May 6, 2002, Textile acquired a note that the Company had issued to
a former licensor. On May 21, 2002, Textile exchanged that note for an amended
and restated note (the "Replacement Note"), which subordinated Textile's rights
under the note to the rights of Congress under the Credit Agreement, deferred
the original note's principal payments and extended the maturity date of the
note until 2007. In connection with the execution of the Credit Facility, the
Replacement Note was further amended and restated to subordinate Textile's
rights to the rights of Wachovia under the Credit Facility (the "Amended and
Restated Replacement Note"). Pursuant to the subordination provisions of the
Replacement Note, the Company was obligated to defer the payments that otherwise
would have been due thereunder in December 2002, and during each calendar
quarter of 2003 and 2004. Also, pursuant to the provisions of the Replacement
Note, the non-payment and deferral of those payments did not constitute a
default thereunder. The Replacement Note has been classified as current or
long-term based upon the respective original due dates of the quarterly payments
specified in the Replacement Note. Accordingly, each deferred quarterly payment
has been classified as current even though the payment thereof may not be due
until a future year.

18



The Company extends credit to its customers. Accordingly, the Company
may have significant risk in collecting accounts receivable from its customers.
The Company has credit policies and procedures which it uses to minimize
exposure to credit losses. The Company's collection personnel regularly contact
customers with receivable balances outstanding beyond 30 days to expedite
collection. If these collection efforts are unsuccessful, the Company may
discontinue merchandise shipments until the outstanding balance is paid.
Ultimately, the Company may engage an outside collection organization to collect
past due accounts. Timely contact with customers has been effective in
minimizing its credit losses. In 2004 and 2003, the Company's credit losses were
$0.2 million and $0.3 million, respectively, and as a percentage of net sales
were 0.3% and 0.5%, respectively.

The Company has the following contractual obligations and commercial commitments
as of December 31, 2004:


Schedule of contractual obligations:

Payments Due By Period
------------------------------------------------------------------------------------
Total Less than 1 1-3 years 4-5 years After 5 years
year
----------------- -------------- -------------- -------------- ----------------

Revolving line of credit $ 223,283 $ 223,283 $ -- $ -- $ --
Long term debt 6,557,908 3,366,180 3,191,728 -- --
Operating leases 4,799,673 504,526 945,016 884,930 2,465,201
Employment agreements 2,826,500 1,380,000 1,446,500 -- --
Girbaud license
obligations 15,830,526 6,830,526 9,000,000 -- --
Girbaud fashion shows 975,000 375,000 600,000 -- --
Girbaud creative & --
advertising fees 570,000 190,000 380,000 -- --
----------------- -------------- -------------- -------------- ----------------
Total contractual cash
obligations $ 31,782,890 $ 12,869,515 $ 15,563,244 $ 884,930 $ 2,465,201
================= ============== ============== ============== ================




Schedule of commercial commitments:

Amount of Commitment Expiration Per Period

Less than 1 After 5
Total year 1-3 years 4-5 years years
--------------- ---------------- ----------- ----------- ------------

Line of credit *
(including letters of
credit) $ 25,000,000 $ 25,000,000 $ -- $ -- $ --
--------------- ---------------- ----------- ----------- ------------

Total commercial

commitments $25,000,000 $ 25,000,000 $ -- $ -- $ --
=============== ================ =========== =========== ============

(*) At December 31, 2004, the Company had $0.2 million of borrowings under
its revolving line of credit and outstanding letters of credit of
approximately $3.1 million under the Credit Agreement.



The Company believes that current levels of cash and cash equivalents
($1.0 million at December 31, 2004) together with cash from operations and funds
available under its Credit Agreement, will be sufficient to meet its capital
requirements for the next 12 months.

19



Inflation

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

Recent Accounting Pronouncements

In March 2004, the Financial Accounting Standards Board ("FASB") issued
a proposed statement, "Share-Based Payment", which addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for equity instruments of the enterprise or liabilities
that are based on the fair value of the enterprise's equity instruments or that
may be settled by the issuance of such equity instruments. The proposed
statement would eliminate the ability to account for share-based compensation
transactions using Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and generally would require instead
that such transactions be accounted for using a fair-value-based method.

In December 2004, the FASB issued SFAS No. 123(R), Share-Based
Payment, which is a revision of SFAS No. 123. Statement 123(R) requires all
share-based payments to employees and directors to be recognized in the
financial statements based on their fair values, using prescribed option-pricing
models. The Company will adopt Statement 123(R) on July 1, 2005. From and after
that date, pro forma disclosure will no longer be an alternative to financial
statement recognition. Accordingly, the adoption of Statement 123(R)'s fair
value method may have a significant impact on the Company's results of
operations. The impact of adoption of Statement 123(R) cannot be predicted at
this time because it will depend on levels of share-based payments granted in
the future. However, had the Company adopted Statement 123(R) in prior periods,
the impact of that standard would have approximated the impact of Statement 123
as described in the disclosures included in Summary of Accounting Policies -
Stock Options of the financial statements. Statement 123(R) also requires the
benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement will reduce net operating
cash flows and increase net financing cash flows in periods after adoption. The
Company does not believe the adoption of SFAS No. 123(R) will have a material
impact on its financial statements.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs,"
which clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage) by requiring these items
to be recognized as current-period charges. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005, with
earlier application permitted. The Company does not believe the adoption of SFAS
No. 151 will have a material impact on its results of operations or financial
position.

In December 2004, the FASB issued SFAS No. 153, Exchanges of
Nonmonetary Assets, which amends APB Opinion No. 29, Accounting for Nonmonetary
Transactions (SFAS No. 153), which requires a nonmonetary exchange of assets be
accounted for at fair value, recognizing any gain or loss, if the exchange meets
a commercial substance criterion and fair value is determinable. The commercial
substance criterion is assessed by comparing the entity's expected cash flows
immediately before and after the exchange. This eliminates the "similar
productive assets exception," which accounts for the exchange of assets at book
value with no recognition of gain or loss. Statement 153 will be effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. The Company does not believe the adoption of SFAS No. 153 will have a
material impact on its financial statements.

20



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company and the report of
the independent registered public accounting firm thereon are set forth on pages
F-1 through F-19 hereof.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

In accordance with management's responsibilities for establishing and
maintaining adequate internal control over the Company's financial reporting,
the Company maintains disclosure controls and procedures that are designed to
provide reasonable assurance that:

o information required to be disclosed in the Company's Exchange Act
reports

o is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms,

o is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosure,

o the Company's transactions are properly authorized;

o the Company's assets are safeguarded against unauthorized or improper
use; and

o the Company's transactions are properly recorded and reported,

all to permit the preparation of the Company's financial statements in
conformity with generally accepted accounting principles.

The Company conducted an evaluation, under the supervision and with the
participation of the Company's management, including its Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures as of the end of the period
covered by this Report on Form 10-K. Among other matters, the Company sought by
that evaluation to determine whether there were any significant deficiencies or
material weaknesses in the Company's disclosure controls and procedures, and
whether it had identified any acts of fraud involving personnel who have a
significant role in the implementation of those controls and procedures.

Based upon that evaluation, the Company's CEO and CFO have concluded
that, the Company's disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified by the SEC, and that material information relating to the
Company and its consolidated subsidiaries is made known to management, including
the Company's CEO and CFO, particularly during the period when the Company's
periodic reports are being prepared.

21



There were no changes in the Company's internal controls over financial
reporting during the fourth quarter of 2004 that materially affected, or that
were reasonably likely to materially affect, the Company's internal control over
financial reporting.

ITEM 9B. OTHER INFORMATION

None.
















22



PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information appearing in the Company's Definitive Proxy Statement
prepared in connection with the 2005 Annual Meeting of Stockholders (the "Proxy
Statement") under the captions "Proposal 1: Election of Directors", "Nominees
for Election as Directors", "Principal Executive Officers of the Company Who Are
Not Also Directors", "Section 16(a) Beneficial Ownership Reporting Compliance",
"Board Committees and Meetings" and "Code of Ethics" are incorporated herein by
this reference.

ITEM 11. EXECUTIVE COMPENSATION

The information appearing in the Proxy Statement under the caption
"Executive Compensation" is incorporated herein by this reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information appearing in the Proxy Statement under the caption
"Security Ownership Of Certain Beneficial Owners And Management" and "Securities
Authorized for Issuance Under Equity Compensation Plans" are incorporated herein
by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information appearing in the Proxy Statement under the caption
"Certain Relationships And Related Transactions" is incorporated herein by this
reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information appearing in the Proxy Statement under the caption
"Principal Accounting Fees and Services" is incorporated herein by this
reference.


23



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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


Index to Consolidated Financial Statements

Page
----

Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets at December 31, 2004 and 2003 F-2
Consolidated Statements of Operations for the years ended December 31, 2004,
2003 and 2002 F-3
Consolidated Statements of Stockholders' Equity for the years ended December
31, 2004, 2003 and 2002 F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2004,
2003 and 2002 F-5
Summary of Accounting Policies F-6 to F10
Notes to Consolidated Financial Statements F-11 to F20


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

Schedule II-Valuation and Qualifying Accounts

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

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

10.120 Amendment dated October 13, 2004 to the Executive Employment
Agreement dated December 9, 2003 by and Between I.C. Isaacs & Company,
L.P. and Peter J. Rizzo, filed as Exhibit 10.120 to the Company's
Report on Form 8-K filed on October 22, 2004, is hereby incorporated
herein by this reference.

10.121 Executive Employment agreement made as of the 1st day of March 2004,
by and between I.C. Isaacs & Company LP and Jesse de la Rama, filed as
Exhibit 10.121 to the Company's Report on Form 8-K filed on December
10, 2004, is hereby incorporated herein by this reference.

10.122 Loan and Security Agreement Dated as of December 30, 2004 by and
between I.C. Isaacs & Company, L.P. and Wachovia Bank, National
Association, filed as Exhibit 10.122 to the Company's Report on Form
8-K filed on January 6, 2005, is hereby incorporated herein by this
reference.

10.123 Amendment No. 7, dated December 16, 2004, to the Trademark License
and Technical Assistance Agreement dated the 1st day of November 1997
by and between Latitude Licensing Corp. and I.C. Isaacs & Company L.P.

10.124 Amendment No. 9, dated December 16, 2004, to the Trademark License
and Technical Assistance Agreement for Women's Collections dated March
4, 1998 by and between Latitude Licensing Corp. and I.C. Isaacs &
Company L.P.

23.1 Consent of BDO Seidman, LLP

24



31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002

31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002

32.1 Certification Pursuant to Section 1350 of chapter 63 of Title 18 of
the United States Code








25




SIGNATURES

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

I.C. ISAACS & COMPANY , INC. (REGISTRANT)

By: /s/ Peter J. Rizzo
------------------------------------------
Peter J. Rizzo
Chief Executive Officer
Date: March 30, 2005

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


Signature Title Date
--------- ----- ----


/s/ Peter J. Rizzo Chief (Principal) Executive Officer,
- ------------------------------------ Chairman of the Board March 30, 2005
Peter J. Rizzo

/s/ Eugene C. Wielepski Chief Financial Officer March 30, 2005
- ------------------------------------
Eugene C. Wielepski

Director March [ ], 2005
- ------------------------------------
Olivier Bachellerie

/s/ Rene Faltz Director March 30, 2005
- ------------------------------------
Rene Faltz

/s/ Neal J. Fox Director March 29, 2005
- ------------------------------------
Neal J. Fox

Director March [ ], 2005
- ------------------------------------
Francois Girbaud

/s/ Jon Hechler Director March 29, 2005
- ------------------------------------
Jon Hechler

/s/ Roland Loubert Director March 29, 2005
- ------------------------------------
Roland Loubet

/s/ Robert S. Stec Director March 29, 2005
- ------------------------------------
Robert S. Stec

Director March [ ], 2005
- ------------------------------------
Robert J. Conologue


26



F-4

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
I.C. Isaacs & Company, Inc.



We have audited the accompanying consolidated balance sheets of I.C. Isaacs &
Company, Inc. and Subsidiaries as of December 31, 2004 and 2003 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of I.C. Isaacs &
Company, Inc. and Subsidiaries at December 31, 2004 and 2003, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States of America.

BDO Seidman, LLP

Bethesda, Maryland
February 23, 2005

F-1




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

December 31,
--------------------------------------
2004 2003
---- ----

Assets

Current

Cash, including temporary investments of $70,000 and $168,000 $ 1,045,905 $ 782,519
Accounts receivable, less allowance for doubtful
accounts of $316,000 and $275,000 (Note 3) 10,015,723 9,871,110
Inventories (Notes 1 and 3) 8,317,437 3,854,731
Deferred tax asset (Note 5) 1,193,000 --
Prepaid expenses and other 509,503 68,676
----------------- -----------------

Total current assets 21,081,568 14,577,036
Property, plant and equipment, at cost, less accumulated
depreciation and amortization (Note 2) 2,088,233 777,089
Other assets (Note 9) 4,663,109 4,735,635
----------------- -----------------
$ 27,832,910 $ 20,089,760
================= =================

Liabilities and Stockholders' Equity

Current

Overdrafts $ -- $ 197,441
Current maturities of revolving line of credit
(Note 3) 223,283 4,224,285
Current maturities of long-term debt (Note 3) 3,366,180 2,013,977
Accounts payable 3,097,963 1,039,901

Accrued expenses and other current liabilities (Note 4) 5,799,574 2,523,253
----------------- -----------------

Total current liabilities 12,487,000 9,998,857

Long-term debt (Note 3) 3,191,728 4,543,931

Commitments and contingencies (Notes 3, 8 and 9)

Stockholders' Equity (Notes 6 and 7)
Preferred stock; $.0001 par value; 5,000,000 shares
authorized, none outstanding -- --
Common stock; $.0001 par value; 50,000,000 shares authorized;
12,790,799 and 12,311,366 shares issued; 11,614,090 and
11,134,657 shares outstanding 1,279 1,231
Additional paid-in capital 44,100,636 43,658,853
Accumulated deficit (29,624,862) (35,790,241)
Treasury stock, at cost (1,176,709 shares) (2,322,871) (2,322,871)
----------------- -----------------

Total stockholders' equity 12,154,182 5,546,972
-----------------
-----------------
$ 27,832,910 $ 20,089,760
================= =================

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


F-2




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

Years Ended December 31,
--------------------------------------------------------------
2004 2003 2002
------------------ ------------------ ------------------


Net sales $ 80,649,394 $ 64,304,688 $ 63,521,197
Cost of sales 49,583,094 43,706,398 41,776,131
------------------ ------------------ ------------------

Gross profit 31,066,300 20,598,290 21,745,066
------------------ ------------------ ------------------

Operating Expenses

Selling 10,412,502 9,524,799 11,486,303
License fees (Note 9) 5,330,523 4,163,035 5,017,637
Distribution and shipping 1,968,214 2,062,032 2,392,809
General and administrative 7,531,809 5,243,916 7,115,285
------------------ ------------------ ------------------

Total operating expenses 25,243,048 20,993,782 26,012,034
------------------ ------------------ ------------------

Operating income (loss ) 5,823,252 (395,492) (4,266,968)
------------------ ------------------ ------------------

Other income (expense)
Interest, net of interest income of
$6,543, $1,687 and $955 (729,068) (1,008,744) (657,189)
Loss on sale of property -- (414,650) --

Other, net 26,195 124,120 (38,442)
------------------ ------------------ ------------------

Total other expense (702,873) (1,299,274) (695,631)
------------------ ------------------ ------------------


Income (loss) from continuing operations 5,120,379 (1,694,766) (4,962,599)

Income tax benefit 1,045,000 -- --
------------------ ------------------ ------------------

Net income (loss) 6,165,379 (1,694,766) (4, 962,599)

Preferred stock deemed dividend -- -- (596,252)
------------------ ------------------ ------------------

Net income (loss) attributable to common
stockholders $ 6,165,379 $ (1,694,766) $ (5,558,851)
================== ================== ==================

Basic net income (loss) per share $ 0.55 $ (0.15) $ (0.61)

Basic net (loss) per share from preferred
stock deemed dividend -- -- (0.07)
------------------ ------------------ ------------------

Basic net income (loss) per share
attributable to common stockholders $ 0.55 $ ( 0.15) $ ( 0.68)
================== ================== ==================
Basic weighted average shares outstanding 11,264,483 11,134,657 8,160,136

Diluted net income (loss) per share $ 0.46 $ (0.15) $ (0.61)

Diluted net (loss) per share from preferred
stock deemed dividend -- -- (0.07)
------------------ ------------------ ------------------

Diluted net income (loss) per share
attributable to common stockholders $ 0.46 $ ( 0.15) $ ( 0.68)
================== ================== ==================
Diluted weighted average shares outstanding 13,355,300 11,134,657 8,160,136


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


F-3





I.C. Isaacs & Company, Inc.
Consolidated Statements of Stockholders' Equity

Common Stock Additional
------------------------ Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock Total
----------- ----------- ------------- ------------- ------------- ------------

Balance, at December 31, 2001 9,011,366 $901 $39,674,931 $(28,536,624) $(2,322,871) $8,816,337
Net loss -- -- -- (4,962,599) -- (4,962,599)
Conversion of Series A
Preferred Stock 3,300,000 330 3,299,670 -- -- 3,300,000
Officers' compensation
contribution -- -- 88,000 -- -- 88,000
Deemed dividend in connection
with preferred stock -- -- 596,252 (596,252) -- --
----------- ----------- ------------- ------------- ------------- ------------

Balance, at December 31, 2002 12,311,366 $1,231 $43,658,853 $(34,095,475) $(2,322,871) $7,241,738
Net loss -- -- -- (1,694,766) -- (1,694,766)
----------- ----------- ------------- ------------- ------------- ------------

Balance, at December 31, 2003 12,311,366 $1,231 $43,658,853 $(35,790,241) $(2,322,871) $5,546,972
Net Income -- -- -- 6,165,379 -- 6,165,379
Issuance of common stock 479,433 48 441,783 -- -- 441,831
----------- ----------- ------------- ------------- ------------- ------------

Balance, at December 31, 2004 12,790,799 $1,279 $44,100 636 $(29,624,862) $(2,322,871) $12,154,182
=========== =========== ============= ============= ============= ============

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


F-4




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


Years Ended December 31,
---------------------------------------------
2004 2003 2002
-------------- --------------- --------------

Operating Activities
Net income (loss) $6,165,379 $(1,694,766) $(4,962,599)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Provision for doubtful accounts 370,387 202,111 315,314
Write off of accounts receivable (329,387) (172,111) (470,314)
Provision for sales returns and discounts 4,088,959 2,477,904 3,672,100
Sales returns and discounts (3,578,959) (2,540,904) (3,744,100)
Valuation allowance-deferred tax asset (1,193,000) -- --
Depreciation and amortization 641,095 756,831 1,219,018
Loss on sale of assets -- 414,650 37,655
Officers' compensation contribution -- -- 88,000
(Increase) decrease in assets
Accounts receivable (695,613) (1,519,417) 1,245,640
Inventories (4,462,706) 2,588,843 (1,372,772)
Prepaid expenses and other (440,827) 138,257 341,129
Refundable income taxes -- -- 31,192
Other assets 308,155 106,569 (1,390,114)
Increase (decrease) in liabilities
Accounts payable 2,058,062 132,381 (182,933)
Accrued expenses and other current liabilities 3,276,321 438,804 148,299
-------------- --------------- --------------

Cash provided by (used in) operating activities 6,207,866 1,329,152 (5,024,485)
-------------- --------------- --------------

Investing Activities
Proceeds from sale of assets -- 268,221 3,050
Capital expenditures (1,858,489) (181,042) (103,880)
-------------- --------------- --------------

Cash (used in) provided by investing activities (1,858,489) 87,179 (100,830)
-------------- --------------- --------------

Financing Activities
Overdrafts (197,441) (428,641) 277,226
Principal (payments on) proceeds from revolving
line of credit (4,001,002) (806,168) 5,030,453
Cash on deposit to secure letter of credit (250,000) -- --
Issuance of common stock 441,831 -- --
Deferred financing costs (79,379) -- (125,000)
Principal payments on long-term debt -- -- (283,179)
-------------- --------------- --------------

Cash (used in) provided by financing activities (4,085,991) (1,234,809) 4,899,500
-------------- --------------- --------------

Increase (decrease) in cash and cash equivalents 263,386 181,522 (225,815)

Cash and Cash Equivalents, at beginning of year 782,519 600,997 826,812
-------------- --------------- --------------

Cash and Cash Equivalents, at end of year $1,045,905 $782,519 $600,997
============== =============== ==============

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


F-5



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 & Company, L.P. (the "Partnership"), Isaacs
Design, Inc. ("Design") and I.C. Isaacs Far East Ltd. (collectively the
"Company"). I.C. Isaacs Far East Ltd. did not have any significant revenue or
expenses in 2004, 2003 and 2002. All intercompany balances and transactions have
been eliminated.

Business Description

The Company, which operates in one business segment, is a designer and
marketer of branded jeanswear and sportswear. The Company offers collections of
jeanswear and sportswear for men and women under the Marithe and Francois
Girbaud brand ("Girbaud brand") in the United States and Puerto Rico. The
Girbaud brand is an internationally recognized designer label with a distinct
European influence. The Company has positioned its Girbaud brand line with a
broad assortment of products, styles and fabrications reflecting a contemporary
European look. The Company markets a full collection of men's and women's
jeanswear and sportswear under the Girbaud brand, including a broad array of
bottoms, tops and outerwear.

Risks and Uncertainties

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

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.

F-6



Concentration of Credit Risk

Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's customer base is not concentrated in any specific geographic
region, but is concentrated in the retail industry. For the years ended December
31, 2004, 2003 and 2002, sales to one customer were $7,713,000, $5,156,000, and
$5,302,000. These amounts constitute 9.6%, 8.0% and 8.3% of total sales,
respectively. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information. The Company's actual credit losses as a percentage
of net sales were 0.3%, 0.5% and 0.8% for the years ended December 31, 2004,
2003 and 2002, respectively.

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

Revenue Recognition

Net revenue is recognized upon the transfer of title and risk of ownership
to customers. Revenue is recorded net of discounts, as well as provisions for
estimated returns and allowances. On a seasonal basis, the Company negotiates
price adjustments with its retail customers as sales incentives. The Company
estimates the cost of such adjustments on an ongoing basis considering
historical trends, projected seasonal results and an evaluation of current
economic conditions. Beginning for the year ended December 31, 2004, these costs
have been recorded as a reduction to net revenue and all prior period
information has been reclassified to reflect this change. These amounts, which
were previously classified as selling expenses in prior years, were $3,777,084,
$1,919,809 and $2,276,833 for the years ended December 31, 2004, 2003 and 2002
respectively. This change has no effect on net income or loss in any period
presented.

Sales are recognized upon shipment of products. Allowances for
estimated returns are provided by the Company when sales are recorded by
reviewing trends and returns on a historical basis. Shipping and handling fees
billed to customers are classified in net sales in the consolidated statements
of operations. Shipping and handling costs incurred are classified in
distribution and shipping in the consolidated statements of operations.

Inventories

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

Property, Plant and Equipment

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

Asset Impairment

The Company periodically evaluates the carrying value of long-lived
assets when events and circumstances warrant such a review. The carrying value
of a long-lived asset is considered impaired when the anticipated undiscounted
cash flow from such asset is separately identifiable and is less than the
carrying value. In that event, a loss is recognized based on the amount by which
the carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved.

F-7



Stock Options

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 148, "Accounting for Stock Based Compensation
Transition and Disclosure - An Amendment to FAS No. 123" ("SFAS 148"), but
applies the intrinsic value method set forth in Accounting Principles Board
Opinion No. 25 for stock options granted to employees. If the Company had
elected to recognize compensation expense based on the fair value at the grant
dates, consistent with the method prescribed by SFAS No. 148, net loss per share
would have been changed to the pro forma amount indicated below. Effective June,
2005, the Company will be required to recognize this compensation expense. The
Company anticipates 2005 expense to be approximately $50,000 for options
currently granted.

For stock options granted to employees in 2004, 2003 and 2002, the
Company estimated the fair value of each option granted using the Black-Scholes
option-pricing model with the following assumptions: risk-free interest rate of
3.04%, 2.75%, 2.46%, 2.78%, 2.91% and 3.96% for options to purchase 25,000,
500,000, 175,000, 225,000, 25,000 and 220,000 shares granted in March 2004,
December 2003, July 2003, March 2003, February 2003 and December 2002,
respectively, expected volatility of 75%, expected option life of 5 years and no
dividend payments for 2004 or 2003. Using these assumptions, the per share fair
value of each of such option grants was $0.55 for the March 2004 grant, $0.60,
$0.86, $0.42 and $0.42, for the December, July, March and February, 2003 grants,
respectively, and $0.47 for the December 2002 grant.


Year ended December 31,
------------------------------------------------
2004 2003 2002
-------------- -------------- ----------------

Net income (loss) attributable to common
stockholders, as reported $6,165,379 $(1,694,766) $(5,558,851)
Total stock-based employee
compensation expense determined
under the fair value based method
for all awards (286,187) (231,448) (20,332)
-------------- -------------- ----------------
Pro forma net income (loss) attributable
to common stockholders $5,879,192 $(1,926,214) $(5,579,183)
============== ============== ================

Basic net income (loss) per common share,
as reported $0.55 $(0.15) $(0.68)

Basic net income (loss) per common share,
pro forma $0.52 $(0.17) $(0.68)

Diluted net income (loss) per common
share, as reported $0.46 $(0.15) $(0.68)

Diluted net income (loss) per common
share, pro forma $0.44 $(0.17) $(0.68)


Advertising Costs

Advertising costs, included in selling expenses, are expensed as
incurred and were $749,908 $559,966, and $1,975,405 for the years ended December
31, 2004, 2003 and 2002 respectively.

Cash Equivalents

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

F-8



Income Taxes

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

Fair Value of Financial Instruments

Financial instruments of the Company include cash and cash equivalents, accounts
receivable, short-term investments and long and short-term debt. Fair values of
cash and cash equivalents, accounts receivable, short-term investments and
short-term debt approximate cost due to the short period of time to maturity.
Based upon the current borrowing rates available to the Company, estimated fair
values of long-term debt approximate their recorded amounts.

Net Income or Loss Per Share

Net income or loss per share is based on the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding. Basic
loss per share includes no dilution and is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding for the period. In 2004, diluted income per share reflects the
potential dilution of securities that could share in the earnings of the
Company. There were outstanding employee stock options of 1,590,817, 2,070,250,
and 1,306,250, at December 31, 2004, 2003 and 2002, respectively and outstanding
warrants of 500,000 at the end of 2004, 2003 and 2002. For 2004, all options and
warrants were included in the diluted net income per share calculation. Basic
and diluted loss per share are the same during 2003 and 2002 as these stock
options and warrants were excluded from the computation of net loss per share as
their inclusion would have been anti-dilutive.

Comprehensive Income

The Company has adopted the provisions of Statement No. 130, "Reporting
Comprehensive Income". The Company has no items of comprehensive income to
report.

Recent Accounting Pronouncements

In March 2004, the Financial Accounting Standards Board ("FASB") issued
a proposed statement, "Share-Based Payment", which addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for equity instruments of the enterprise or liabilities
that are based on the fair value of the enterprise's equity instruments or that
may be settled by the issuance of such equity instruments. The proposed
statement would eliminate the ability to account for share-based compensation
transactions using Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and generally would require instead
that such transactions be accounted for using a fair-value-based method.

In December 2004, the FASB issued Statement No. 123(R), Share-Based
Payment, which is a revision of Statement 123. Statement 123(R) requires all
share-based payments to employees and directors to be recognized in the
financial statements based on their fair values, using prescribed option-pricing
models. The Company will adopt Statement 123(R) on July 1, 2005. From and after
that date, pro forma disclosure will no longer be an alternative to financial
statement recognition. Accordingly, the adoption of Statement 123(R)'s fair
value method may have a significant impact on the Company's results of
operations. The impact of adoption of Statement 123(R) cannot be predicted at
this time because it will depend on levels of share-based payments granted in
the future. However, had the Company adopted Statement 123(R) in prior periods,
the impact of that standard would have approximated the impact of Statement 123
as described in the disclosures included in the Summary of Accounting Policies -
Stock Options. Statement 123(R) also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as a financing cash flow,
rather than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. The Company continues to monitor the potential
impact of the proposed statement on its financial condition and results of
operations.

F-9



In November 2004, the FASB issued SFAS No. 151, "Inventory Costs,"
which clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage) by requiring these items
to be recognized as current-period charges. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005, with
earlier application permitted. The Company does not believe the adoption of SFAS
No. 151 will have a material impact on its financial statements.

In December 2004, the FASB issued SFAS No. 153, Exchanges of
Nonmonetary Assets, which amends APB Opinion No. 29, Accounting for Nonmonetary
Transactions (SFAS No. 153), which requires a nonmonetary exchange of assets be
accounted for at fair value, recognizing any gain or loss, if the exchange meets
a commercial substance criterion and fair value is determinable. The commercial
substance criterion is assessed by comparing the entity's expected cash flows
immediately before and after the exchange. This eliminates the "similar
productive assets exception," which accounts for the exchange of assets at book
value with no recognition of gain or loss. Statement 153 will be effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. The Company does not believe the adoption of SFAS No. 153 will have a
material impact on its financial statements.







F-10



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


1. Inventories

Inventories consist of the following: December 31,
---------------------------------------
2004 2003
------------------ ------------------


Work-in-process $ 227,444 $ 289,407
Finished goods 8,089,993 3,565,324
------------------ ------------------

$ 8,317,437 $ 3,854,731
================== ==================




2. Property, Plant and Equipment

Property, plant and equipment consists of
the following:

December 31, Estimated
--------------------------------------- Useful
2004 2003 Lives
------------------ ----------------- -----

Land $ 149,160 $ 149,160
Buildings and improvements 1,262,892 1,262,892 18 years
Machinery, equipment and fixtures 7,120,289 6,970,708 5-7 years
Leasehold improvements and other 2,948,108 1,239,200 various
------------------ -----------------

11,480,449 9,621,960
Less accumulated depreciation and
amortization 9,392,216 8,844,871
------------------ -----------------

$ 2,088,233 $ 777,089
================== =================


Depreciation expense for 2004, 2003 and 2002 totaled $547,345, $501,953
and $804,000 respectively.


3. Long-term Debt

Long-term debt consists of the following: December 31,
--------------------------------------
2004 2003
------------------ -----------------


Revolving line of credit (a)(b) $ 223,283 $ 4,224,285
Notes payable (c) 6,557,908 6,557,908
------------------ -----------------

Total 6,781,191 10,782,193

Less current maturities of revolving line
of credit 223,283 4,224,285
Less current maturities of long-term debt 3,366,180 2,013,977
------------------ -----------------

$ 3,191,728 $ 4,543,931
================== =================


(a) On December 30, 2004, the Company entered into a three year credit facility
(the "Credit Facility") with Wachovia Bank, National Association
("Wachovia"). The Credit Facility provides that the Company may borrow,
using as collateral, up to 85% of eligible accounts receivable and a
portion of eligible inventory, both as defined by the Credit Facility.
Borrowings under the Credit Facility may not exceed $25.0 million including
outstanding letters of credit which are limited to $8.0 million at any one
time. There were approximately $3.1 million of outstanding letters of
credit at December 31, 2004. The Credit Facility accords to the Company the
right, at its election, to borrow these amounts as either Prime Rate Loans
or LIBOR Loans. Prime Rate Loans bear interest at the prime rate plus the
applicable margin in effect from time to time. LIBOR Loans are limited to
three in total, must be a minimum of $1,000,000 each and in integral
multiples of $500,000 in excess of that amount, and bear interest at the
LIBOR rate plus the applicable margin in effect from time to time. The
applicable margins, as defined by the Credit Facility, fluctuate from 0.00%
to 0.75% for the Prime Loans and 2.00% to 2.75% for LIBOR Loans. The
applicable margins are inversely affected by fluctuations in the amount of
"excess availability" - the unused portion of the amount available under
the facility - which are in staggered increments from less then $2.5
million to $7.5 million. The Prime Rate and the LIBOR Rate were 5.00% and
3.10% respectively at December 31, 2004. All the amounts borrowed under the
credit facility at December 31, 2004 were Prime Rate Loans and the
effective rate was 7.0% at that time. Starting in 2005, the Credit Facility
also requires the Company to comply with certain covenants expressed as
fixed charge coverage ratios and tangible liability to net worth ratios. As
collateral security for its obligations under the Credit Facility, the
Isaacs and the LP granted a first priority security interest in all of
their respective assets to Wachovia. The Company paid $79,379 as a facility
fee to Wachovia in connection with the consummation of the Credit Facility.
That fee is deferred and will be amortized over the life of the Credit
Facility.

F-11



(b) Prior to December 30, 2004, the Company had an asset-based revolving line
of credit (the "Credit Agreement") with Congress Financial Corporation
("Congress"). This Credit Agreement, as amended, provided that the Company
could have borrowed up to 80.0% of net eligible accounts receivable and a
portion of inventory. Borrowings under the Credit Agreement could not
exceed $20.0 million, including outstanding letters of credit which were
limited to either $4.0 million or $6.0 million at various times during the
year. These borrowings bore interest at the lender's prime rate of interest
plus 2.25% (effectively 6.50% at December 30, 2004). In connection with
amending the Credit Agreement in December 2002, March 2003 and November
2003, the Company paid and deferred certain financing fees and either
expensed as paid or amortized them over the remaining life of the amended
Credit Agreement. The Company expensed or amortized $125,000 and $250,000
of these fees in 2004 and 2003.


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


Substantially all 2004 and 2003 information -------------------------------------
relates to Congress Credit Agreement Year Ended December 31,
-------------------------------------
2004 2003
----------------- -----------------


Borrowings under revolving line of credit $ 223,283 $ 4,224,285
Weighted average interest rate 6.50% 6.30%
Maximum month-end balance during year $ 6,433,366 $ 7,836,492
Average month-end balance during year $ 4,056,270 $ 5,956,376


(c) On May 6, 2002, Textile Investment International S.A. ("Textile"), an
affiliate of Latitude Licensing Corp. ("Latitude"), the licensor of the
Company, acquired a note that the Company had issued to a former licensor.
On May 21, 2002, Textile exchanged that note for an amended and restated
note (the "Replacement Note"), which subordinated Textile's rights under
the note to the rights of Congress under the Credit Agreement, deferred the
original note's principal payments and extended the maturity date of the
note until 2007. In connection with the execution of the Credit Facility,
the Replacement Note was further amended and restated to subordinate
Textile's rights to the rights of Wachovia under the Credit Facility (the
"Amended and Restated Replacement Note"). Pursuant to the subordination
provisions of the Replacement Note, the Company was obligated to defer the
payments that otherwise would have been due thereunder in December 2002,
and during each calendar quarter of 2003 and 2004. Also, pursuant to the
provisions of the Replacement Note, the non-payment and deferral of those
payments did not constitute a default thereunder. The Replacement Note has
been classified as current or long-term based upon the respective original
due dates of the quarterly payments specified in the Replacement Note.
Accordingly, each deferred quarterly payment has been classified as current
even though the payment thereof may not be due until a future year.

F-12



At December 31, 2004, long-term debt maturities were as follows:

2005 $ 3,366,180
2006 1,465,263
2007 1,726,465
----------------
$ 6,557,908
================



4. Accrued Expenses

Accrued expenses consist of the following: December 31,
------------------------------------
2004 2003
---------------- ----------------

Royalties & other licensor obligations, Note 8 $ 2,489,274 $ 1,153,094
Accrued interest 1,136,023 702,628
Management & selling bonuses 1,087,442 236,587
Severance accrual 290,570 --
Accrued professional fees 162,650 50,000
Income taxes payable 148,000 --
Accrued compensation 120,871 68,397
Customer credit balances 82,832 61,633
Payroll tax withholdings 71,934 69,619
Sales commissions payable 51,629 60,294
Property taxes 19,895 19,895
Other 138,454 101,106
---------------- ----------------

$ 5,799,574 $ 2,523,253
================ ================


5. Income Taxes

Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial and income
tax reporting purposes. As of December 31, 2004 and 2003, the Company has net
operating loss carry forwards for income tax reporting purposes of approximately
$41,269,000 and $45,163,000 respectively, which represent deferred tax assets of
approximately $15,908,000 and $20,490,000 respectively. These net operating
losses begin to expire in 2014. Through 2003, no income tax benefit had been
recorded due to the uncertainty over the Company's ability to generate taxable
income beyond 2003. As a result of the income the Company generated in 2004, the
Company's management reevaluated its net operating losses and the related
valuation allowances and has recognized a net income tax benefit of $1,045,000
for 2004.


Significant items comprising the Company's deferred tax assets are as
follows: December 31,
---------------------------------
2004 2003
---------------- ----------------


Net operating loss carry forwards $ 15,908,000 $ 20,490,000
Depreciation and amortization 764,000 773,000
Accrued royalty payments 915,000 --
Accrued interest payable 446,000 --
Capital loss carryforward 163,000 178,000
Allowance for doubtful accounts 124,000 118,000
Inventory valuation 51,000 37,000
Accrued severance 114,000 --
Contribution carryovers 44,000 46,000
Other 21,000 22,000
---------------- ----------------

18,550,000 21,664,000

Valuation allowance (17,357,000) (21,664,000)
---------------- ----------------

Net deferred tax asset $ 1,193,000 $ --
================ ================


F-13




A reconciliation between the statutory and effective tax Year Ended December 31,
rates is as follows: ------------------------------------------
2004 2003 2002
---------- ------------ ------------


Federal statutory rate 34.0% (35.0)% (35.0)%
State and local taxes, net of federal benefit 4.0 (4.0) (4.0)
Nondeductible entertainment expense 2.0 1.0 1.0
Alternative minimum taxes 2.0 -- --
Losses for which a benefit (is)/is not currently available (62.4) 38.0 38.0
---------- ------------ ------------

(20.4)% -- % -- %
========== ============ ============




The 2004 net tax benefit is derived from Year Ended December 31, 2004
the following components: ------------------------------------------------------------
Federal State Total
------------------ ------------------ -----------------

Current tax expense $ (148,000) $ -- $ (148,000)
Deferred tax benefit 950,000 243,000 1,193,000

Net income tax benefit $ 802,000 $ 243,000 $ 1,045,000
================== ================== =================


No reconciliation for 2003 or 2002 was provided as there was no tax expense or
benefit for those years.

6. Stockholders' Equity

The Company currently holds 1,176,709 of common stock shares in its
treasury at a cost of $2,322,871.

During 2002, the Company granted warrants to purchase 500,000 shares of
the Company's Common Stock for $0.75 per share to Textile. The Company
determined the aggregate value of these warrants on the date of grant to be
approximately $596,000, based on the Black-Scholes valuation model, with the
following weighted average assumptions: dividend yield of 0%, expected
volatility of 75%, risk free interest rate of 3.59% and expected term of 9
years. This amount was recorded as a preferred stock deemed dividend in the
statements of operations and stockholders' equity.

7. Stock Options

In May 1997, the Company adopted the 1997 Omnibus Stock Plan (the
"Plan"). Under the Plan, as amended in 1999, 2002 and as amended and restated in
2003, the Company may grant qualified and nonqualified stock options, stock
appreciation rights, restricted stock or performance awards, payable in cash or
shares of common stock, to selected employees. The Company has reserved
2,200,000 shares of common stock for issuance under the Plan.


A summary of stock options outstanding and exercisable as of December 31, 2004
is as follows:

------------------------------------------------------------------------------------------
Options exercisable at
Options outstanding at December 31, 2004 December 31, 2004
------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
------ ----------- ------------ ----- ----------- -----


$0.30 to $0.60 364,667 5.80 $0.568 198,000 $0.551
$0.87 to $2.125 1,226,150 4.35 $1.260 867,817 $1.390
- ------------------- ----------------- -------------- -------------- -------------- --------------
$0.30 to $2.125 1,590,817 4.59 $1.101 1,065,817 $1.234
=================== ================= ============== ============== ============== ==============


F-14



-------------------------------------------------------------------------------------------
Options exercisable at
Options outstanding at December 31, 2003 December 31, 2003
-------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
------ ----------- ------------ ----- ----------- -----

$0.30 to $0.60 645,000 6.26 $0.193 -- $ --
$0.90 to $2.125 1,425,250 5.86 $0.978 1,425,250 $1.311
- ------------------- ----------------- -------------- -------------- -------------- --------------
$0.30 to $2.125 2,070,250 5.98 $0.679 1,425,250 $1.311
=================== ================= ============== ============== ============== ==============




-------------------------------------------------------------------------------------------
Options exercisable at
Options outstanding at December 31, 2002 December 31, 2002
-------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
------ ----------- ------------ ----- ----------- -----


$0.30 to $0.58 220,000 9.95 $0.567 -- $ --
$0.90 to $2.125 1,086,250 6.42 $1.487 867,817 $1.519
- ------------------- ----------------- -------------- -------------- -------------- --------------
$0.30 to $2.125 1,306,250 6.98 $1.332 1,065,817 $1.519
=================== ================= ============== ============== ============== ==============




The following table relates to options activity in Weighted
2002, 2003 and 2004 under the Plan: Average
Number of Exercise Price
Options per Option
--------------- -----------------

Options outstanding at December 31, 2001 1,086,250 1.470

Granted 220,000 0.580
-----------

Options outstanding at December 31, 2002 1,306,250 1.226

Granted 925,000 0.770

Cancelled (161,000) 1.380
-----------

Options outstanding at December 31, 2003 2,070,250 1.076

Cancelled (25,000) 0.600

Granted 25,000 0.870

Exercised (479,433) 0.922
-----------

Options outstanding at December 31, 2004 1,590,817 1.101
===========

Options exercisable at December 31, 2004 1,065,817 1.234
===========


F-15



8. Commitments and Contingencies

Operating Leases

The Company rents real and personal property under leases expiring at
various dates through 2014. Certain of the leases stipulate payment of real
estate taxes and other occupancy expenses. Minimum annual rental commitments
under noncancellable operating leases in effect at December 31, 2004 are
summarized as follows:

Showrooms & Computer &
Office Space Office Equipment Total
---------------- ----------------- -----------------

2005 $ 389,309 $ 115,217 $ 504,526
2006 399,043 93,647 492,690
2007 409,018 43,308 452,326
2008 419,244 32,879 452,123
2009 432,808 -- 432,808
Thereafter 2,465,201 -- 2,465,201
---------------- ----------------- -----------------

$ 4,514,623 $ 285,051 $ 4,799,674
================ ================= =================

In July 2004, the Company signed a 10 year lease to relocate its New
York offices and showrooms. The Company will expense the rent payments on a
straight line basis in accordance with the provisions of SFAS No. 13 "Accounting
for Leases" starting October 2004, the date the Company obtained access to the
facility. Also, in connection with this lease, the Company has provided to the
lessor a $250,000 letter of credit and has provided a deposit for this amount to
the bank as security for this letter of credit. As the use of these funds is
restricted, this deposit is classified as a non-current asset.


Total rent expense is as follows: Year Ended December 31,
--------------------------------------------------------
2004 2003 2002
---------------- ----------------- -----------------

Minimum rentals $ 386,345 $ 475,966 $ 631,925
Other lease costs 40,631 154,437 175,218
---------------- ----------------- -----------------

426,976 $ 630,403 $ 807,143
================ ================= =================


Licenses

Girbaud Men's Licensing Agreement

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

F-16



Girbaud Women's Licensing Agreement

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

In connection with the refinancing of the Company's credit facility in
December 2004, Latitude and the Company agreed to defer approximately $2.3
million of 2004 minimum and additional royalty payments to 2005. The Company
expects to pay these amounts in the first half of 2005 and pay all 2005 royalty
payments as they become due.

The Company has the following contractual obligations as of December
31, 2004:


Schedule of contractual obligations: Payments Due By Period
-------------------------------------------------------------
Total Current 1-3 years 4-5 years After 5
years
--------------- --------------- --------------- -------------- -----------

Employment agreements $ 2,826,500 $ 1,380,000 $ 1,446,500 $ -- $ --
Girbaud license
obligations * 15,830,526 6,830,526 9,000,000 -- --
Girbaud fashion shows 975,000 375,000 600,000 -- --
Girbaud creative &
advertising fees 570,0000 190,000 380,000 -- --
--------------- --------------- --------------- -------------- -----------
Total contractual
obligations $ 20,202,026 $ 8,775,526 $ 11,426,500 $ -- $ --
=============== =============== =============== ============== ===========

(*) Adjusted to account for the deferrals, reductions and waivers of the
royalty obligations mentioned above.


Employment Agreements

The Company is party to employment agreements with four officers which
provide for specified levels of compensation and certain other benefits. The
agreements, which expire between 2005 and 2007, also provide for severance
payments from the termination date through the expiration date under certain
circumstances.

9. Retirement Plan

The Company sponsors a defined benefit pension plan that covers
substantially all employees with more than one year of service. The Company's
policy is to fund pension costs accrued. Contributions to the plan reflect
benefits attributed to employees' service to date, as well as service expected
to be earned in the future. The benefits are based on the number of years of
service and the employee's compensation during the three consecutive complete
years of service prior to or including the year of termination of employment.
Plan assets consist primarily of common stocks, fixed income securities and
cash. The latest available actuarial valuation is as of December 31, 2004.
Pension expense for 2004, 2003 and 2002 was approximately $446,000, $349,000,
and $244,000 respectively, and includes the following components:

F-17




Years Ended December 31,
---------------------------------------------
2004 2003 2002
------------- ------------- ---------------

Service cost of current period $60,000 $54,000 $88,000
Interest on the above service cost 4,000 4,000 6,000
------------- ------------- ---------------

64,000 58,000 94,000
Interest on the projected benefit
obligation 522,000 450,000 458,000
Expected return on plan assets (556,000) (519,000) (575,000)
Amortization of prior service cost 43,000 43,000 43,000
Amortization of loss 373,000 317,000 224,000
------------- ------------- ---------------

Pension cost $446,000 $349,000 $244,000
============= ============= ===============

Years ended December 31,
---------------------------------------------
The following table sets forth the Plan's
funded status and amounts recognized at
December 31, 2004, 2003 and 2002: 2004 2003 2002
------------- ------------- ---------------

Vested benefits $6,704,000 $5,764,000 $5,756,000
Nonvested benefits 30,000 30,000 35,000
------------- ------------- ---------------

Accumulated benefit obligation 6,734,000 5,794,000 5,791,000
Effect of anticipated future compensation
levels and other events 425,000 245,000 297,000
------------- ------------- ---------------

Projected benefit obligation 7,159,000 6,039,000 6,088,000
------------- ------------- ---------------

Fair value of assets held in the plan 7,438,000 7,396,000 7,092,000
------------- ------------- ---------------

(Excess)/deficit of projected benefit
obligation over plan assets 279,000 1,357,000 1,004,000
Unrecognized net loss from past experience
different from that assumed 4,000,000 3,150,000 3,509,000
Unrecognized prior service cost 43,000 85,000 128,000
------------- ------------- ---------------

Net prepaid periodic pension cost $4,322,000 $4,592,000 $4,641,000
============= ============= ===============


With respect to the above table, the weighted average discount rate used to
measure the projected benefit obligation and net prepaid periodic pension cost
was 7.5% for 2004, 2003 and 2002; the rate of increase in future compensation
levels is 3%; and the expected long-term rate of return on assets is 8%. The net
prepaid periodic pension cost is included in other assets in the accompanying
consolidated balance sheets.


The following sets forth the Plan's change
in benefit obligation for 2004 and 2003: Years Ended December 31,
-----------------------------
2004 2003
------------- --------------
Benefit obligation at beginning of year $6,039,000 $6,088,000
Service cost 64,000 58,000
Interest cost 522,000 450,000
Benefits paid (779,000) (927,000)
Actuarial loss 1,313,000 370,000
------------- --------------

Benefit obligation at end of period $7,159,000 $6,039,000
============= ==============

F-18



The following sets forth the Plan's change in plan Years Ended December 31,
assets for 2004 and 2003:

The following sets forth the Plan's change in
plan assets for 2004 and 2003: Years Ended December 31,
----------------------------
2004 2003
-------------- -------------
Fair value of plan assets at beginning of year $7,396,000 $7,092,000
Return on plan assets 556,000 519,000
Employer contributions 175,000 300,000
Benefits paid (779,000) (927,000)
Assets gain/loss deferred 90,000 412,000
-------------- -------------

Fair value of plan assets at end of year $7,438,000 $7,396,000
============== =============

The plan's fiduciaries set investment policies and strategies for the trust.
Long-term strategic investment objectives include preserving the funded status
of the trust and balancing risk and return. The plan's fiduciaries oversee the
investment allocation process, which includes selecting investment managers,
setting long-term strategic targets and monitoring asset allocations. Target
allocation ranges are guidelines, not limitations, and occasionally plan
fiduciaries will approve allocations above or below a target range.

The Company's pension plan weighted-average asset allocations at
December 31, 2004 and 2003, by asset category are as follows:

December 31,
-------------------------------------
2004 2004
----------------- ----------------
Equity Securities 70% 65%
Debt Securities 20% 30%
Cash Accounts 10% 5%
----------------- ----------------

100% 100%
================= ================

The following benefit payments, which reflect expected future
services, as appropriate, are expected to be paid:
Pension Benefits
-----------------
2005 $ 114,000
2006 125,000
2007 167,000
2008 203,000
2009 227,000
Years 2010-2014 1,565,000
-----------------
$ 2,401,000
=================

10. Supplemental Disclosures of Cash Flow Information

Cash paid during the year for interest amounted to $295,077, $499,166
and $463,457 for 2004, 2003 and 2002, respectively.


Non-cash effect of restructuring BOSS trademark and
licensing arrangement: 2004 2003 2002
-----------------------------------------------------


Conversion of redeemable preferred stock to $ -- $ -- $ 3,300,000
common stock
Officers' compensation contribution -- -- 88,000
Deemed dividend in connection with preferred
stock -- -- 596,252


F-19



11. Quarterly Financial Data (Unaudited)


Summarized quarterly financial data for 2004 and 2003 is as follows:

Quarter
- ------------------------------------------------------------------------------------------------------------------
2004 First Second Third Fourth
- ------------------------------------------------------ ------------------ ------------------ ------------------

Net sales $ 20,764,668 $ 19,667,444 $ 21,888,273 $ 18,329,009
Gross profit 7,246,289 7,456,847 9,629,472 6,733,692
Net income 864,581 1,313,466 2,488,531 1,498,801
Basic earnings per share $ 0.08 $ 0.12 $ 0.22 $ 0.13
Diluted earnings per share $ 0.07 $ 0.11 $ 0.18 $ 0.11
================= ================== ================== ==================

Quarter
- ------------------------------------------------------------------------------------------------------------------
2003 First Second Third Fourth
- ------------------------------------------------------ ------------------ ------------------ ------------------
Net sales $ 16,446,613 $ 16,093,518 $ 15,714,613 $ 16,049,943
Gross profit 4,573,807 5,559,131 5,304,319 5,161,032
Net (loss) income (641,625) 471,322 (545,429) (979,034)
Basic and diluted (loss) earnings
per share $(0.06) $ 0.04 $(0.05) $(0.09)
================= ================== ================== ==================


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

2. The above quarterly financial data reflects the reclassification of the
allowances provided to its retail customers as price adjustments as a
reduction of net sales. These amounts were previously classified as selling
expenses in prior years. This change has no effect on net income or loss in
any period presented.

3. Based on additional guidance issued by the SEC in February 2005, the
Company reevaluated the term related to its new lease in New York.
Accordingly, in the fourth quarter, the Company recorded an adjustment of
$107,000 to recognize additional rent expense. The Company also reduced an
accrual for Sarbanes Oxley fees by $100,000 based on actual costs incurred.

F-20



Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
I.C. Isaacs & Company, Inc.

The audits referred to in our report dated February 23, 2004 relating to the
consolidated financial statements of I.C. Isaacs & Company, Inc. and
Subsidiaries, which is contained in Item 8 of this Form 10-K, included the audit
of the financial statement schedules listed in the accompanying index. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based upon our audits.

In our opinion such financial statement schedules present fairly, in all
material respects, the information set forth therein.

BDO Seidman, LLP

Bethesda, Maryland
February 23, 2005

F-21




SCHEDULE II

I. C. Isaacs & Company, Inc.
Valuation and Qualifying Accounts

Description Balance Charged to
Beginning of Costs and Balance at
the Year Expenses Deduction End of Year
---------------- -------------- -------------- --------------
Year Ended December 31, 2002

Allowance for doubtful accounts $ 400,000 $ 315,000 $ (470,000) $ 245,000
Merchandise allowances 1,400,000 2,277,000 (2,119,000) 1,558,000
Reserve for sales returns and discounts 198,000 3,672,000 (3,744,000) 126,000

Year Ended December 31, 2003

Allowance for doubtful accounts $ 245,000 $ 202,000 $ (172,000) $ 275,000
Merchandise allowances 1,558,000 1,920,000 (2,317,000) 1,161,000
Reserve for sales returns and discounts 126,000 2,477,000 (2,540,000) 63,000

Year Ended December 31, 2004

Allowance for doubtful accounts $ 275,000 $ 370,000 $ (329,000) $ 316,000
Merchandise allowances 1,161,000 3,777,000 (3,197,000) 1,741,000
Reserve for sales returns and discounts 63,000 4,089,000 (3,579,000) 573,000


F-22