Passport Brands 10Q/A 2005 Q2 Quarterly report (amended)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________

FORM 10-Q/A

(Mark One)

AMENDMENT NO. 1

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

For the Quarterly Period Ended June 30, 2005

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

For the transition period from __________ to ___________

Commission file number: 0-23379

____________________

I.C. ISAACS & COMPANY, INC.

(Exact name of Registrant as specified in its Charter)

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

3840 BANK STREET BALTIMORE, MARYLAND		21224-2522
(Address of principal executive offices)		(Zip Code)
	(410) 342-8200
(Registrant's telephone number, including area code)

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

_____________________

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

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

As of November 14, 2005, 11,790,090 shares of common stock, par value $.0001 per share, ("Common Stock") of the Registrant were outstanding.

I. C. ISAACS & COMPANY, INC.

FORM 10-Q/A Amendment No. 1

Quarter Ended June 30, 2005

EXPLANATORY NOTE

This Amendment No. 1 to the Quarterly Report on Form 10-Q of I.C. Isaacs & Company, Inc. (the “Company”) amends the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, originally filed on August 15, 2005 (the “Original Filing”).

In response to a limited review of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 10-K”) made by the staff of the SEC, the Company amended the 2004 10-K (the “10-K Amendment”). In order to adjust the disclosures made in the Original Filing in conformity with the amendments made in the 10-K Amendment, the Company has

amended the disclosures contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, section of the Original Filing to discuss and quantify the factors that contributed to the changes in sales, gross profit and gross profit margins in the three and six month periods ended June 30, 2005 when compared to the same periods of 2004; and

·	amended Part II, Item 6 of the Original Filing to include a comprehensive listing of exhibits.

Except as described above, the updating of the number of shares of common stock outstanding appearing on the cover page, and the updating of disclosures in the notes to the unaudited financial statements and the MD&A regarding promotional and advertising expenses, no other changes have been made to the Original Filing. This Amendment continues to speak as of the date of the Original Filing, and, except for above-described disclosures, the Company has not updated the disclosures contained therein to reflect any events that occurred at a date subsequent to the filing of the Original Filing.

TABLE OF CONTENTS

		Page(s)
	PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	4
	Consolidated Balance Sheets (Unaudited)	4
	Consolidated Statements of Operations (Unaudited)	5
	Consolidated Statements of Cash Flows (Unaudited)	6
	Summary of Accounting Policies	7
	Notes to Consolidated Financial Statements	10

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17
	Important information Regarding Forward-Looking Statements	17
	Significant Accounting Policies and Estimates	17
	Results of Operations	18
	Liquidity and Capital Resources	22
	Backlog and Seasonality	25
	Limited Dependence on One Customer	26

ITEM 4.	CONTROLS AND PROCEDURES	26

	PART II - OTHER INFORMATION

ITEM 6.	EXHIBITS	27

	SIGNATURES	28

PART I—FINANCIAL INFORMATION

I.C. Isaacs & Company, Inc.

Consolidated Balance Sheets (Unaudited)

Item 1. Financial Statements.
	June 30, 2005			December 31, 2004

Assets
Current
Cash, including temporary investments of $250,000 and $70,000	$	698,238		$	1,045,905
Accounts receivable, less allowance for doubtful accounts of $475,000 and $316,000		14,630,826			10,015,723
Inventories (Note 1)		6,530,590			8,317,437
Deferred tax asset (Note 4)		1,193,000			1,193,000
Prepaid expenses and other		397,459			509,503
Total current assets		23,450,113			21,081,568
Property, plant and equipment, at cost, less accumulated depreciation and amortization		2,850,951			2,088,233
Other assets		4,701,999			4,663,109

	$	31,003,063		$	27,832,910
Liabilities And Stockholders’ Equity
Current
Outstanding checks	$	943,107		$	—
Revolving line of credit (Note 2)		1,315,389			223,283
Current maturities of long-term debt (Note 2)		4,085,004			3,366,180
Accounts payable		1,819,232			3,097,963
Accrued expenses and other current liabilities (Note 3)		3,551,988			5,799,574
Total current liabilities		11,714,720			12,487,000
Long-term debt (Note 2)		2,472,904			3,191,728

Commitments and Contingencies (Note 7)

Stockholders’ Equity (Note 6)
Preferred stock; $.0001 par value; 5,000,000 shares authorized, none outstanding		—			—
Common stock; $.0001 par value; 50,000,000 shares authorized, 12,922,299 and 12,790,799 shares issued; 11,745,590 and 11,614,090 shares outstanding		1,292			1,279
Additional paid-in capital		44,238,751			44,100,636
Accumulated deficit		(25,101,733	)		(29,624,862	)
Treasury stock, at cost (1,176,709 shares)		(2,322,871	)		(2,322,871	)
Total stockholders’ equity		16,815,439			12,154,182

	$	31,003,063		$	27,832,910

See accompanying notes to consolidated financial statements.

I.C. Isaacs & Company, Inc.

Consolidated Statements of Operations (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004

Net sales	$	21,749,284		$	19,667,444		$	45,451,226		$	40,432,112
Cost of sales		12,906,814			12,210,597			26,657,742			25,728,976
Gross profit		8,842,470			7,456,847			18,793,484			14,703,136

Operating Expenses
Selling		2,691,050			2,164,965			5,690,230			4,795,247
License fees		1,235,000			1,298,049			2,723,000			2,651,087
Distribution and shipping		579,669			484,014			1,130,207			986,662
General and administrative		2,135,922			1,980,934			4,384,991			3,678,658
Total operating expenses		6,641,641			5,927,962			13,928,428			12,111,654
Operating income		2,200,829			1,528,885			4,865,056			2,591,482

Other income (expense)
Interest, net of interest income		(139,965	)		(192,250	)		(250,166	)		(391,017	)
Other, net		9			22,831			239			23,582
Total other expense		(139,956	)		(169,419	)		(249,927	)		(367,435	)
Income before income taxes		2,060,873			1,359,466			4,615,129			2,224,047
Income tax expense (Note 4)		41,000			46,000			92,000			46,000
Net income	$	2,019,873		$	1,313,466		$	4,523,129		$	2,178,047

Basic earnings per share	$	0.17		$	0.12		$	0.39		$	0.20
Basic weighted average shares outstanding		11,713,211			11,134,657			11,682,405			11,134,657

Diluted earnings per share	$	0.15		$	0.11		$	0.34		$	0.18
Diluted weighted average shares outstanding		13,407,257			12,279,657			13,407,257			12,279,657

See accompanying notes to consolidated financial statements.

I.C. Isaacs & Company, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended June 30,
	2005			2004

Operating Activities
Net income	$	4,523,129		$	2,178,047
Adjustments to reconcile net income to cash (used in) provided by operating activities
Provision for doubtful accounts		272,320			234,936
Write off of accounts receivable		(113,032	)		(93,936	)
Provision for sales returns and discounts		1,542,313			1,771,423
Sales returns and discounts		(1,894,313	)		(1,588,433	)
Depreciation and amortization		265,750			232,917
(Increase) decrease in assets
Accounts receivable		(4,422,391	)		(2,689,243	)
Inventories		1,786,847			(785,951	)
Prepaid expenses and other		112,044			(251,395	)
Other assets		(52,120	)		(198,363	)
Increase (decrease) in liabilities
Accounts payable		(1,278,731	)		325,999
Accrued expenses and other current liabilities		(2,247,586	)		1,436,118
Cash (used in) provided by operating activities		(1,505,770	)		572,119
Investing Activities
Capital expenditures		(1,015,238	)		(70,038	)
Cash used in investing activities		(1,015,238	)		(70,038	)
Financing Activities
Outstanding checks		943,107			411,127
Net borrowings (payments) on revolving line of credit		1,092,106			(817,871	)
Issuance of common stock		138,128			—
Cash provided by (used in) financing activities		2,173,341			(406,744	)
(Decrease) increase in cash and cash equivalents		(347,667	)		95,337
Cash and Cash Equivalents, at beginning of period		1,045,905			782,519
Cash and Cash Equivalents, at end of period	$	698,238		$	877,856

See accompanying notes to consolidated financial statements.

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 or thus far in 2005. All intercompany balances and transactions have been eliminated.

Business Description

The Company, which operates in one business segment, designs and markets a full collection of men’s and women’s jeanswear and sportswear under the Marithé and François Girbaud brand names and trademarks in the United States and Puerto Rico. The Marithé and François Girbaud brand is an internationally recognized designer label with a distinct European influence. The Company has positioned the Girbaud line with a broad assortment of products, styles and fabrications reflecting a contemporary look.

Interim Financial Information

In the opinion of management, the interim financial information as of June 30, 2005 and for the six months ended June 30, 2005 and 2004 contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. Results for interim periods are not necessarily indicative of results to be expected for an entire year.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Sates of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United Sates of America have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the consolidated financial statements, and the notes thereto, included in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2004.

Risks and Uncertainties

The apparel industry is highly competitive; the Company, which derives all of its revenues from sales made under its Marithé and François Girbaud licenses, 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. A risk to the Company is that such a strategy may lead to pressure on profit margins. In the past several years, many of the Company's competitors have switched much of their apparel manufacturing from the United States to foreign locations such as Mexico, the Dominican Republic and throughout Asia. As competitors lower production costs, it gives them greater flexibility to lower prices. Over the last several years, the Company also switched its production to contractors outside the United States to reduce costs. Since 2001, the Company has imported substantially all of its inventory, excluding t-shirts, as finished goods from contractors in Asia. This shift in purchasing requires the Company to estimate sales and issue purchase orders for inventory well in advance of receiving firm orders from its customers. A risk to the Company is that its estimates may differ from actual orders. If this happens, the Company may miss sales because it did not order enough inventories, 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.

Revenue Recognition

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 sales incentives and 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. For the three and six months ended June 30, 2005, these costs were recorded as a reduction to net revenue and the June 30, 2004 amounts have been reclassified to reflect this change. These price adjustments, which were previously classified as selling expenses in prior years, were $949,000 and $550,000 for the three months ended June 30, 2005 and 2004 respectively and were $1,949,000 and $1,502,000 for the six months ended June 30, 2005 and 2004 respectively. This change has no effect on net income or loss in any period presented.

Cost of Goods Sold and Operating Expenses

The Company includes in cost of goods sold all costs and expenses related to obtaining merchandise incurred prior to the receipt of finished goods at the Company’s distribution facilities. These costs include, but are not limited to, product cost, inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs and internal transfer costs, as well as insurance, duties, brokers’ fees and consolidators’ fees. The Company includes in selling, general and administrative expenses costs incurred subsequent to the receipt of finished goods at its distribution facilities, such as the cost of picking and packing goods for delivery to customers. In addition, selling, general and administrative expenses include product design costs, selling and store service costs, marketing expenses and general and administrative expenses.

Use of Estimates

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

Concentration of Credit Risk

Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company's customer base is not concentrated in any specific geographic region, but is concentrated in the retail industry. As of June 30, 2005, the Company had one customer who accounted for 15.0% of trade accounts receivable compared to one customer who accounted for 14.6% of trade accounts receivable as of June 30, 2004. For the three months ended June 30, 2005, sales to two customers accounted for 10.1% of net sales each compared to only one customer who accounted for 10.8% of net sales for the three months ended June 30, 2004. For the six months ended June 30, 2005 and 2004, sales to no one customer accounted for more than 10.0% of net sales. 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 is also subject to concentrations of credit risk with respect to its cash and cash equivalents, which it minimizes by placing these funds with high-quality institutions. The Company is exposed to credit losses in the event of nonperformance by the counterparties to the letter of credit agreements, but it does not expect any of these financial institutions to fail to meet their obligations given their high credit ratings.

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.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). Under SFAS 109, deferred taxes are determined using the liability method, which requires the recognition of deferred tax assets and liabilities based on differences between financial statement and income tax bases using presently enacted tax rates. The Company has estimated its annual effective tax rate at 2% based on its estimate of the utilization of existing net operating loss carryforwards to offset any pre-tax income it may generate.

Earnings Per Share

Earnings per share is based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity. See Note 5 for the reconciliation of the basic and diluted earnings per share for the three months and six months ended June 30, 2005 and 2004.

Recent Accounting Pronouncements

In December 2004, the FASB issued Statement No. 123(R), Share-Based Payment, which is a revision of Statement 123. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their grant-date fair values. Pro forma disclosure is no longer an alternative. As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using APB 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123(R)'s fair value method may have a significant impact on the Company's result of operations as the Company will be required to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. In April 2005, the Securities and Exchange Commission delayed the effective date of SFAS 123(R), which is now effective for public companies for annual, rather than interim, periods that begin after June 15, 2005. The Company is currently evaluating the impact on its financial statements upon the adoption of SFAS 123(R).

In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143 ("FIN 47"), which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company does not anticipate that the adoption of FIN 47 will have a material impact on its financial statements.

In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154 replaces APB No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and establishes retrospective application as the required method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The reporting of a correction of an error by restating previously issued financial statements is also addressed. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not anticipate that the adoption of SFAS No.154 will have a material impact on its financial statements.

I.C. Isaacs & Company, Inc.

Notes to Consolidated Financial Statements (Unaudited)

1. Inventories

Inventories consist of the following:	June 30, 2005		December 31, 2004
Work-in-process	$	964,898	$	3,688,980
Finished Goods		5,565,692		4,628,457
	$	6,530,590	$	8,317,437

2. Long-Term Debt

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 $2.4 million of outstanding letters of credit at June 30, 2005. 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 6.25% and 3.86% respectively at June 30, 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. The Company is currently in compliance with these covenants, however, there can be no assurance that the Company will continue to comply with these covenants during the remainder of 2005. As collateral security for the Company’s obligations under the Credit Facility, ICI unconditionally guaranteed the payment and performance of all obligations arising thereunder, and the Partnership granted a first priority security interest in all of its assets to Wachovia. In 2004, 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.

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 bearing interest at the rate of 8% per annum, (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” and together with the Replacement Note, the “Textile Notes”). Pursuant to the subordination provisions of the Textile Notes, the Company was obligated to defer the payments that otherwise would have been due thereunder during each calendar quarter commencing with the quarter ended December 31, 2002 and continuing through March 31, 2005. Also, pursuant to the provisions of the Textile Notes, the non-payment and deferral of those payments did not constitute a default thereunder.

Pursuant to an Intercreditor and subordination agreement entered into by Wachovia and Textile in connection with the consummation of the Credit Facility, Textile was permitted to elect to authorize the Company to defer the payment of quarterly amounts that otherwise would be due and payable under the Amended and Restated Replacement Note and apply such amount in payment of deferred royalties under the licensing agreements. Pursuant to amendments to the licensing agreements executed in December 2004, the payment of approximately $2.3 million of minimum and additional royalties that otherwise would have been payable in 2004 was deferred, and the payment thereof became due and payable during the 18 month period which commenced in June 2005 (see Note 7). As of June 30, 2005, all 2004 deferred royalty payments were paid in full. The obligations under the Textile Notes have been classified as current or long-term based upon the respective original due dates of the quarterly payments specified in the Replacement Note or the Amended and Restated Replacement Note, as the case may be. Accordingly, each deferred quarterly payment has been classified as current even though the payment thereof may not be due until a future year. The Company anticipates that it will resume making note payments under the Amended and Restated Replacement Note in the third quarter of 2005.

3. Accrued Expenses

	June 30, 2005		December 31, 2004
Accrued expenses consist of the following:	June 30, 2005		December 31, 2004

Accrued interest	$	1,317,823	$	1,136,023
Management & selling bonuses		1,003,795		1,087,442
Royalties & other licensor obligations, Note 7		367,200		2,489,274
Property taxes		147,816		19,895
Sales commissions payable		141,309		51,629
Accrued rent expense		139,297		111,000
Severance accrual		132,080		290,570
Accrued compensation		101,085		120,871
Accrued professional fees		65,062		51,650
Customer credit balances		41,023		82,832
Payroll tax withholdings		35,243		71,934
Income taxes payable		24,000		148,000
Other		36,255		138,454
	$	3,551,988	$	5,799,574

4. Income Taxes

The Company has recorded a liability for alternative minimum tax related to the usage of net operating loss carryforwards in the current year. Any other income tax liability will be offset with the $41.2 million in net operating loss carryforwards. These net operating loss carryforwards begin to expire in 2014 for income tax reporting purposes and no income tax benefit has been recorded in the current period due to the uncertainty over the level of future taxable income.

5. Earnings Per Share

The following table presents a reconciliation of the basic and diluted earnings per share with regard to the weighted average shares outstanding for the three months ended June 30, 2005 and 2004.

Three Months Ended June 30, 2005:	Net Income		Shares		Per Share Amount

Basic earnings per share	$	2,019,873		11,713,211	$	0.17
Effect of dilutive options and warrants				1,694,046
Diluted earnings per share	$	2,019,873		13,407,257	$	0.15

Three Months Ended June 30, 2004:		Net Income		Shares		Per Share Amount

Basic earnings per share	$	1,313,466		11,134,657	$	0.12
Effect of dilutive options and warrants				1,145,000
Diluted earnings per share	$	1,313,466		12,279,657	$	0.11

The following table presents a reconciliation of the basic and diluted earnings per share with regard to the weighted average shares outstanding for the six months ended June 30, 2005 and 2004.

Six Months Ended June 30, 2005:	Net Income		Shares		Per Share Amount

Basic earnings per share	$	4,523,129		11,682,405	$	0.39
Effect of dilutive options and warrants				1,724,852
Diluted earnings per share	$	4,523,129		13,407,257	$	0.34

Six Months Ended June 30, 2004:		Net Income		Shares		Per Share Amount

Basic earnings per share	$	2,178,047		11,134,657	$	0.20
Effect of dilutive options and warrants				1,145,000
Diluted earnings per share	$	2,178,047		12,279,657	$	0.18

6. Stock Options

Under the Company’s Amended and Restated Omnibus Stock Plan (the “Company Plan”), 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 reserved 2,200,000 shares of common stock for issuance under the Company Plan. Options to purchase 75,000 and 25,000 shares of common stock were granted in the first six months of 2005 and 2004 respectively. During the first half of 2005, options to purchase 372,650 shares of common stock were terminated. During the first six months of 2005, options to purchase 131,500 shares of common stock were exercised, and the Company was paid $138,128 in connection therewith. No options to purchase shares of common stock were exercised or terminated in the first six months of 2004. There were outstanding options to purchase 1,161,667 and 2,070,250 shares of common stock at June 30, 2005 and 2004, respectively. There were outstanding warrants to purchase 500,000 shares of common stock at June 30, 2005 and 2004.

At the Company’s annual meeting of stockholders held on June 28, 2005, the stockholders approved the adoption of the Company’s 2005 Non-Employee Directors Stock Option Plan (the “Directors Plan”). Under the Directors Plan:

·	each non-employee Director who was serving on the Board on the date of this year’s annual meeting received an automatic grant of a fully vested, nonqualified ten year option to purchase 15,000 shares of common stock;

·	each person who first became a non-employee Director at this year’s annual meeting received an automatic grant of a fully vested, nonqualified ten year option to purchase 15,000 shares of common stock upon his or her initial election or appointment to the Board;

·	each person who first becomes a non-employee Director at any time after this year’s annual meeting will be entitled to receive a fully vested, nonqualified ten year option to purchase 15,000 shares of our common stock upon his or her initial election or appointment to the Board; and

immediately following each annual meeting of stockholders, commencing with the 2006 annual meeting, each non-employee Director automatically will be granted a fully vested, nonqualified ten year option to purchase an additional 15,000 shares of our common stock; provided, however, that if the person has not been serving as a Non- Employee Director for the entire period since the preceding Annual Meeting, then the number of shares subject to such Annual Grant shall be reduced pro rata for each full quarter prior to the date of grant during which he or she did not serve as a Non-Employee Director.

The Company has reserved 450,000 shares of common stock for issuance under the Directors Plan. As of June 30, 2005, there were outstanding options to purchase 120,000 shares of common stock under the Directors Plan. Pursuant to the Directors Plan, the exercise prices of all options granted under that plan are fixed at 100% to the market price of the common stock on each grant date.

The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), but applies the intrinsic value method set forth in Accounting Principles Board Opinion No. 25. For stock options granted to employees in 2005, 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 6.25% expected volatility of 75%, expected option life of 10 years and no dividend payments for 2005. Using these assumptions, the fair value was $4.98 per stock option granted under the Company Plan during the first half of 2005 and $4.67 per stock option granted under the Directors Plan during the first half of 2005. For stock options granted to employees under the Company Plan in 2004, 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% expected volatility of 75%, expected option life of 5 years and no dividend payments for 2004. Using these assumptions, the fair value was $0.55 per stock option granted in the first half of 2004.

If the Company had elected to recognize compensation expense based on the fair value at the grant dates, consistent with the method prescribed by SFAS No. 123, net income per share would have been changed to the pro forma amounts indicated below:

	Three Months Ended June 30,
	2005			2004

Net income, as reported	$	2,019,873		$	1,313,466
Less: Total stock based compensation expense determined under the fair value method for all awards		(687,124	)		(67,524	)
Pro forma net income attributable to common stockholders	$	1,332,749		$	1,245,942

Basic net income per common share
As reported	$	0.17		$	0.12
Pro forma	$	0.11		$	0.11

Diluted net income per common share
As reported	$	0.15		$	0.11
Pro forma	$	0.10		$	0.10

	Six Months Ended June 30,
	2005			2004

Net income, as reported	$	4,523,129		$	2,178,047
Less: Total stock based employee compensation expense determined under the fair value method for all awards		(754,470	)		(146,883	)
Pro forma net income attributable to common stockholders	$	3,768,659		$	2,031,164

Basic net income per common share
As reported	$	0.39		$	0.20
Pro forma	$	0.32		$	0.18
Diluted net income per common share
As reported	$	0.34		$	0.18
Pro forma	$	0.28		$	0.17

7. Commitments and Contingencies

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 Latitude 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 promotional expenses marketing the men’s Girbaud brand products in each year through the term of the Girbaud men’s agreement. During each of the five years ended December 31, 2004, the amounts of promotional expenses incurred by the Company in marketing the men’s Girbaud brand products were less than the amounts required under the agreement.

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 Latitude 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 promotional expenses marketing 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 Latitude for advertising and promotional expenditures related to the Girbaud brand. During each of the five years ended December 31, 2004, the amounts of promotional expenses incurred by the Company in marketing the women’s Girbaud brand products were less than the amounts required under the agreement.

Total license fees on Girbaud product line sales amounted to $1,235,000 and $1,298,049 for the three months ended June 30, 2005 and 2004, respectively and totaled $2,723,000 and $2,651,087 for the six months ended June 30, 2005 and 2004, respectively. Pursuant to amendments to the licensing agreements executed in December 2004 (see Note 2), the payment of approximately $2.3 million of minimum and additional royalties that otherwise would have been payable in 2004 was deferred. As of June 30, 2005, all 2004 deferred royalty payments were paid in full.

In July 2004, the Company signed a 10 year lease to relocate its New York corporate offices and showroom. The relocation occurred in January of 2005 and the annual rental payments will be approximately $388,000, $398,000, $408,000, $418,000 and $429,000 in years 2005 through 2009 and $2,505,000 for the 5 years thereafter combined. The Company expenses these rent payments on a straight line basis in accordance with the provisions of SFAS No. 13 “Accounting for Leases” starting October 2004, the month the Company obtained access to the facility. Also, in connection with this lease, the Company 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.

Following is a summary schedule of the Company’s commitment obligations as of June 30, 2005:

Summary schedule of commitments:			Payments Due By Period
	Total		Current		1-3 years		4-5 years		After 5 years

Operating leases	$	4,591,650	$	486,013	$	929,076	$	905,800	$	2,270,761
Employment agreements		1,961,500		900,750		1,060,750		—		—
Licensing agreement fee obligations		11,392,526		4,642,526		6,750,000		—		—
Licensing agreement fashion show obligations		825,000		375,000		450,000		—		—
Licensing agreement creative & advertising fee obligations		500,000		215,000		285,000		—		—
Promotional expense license requirement		1,970,000		620,000		1,350,000		—		—
Total contractual obligations	$	21,240,676	$	7,239,289	$	10,824,826	$	905,800	$	2,270,761

8. Retirement Plan

The Company contributed $ 315,000 and $175,000 into the defined benefit pension plan during the first half of 2005 and 2004, respectively. The Company does not expect to have to make any other contributions into the pension plan for the remainder of 2005. The Company has recognized pension expense of $264,000 and $214,000 for the six months ended June 30, 2005 and 2004, respectively.

Components of net periodic pension cost	Six Months Ended
	2005			2004

Service cost of current period	$	32,000		$	30,000
Interest on the above service cost		2,000			2,000
		34,000			32,000
Interest on the projected benefit obligation		285,000			256,000
Expected return on plan assets		(264,000	)		(283,000	)
Amortization of prior service cost		22,000			22,000
Amortization of loss		187,000			187,000
Pension cost	$	264,000		$	214,000

9. Legal Proceedings

The Company is engaged in litigation proceedings commenced against it by a former officer. The former officer is seeking damages in amounts he contends otherwise would have been due to him under his executive employment contract, including approximately $1 million in alleged severance and bonus, and approximately $2 million in profits he claims he would have derived from unexercised (and now terminated) stock options originally issued pursuant to the Company's Amended and Restated Omnibus Stock Plan. The Company believes that the case is without merit and is vigorously defending it. The Company further believes that it will prevail on the merits.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

In this report, the term “ICI” means I. C. Isaacs & Company, Inc., individually, the terms “Partnership,”“Design” and “Far East” mean ICI’s wholly owned subsidiaries, I.C. Isaacs & Company L.P., Isaacs Design, Inc. and I.C. Isaacs (Far East) Limited, respectively, and the term “Company” means ICI, the Partnership, Design and Far East, collectively.

"I.C. Isaacs" is a trademark of the Company. All other trademarks or service marks, including "Girbaud " and "Marithé and François Girbaud" (collectively, "Girbaud"), appearing in this Form 10-Q are the property of their respective owners and are not the property of the Company.

Important Information Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include indications regarding the intent, belief or current expectations of the Company and its management, including the Company's plans with respect to the sourcing, manufacturing, marketing and distribution of its products, the strength of the Company's backlog, the belief that current levels of cash and cash equivalents together with cash from operations and existing credit facilities will be sufficient to meet its working capital requirements for the next twelve months, its expectations with respect to the performance of the counterparties to its letter of credit agreements, its plans to invest in derivative instruments and the collection of accounts receivable, its beliefs and intent with respect to and the effect of changes in financial accounting rules on its financial statements. Such statements are subject to a variety of risks and uncertainties, many of which are beyond the Company's control, which could cause actual results to differ materially from those contemplated in such forward-looking statements, including, but not limited to, (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, (iv) the risk that the backlog of orders may not be indicative of eventual actual shipments, and (v) termination of one or more of its agreements for use of the Girbaud brand names and images in the manufacture and sale of the Company's products. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update or revise the information contained in this Quarterly Report on Form 10-Q, whether as a result of new information, future events or circumstances or otherwise.

Significant Accounting Policies and Estimates

The Company’s significant accounting policies are more fully described in its Summary of Accounting Policies appearing at pages 6 through 8 of this report. The preparation of financial statements in conformity with accounting principles generally accepted within the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related notes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below; however, application of these accounting policies involves the exercise of 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.

The Company estimates inventory markdowns based on customer orders sold below cost, to be shipped in the following period and on the amount of similar unsold inventory at period end. The Company analyzes recent sales orders and subsequent sales and the related gross margins on unsold inventory at month end 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

The following table sets forth the percentage relationship to net sales of certain items in the Company's consolidated financial statements for the periods indicated.

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004

Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		59.4			61.9			58.7			63.6
Gross profit		40.6			38.1			41.3			36.4
Selling expenses		12.4			11.2			12.5			11.9
License fees		5.5			6.6			5.9			6.4
Distribution and shipping expenses		2.8			2.5			2.4			2.5
General and administrative expenses		9.8			10.2			9.7			9.2
Operating income		10.1	%		7.6	%		10.8	%		6.4	%

Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004

Net Sales and gross profit.

Net sales increased 10.2% to $21.7 million in the second quarter of 2005 from $19.7 million in the same period of 2004. Net sales of the Girbaud men's product line increased $0.9 million, or 5.4%, to $17.7 million while the Girbaud women's product line increased $1.1 million, or 37.9%, to $4.0 million.

Gross profit increased 17.3% to $8.8 million in the second quarter of 2005 from $7.5 million in the same period of 2004. Gross margin, or gross profit as a percentage of net sales, increased to 40.6% from 38.1% over the same period.

Gross units sold increased 33.3% to 1.2 million units in the second quarter of 2005 compared to 0.9 million units in the same period of 2004. Gross sales (sales before adjustment for returns and allowances) increased 10.4% to $23.4 million in the second quarter of 2005 compared to $21.2 million in the same period of 2004. The related gross profit on these sales (unadjusted for returns and allowances) increased $0.4 million to $9.4 million in the second quarter of 2005 from $9.0 million in the same period of 2004. Returns and allowances decreased to 7.1% of gross sales in the second quarter of 2005 from 7.3% in the same period of 2004. The main contributing factors to the increase in gross sales, gross profit and gross margin notwithstanding the comparatively unchanged unit volume of sales were as follows:

Increases in the unit and dollar volumes of goods sold at regular prices - An increase of 16.7% in unit sales of goods sold at regular prices (both T-Shirts and Jeans & Tops) to 0.7 million units in the second quarter of 2005 compared to 0.6 million units the same period of 2004. That increase in unit volumes of regular priced merchandise resulted in

▪	a 1.7% or $0.3 million increase to $17.5 million in the dollar volume of sales of regular priced merchandise in the second quarter of 2005 (from $17.2 million in the same period of 2004);

▪	a 12.3% or $1.0 million increase to $9.1 million in gross profit in the second quarter of 2005 (from $8.1 million in the same period of 2004); and

▪	an increase to 52.0% in gross margins in the second quarter of 2005 (from 47.1% in the same period of 2004).

Increases in the unit and dollar volumes of goods sold at promotional and off-price discounts - Unit sales of goods sold at promotional and off-price discounts (both T-Shirts and Jeans & Tops) increased 74.8% to 0.5 million units in the second quarter of 2005 compared to 0.3 million units in the same period of 2004. That comparison of unit volumes of merchandise sold at promotional and off-price discounts translated into

▪	a 43.9% or $1.8 million increase to $5.9 million in the dollar volumes of those sales in the second quarter of 2005 (from $4.1 million in the same period of 2004);

▪	a 55.6% to $0.4 million decrease in gross profit in the second quarter of 2005(from $0.9 million in the same period of 2004); and

▪	a decrease to 6.8% in gross margins in the second quarter of 2005 (from a margin of 22.0% in the same period of 2004).

Comparison of the relative changes in sales of T-Shirts, on the one hand, and Jeans & Tops on the other, revealed, the following:

Gross unit sales of T-Shirts at regular prices (average selling price of $12-$16 per unit) increased to 0.2 million units in the second quarter of 2005 compared to 0.1 million units in the same period of 2004 and represented $0.7 million of the total increase in goods sold at regular prices in the second quarter of 2005. The gross margin associated with these sales increased to 55.6% in the second quarter of 2005 compared to 50.0% in the same period of 2004 and represented a gross profit increase of $0.5 million in the second quarter of 2005.

Gross unit sales of Jeans and Tops at regular prices (average selling price of $28 to $38 per unit) remained relatively unchanged at 0.5 million units in the second quarters of 2005 and 2004 and represented a partial decrease of $0.2 million of the overall increase in goods sold at regular prices in the second quarter of 2005. The gross margin associated with these sales increased to 51.4% in the second quarter of 2005 compared to 47.0% in the same period of 2004 and represented a gross profit increase of $0.5 million in the second quarter of 2005.

Operating Expenses

Operating expenses increased 11.9% to $6.6 million in the three months ended June 30, 2005 from $5.9 million in the three months ended June 30, 2004. The increase in operating expenses resulted primarily from design sample expenses, professional fees and other operating personnel expenses. Operating expenses as a percentage of net sales were 30.4% in the second quarter of 2005, compared to 29.9% in the same period of 2004. Selling expenses increased $0.5 million in the second quarter of 2005 compared to the same period of 2004 primarily as a result of higher design sample expense and design and selling personnel. Advertising and promotional related expenses remained unchanged at $0.2 million in the second quarters of 2005 and 2004. The Company is required to spend the greater of an amount equal to 3% of Girbaud net sales or $0.9 million in advertising and related expenses promoting the Girbaud brand products in each year of the terms of the Girbaud agreements. During each of the five years ended December 31, 2004, the amounts of promotional expenses incurred by the Company in marketing the Girbaud brand products were less than the amounts required under the licensing agreements. License fees decreased to $1.2 million in the three months ended June 30, 2005 from $1.3 million in the three months ended June 30, 2004. This slight decrease is attributable to the product mix shift to women’s products which did not exceed the minimum license fee, as well as an increase in off-price goods which require a lower license fee percentage (3% compared to 6.25%). Distribution and shipping increased slightly to $0.6 million in the three months ended June 30, 2005 compared to $0.5 million in the same period of 2004. This increase was attributable to an increase in units shipped in the second quarter of 2005 compared to the same period of 2004. General and administrative expenses increased slightly to $2.1 million in the three months ended June 30, 2005 from $2.0 million in the three months ended June 30, 2004. The increase is attributable to increases in professional fees and other related costs for the three months ended June 30, 2005. The increase in professional fees is associated with consulting fees required for the Company’s implementation of its Sarbanes-Oxley program and other internal consulting services.

Operating Income

Operating income increased $0.7 million to $2.2 million in the three months ended June 30, 2005 compared to $1.5 million in the three months ended June 30, 2004. The improvement was due to higher gross margins on higher net sales partially offset by higher operating expenses.

Interest Expense, net

Interest expense, net decreased to $0.1 million for the three months ended June 30, 2005 compared to $0.2 million for the same period of 2004 due to lower overall borrowings on the Company’s revolving line of credit facility.

Income Taxes

Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004

Net Sales and gross profit.

Net sales increased 12.6% to $45.5 million in the first half of 2005 from $40.4 million in the same period of 2004. Net sales of the Girbaud men's product line increased $2.7 million, or 7.8%, to $37.1 million while the Girbaud women's product line increased $2.4 million, or 40.0%, to $8.4 million.

Gross profit increased 27.9% to $18.8 million in the first half of 2005 from $14.7 million in the same period of 2004. Gross margin, or gross profit as a percentage of net sales, increased to 41.3% from 36.4% over the same period.

Gross units sold increased 21.1% to 2.3 million units in the first half of 2005 compared to 1.9 million units in the same period of 2004. Gross sales (sales before adjustment for returns and allowances) increased 12.2% to $48.9 million in the first half of 2005 compared to $43.6 million in the same period of 2004. The related gross profit on these sales (unadjusted for returns and allowances) increased $3.1 million to $20.5 million in the first half of 2005 from $17.4 million in the same period of 2004. Returns and allowances decreased to 7.1% of gross sales in the first half of 2005 from 7.3% in the same period of 2004. The main contributing factors to the increase in gross sales, gross profit and gross margin notwithstanding the comparatively unchanged unit volume of sales were as follows:

Increases in the unit and dollar volumes of goods sold at regular prices - An increase of 25.0% in unit sales of goods sold at regular prices (both T-Shirts and Jeans & Tops) to 1.5 million units in the first half of 2005 compared to 1.2 million units the same period of 2004. That increase in unit volumes of regular priced merchandise resulted in

▪	a 10.6% or $3.6 million increase to $37.7 million in the dollar volume of sales of regular priced merchandise in the first half of 2005 (from $34.1 million in the same period of 2004);

▪	a 23.1% or $3.7 million increase to $19.7 million in gross profit in the first half of 2005 (from $16.0 million in the same period of 2004); and

▪	an increase to 52.3% in gross margins in the first half of 2005 (from 46.9% in the same period of 2004).

Increases in the unit and dollar volumes of goods sold at promotional and off-price discounts - Unit sales of goods sold at promotional and off-price discounts (both T-Shirts and Jeans & Tops) increased 28.6% to 0.9 million units in the second half of 2005 compared to 0.7 million units in the same period of 2004. That comparison of unit volumes of merchandise sold at promotional and off-price discounts translated into

▪	a 16.7% or $1.6 million increase to $11.2 million in the dollar volumes of those sales in the second half of 2005 (from $9.6 million in the same period of 2004);

▪	a 42.9% decrease in gross profit to $0.8 million in the second half of 2005 (from $1.4 million in the same period of 2004); and

▪	a decrease to 7.1% in gross margins in the second half of 2005 (from a margin of 14.6% in the same period of 2004).

Comparison of the relative changes in sales of T-Shirts, on the one hand, and Jeans & Tops on the other, revealed, the following:

Gross unit sales of T-Shirts at regular prices (average selling price of $12-$16 per unit) increased to 0.4 million units in the first half of 2005 compared to 0.3 million units in the same period of 2004 and represented $2.2 million of the total increase in goods sold at regular prices in the first half of 2005. The gross margin associated with these sales increased to 54.8% in the first half of 2005 compared to 50.0% in the same period of 2004 and represented a gross profit increase of $1.4 million in the first half of 2005.

Gross unit sales of Jeans and Tops at regular prices (average selling price of $28 to $38 per unit) remained relatively unchanged at 1.0 million units in the first half of 2005 and 2004 and represented $1.4 million of the total increase in goods sold at regular prices in the first half of 2005. The gross margin associated with these sales increased to 51.7% in the first half of 2005 compared to 46.5% in the same period of 2004 and represented a gross profit increase of $2.3 million in the first half of 2005.

Operating Expenses

Operating expenses increased 14.9% to $13.9 million in the six months ended June 30, 2005 from $12.1 million in the six months ended June 30, 2004. The increase in operating expenses resulted primarily from commission expense associated with higher net sales, design sample expenses, professional fees and other operating personnel expenses. Operating expenses as a percentage of net sales were 30.5% in the first half of 2005, compared to 30.0% in the same period of 2004. Selling expenses increased $0.9 million in the first half of 2005 compared to the same period of 2004 primarily as a result of higher design sample expense and design and sales personnel expenses. Advertising and promotional related expenses remained unchanged at $0.7 million in the first half of 2005 and 2004. License fees remained relatively unchanged at $2.7 million in the six months ended June 30, 2005 and 2004. This slight decrease is attributable to the product mix shift to women’s products which did not exceed the minimum license fee, as well as an increase in off-price goods which require a lower license fee percentage (3% compared to 6.25%). Distribution and shipping increased slightly to $1.1 million in the six months ended June 30, 2005 compared to $1.0 million in the same period of 2004. This increase was attributable to an increase in units shipped in the second quarter of 2005 compared to the same period of 2004. General and administrative expenses increased to $4.4 million in the six months ended June 30, 2005 from $3.7 million in the six months ended June 30, 2004. The increase is attributable to increases in professional fees associated with consulting fees required for the Company’s implementation of its Sarbanes-Oxley program and other internal consulting services and additional personnel cost for the six months ended June 30, 2005.

Operating Income

Operating income increased $2.3 million to $4.9 million in the six months ended June 30, 2005 compared to $2.6 million in the six months ended June 30, 2004. The improvement was due to higher gross margins on higher net sales partially offset by higher operating expenses.

Interest Expense, net

Interest expense, net decreased to $0.3 million for the six months ended June 30, 2005 compared to $0.4 million for the same period of 2004 due to lower overall borrowings on the Company’s revolving line of credit facility.

Income Taxes

Liquidity and Capital Resources

The Company has relied primarily on asset-based borrowings, internally generated funds and trade credit to finance its operations. The Company's capital requirements primarily result from working capital needed to support increases in inventory and accounts receivable. As of June 30, 2005, the Company had cash and cash equivalents, including temporary investments, of $0.7 million and working capital of $11.7 million compared to $0.9 million and $6.0 million, respectively, as of June 30, 2004.

Cash Flows

Cash used in operations totaled $1.5 million for the first six months of 2005, compared to cash provided by operations of $0.6 million for the same period of 2004. The $2.1 million decrement is primarily due to net income of $4.5 million offset by decreases in inventories reduced by increases in accounts receivable and decreases in accounts payable and accrued expenses. Cash used for investing activities was $1.0 million for the first six months of 2005. Cash used by investing activities was insignificant in the first six months of 2004. Cash provided by financing activities was $2.2 million for the first six months of 2005, resulting primarily from borrowings on the Company’s revolving line of credit, and increase in outstanding checks and cash received for issuance of common stock related to the exercise of stock options.

Accounts receivable increased $4.4 million from December 31, 2004 to June 30, 2005 due to increased year to date sales compared to an increase of $2.9 million from December 31, 2003 to June 30, 2004. Inventory decreased $1.8 million from December 31, 2004 to June 30, 2005 as the inventory was built up at December 31, 2004 to ship earlier in the first quarter. Inventories increased in the same period of 2004 as inventory levels had not been built up at December 31, 2003. Capital expenditures were $1.0 million for the first six months of 2005 due to the build out of the new office space in New York. Outstanding checks increased $0.9 million from December 31, 2004 to June 30, 2005 compared to an increase of $0.1 million in the same period of 2004. Net borrowings on the Company’s revolving line of credit increased $1.1 million from December 31, 2004 to June 30, 2005 compared to a decrease of $0.8 million in the same period of 2004. The Company received $0.1 million during the first half of 2005 from its issuance of common stock related to the exercise of stock options. There was no stock activity during the same period of 2004.

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, 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 $2.4 million of outstanding letters of credit at June 30, 2005. 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 6.25% and 3.86% respectively at June 30, 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. The Company is currently in compliance with these covenants, however, there can be no assurance that the Company will continue to comply with these covenants during the remainder of 2005. As collateral security for its obligations under the Credit Facility, ICI unconditionally guaranteed the payment and performance of all obligations arising thereunder, and the Partnership granted a first priority security interest in all of its assets to Wachovia. In 2004, the Company paid $79,379 as a facility fee to Wachovia in connection with the consummation of the Credit Facility. That fee was deferred and will be amortized over the life of the Credit Facility.

The Company extends credit to its customers. Accordingly, the Company may have significant risk in collecting accounts receivable from its customers. The Company has credit policies and procedures which it uses to minimize exposure to credit losses. The Company's collection personnel regularly contact customers with receivable balances outstanding beyond 30 days to expedite collection. If these collection efforts are unsuccessful, the Company may discontinue merchandise shipments until the outstanding balance is paid. Ultimately, the Company may engage an outside collection organization to collect past due accounts. Timely contact with customers has been effective in reducing credit losses. The Company's credit losses were $0.1 million for the first six months of 2005 and 2004, and the Company's actual credit losses as a percentage of net sales were 0.2% and 0.3%, respectively.

The Company has the following contractual obligations and commercial commitments as of June 30, 2005:

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

Revolving line of credit	$	1,315,389	$	1,315,389	$	—	$	—	$	—
Long term debt (1)		8,328,690		5,670,000		2,658,690		—		—
Operating leases		4,591,650		486,013		929,076		905,800		2,270,761
Employment agreements		1,961,500		900,750		1,060,750		—		—
License agreement fee obligations		11,392,526		4,642,526		6,750,000		—		—
License agreement fashion show obligation		825,000		375,000		450,000		—		—
License agreement creative & advertising fee obligations		500,000		215,000		285,000		—		—
Promotional expense license requirement		1,970,000		620,000		1,350,000		—		—
Total contractual cash obligations	$	30,884,755	$	14,224,678	$	13,483,516	$	905,800	$	2,270,761

(1)	Long term debt includes principle of $6.6 million, accrued interest of $1.3 million and interest to be paid in future periods of $0.4 million.

The Company believes that current levels of cash and cash equivalents ($0.7 million at June 30, 2005), together with funds available under its existing or future credit facilities, will be sufficient to meet its capital requirements for the next 12 months.

Backlog and Seasonality

The Company's business is impacted by the general seasonal trends that are characteristic of the apparel and retail industries. In the Company's segment of the apparel industry, sales are generally higher in the first and third quarters. Historically, the Company has taken greater markdowns of its inventory sell-offs in the second and fourth quarters. The Company generally receives orders for its products three to five months prior to the time the products are delivered to stores. The backlog of orders at any given time is affected by a number of factors, including seasonality, weather conditions, scheduling of manufacturing and shipment of products. As the time of the shipment of products may vary from year to year, the results for any particular quarter may not be indicative of the results for the full year. The Company had unfilled orders of $26.1 million at June 30, 2005, a decrease of 30.2% compared to $37.4 million at June 30, 2004. This is largely the function of a reordering of the Company’s priorities. Last year, the objective was more concentrated on selling than effectively communicating a focused brand identity through balanced merchandise assortments. While orders were strong in the prior year period, profitability was negatively impacted at the end of the season. This year, new sales management has instituted appropriate procedures to guard and refine the brand identity as well as improve profitability. The planned exit from underperforming men’s doors combined with an exit from most of the women’s urban department stores, essentially a clean-up versus last year, is reflected in the reduced backlog numbers. The Company remains comfortable with its ability to meet revenue and earnings targets for the remainder of the 2005 fiscal year.

Limited Dependence on One Customer

The Company's customer base is not concentrated in any specific geographic region, but is concentrated in the retail industry. 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. As of June 30, 2005, the Company had one customer who accounted for 15.0% of trade accounts receivable compared to one customer who accounted for 14.6% of trade accounts receivable as of June 30, 2004. For the three months ended June 30, 2005, sales to two customers accounted for 10.1% of net sales each compared to only one customer one customer who accounted for 10.8% of net sales for the three months ended June 30, 2004. For the six months ended June 30, 2005 and 2004, sales to no one customer accounted for more than 10.0% of net sales. 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 does not believe that the loss of either customer would have a material adverse effect on its business or financial condition.

Item 4. Controls and Procedures

The Company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. There has been no change in the Company’s internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 6. Exhibits.

Exhibit No.		Description

31.01		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01		Certification Pursuant to Section 1350 of chapter 63 of Title 18 of the United States Code

SIGNATURES

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

		I.C. Isaacs & Company, Inc

Dated: November 14, 2005	By:	/s/ Peter J. Rizzo
		Peter J. Rizzo Chief Executive Officer


Dated: November 14, 2005	By:	/s/ Eugene C. Wielepski
		Eugene C. Wielepski Chief Financial Officer (Principal Financial Officer)

Index to Exhibits

Exhibit No.		Description
31.01		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01		Certification Pursuant to Section 1350 of chapter 63 of Title 18 of the United States Code

Passport Brands Inactive 10-Q/A2005 Q2 Quarterly report (amended)