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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 Commission File Number 0-15898
February 2, 2002 (Fiscal 2002)

DESIGNS, INC.
(Exact name of registrant as specified in its charter)

Delaware 04-2623104
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of principal executive offices)

66 B Street, Needham, MA 02494
(Address of principal executive offices) (Zip Code)

(781) 444-7222
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value
(Title of each Class)

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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 |_|

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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|

The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant, based on the last sales price of such stock on
April 8, 2002, was approximately $44.4 million.

The registrant had 14,567,886 shares of Common Stock, $0.01 par value,
outstanding as of April 8, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

NONE.
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DESIGNS, INC.
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Index to Annual Report on Form 10-K
Year Ended February 2, 2002

PART I Page

Item 1. Business ................................................. 3

Item 2. Properties ............................................... 11

Item 3. Legal Proceedings ........................................ 12

Item 4. Submission of Matters to a Vote of Security Holders ...... 12

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ...................................... 13

Item 6. Selected Financial Data .................................. 14

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 15

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23

Item 8. Financial Statements and Supplementary Data .............. 24

Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ................... 46

PART III

Item 10. Directors and Executive Officers of the Registrant ....... 47

Item 11. Executive Compensation ................................... 50

Item 12. Security Ownership of Certain Beneficial Owners
and Management ........................................... 60

Item 13. Certain Relationships and Related Transactions ........... 63

PART IV

Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ...................................... 64

PART I.

Item 1. Business

Summary

Designs, Inc. (together with its subsidiaries, the "Company") is a retailer
specializing in selling quality branded apparel and accessories in outlet malls
throughout the eastern part of the United States and Puerto Rico. For over 25
years, through a license agreement with Levi Strauss & Co., the Company has
owned and operated retail outlet stores selling exclusively Levi's(R) branded
merchandise. The Company is expanding upon its core competency of operating
branded retail stores in factory outlet malls for branded manufacturers.

In January 2002, the Company entered into a license agreement with Candie's,
Inc. ("Candie's"), a publicly owned company and a leading designer and marketer
of young women's footwear, apparel and accessories. Under this license
agreement, the Company plans, over the next five years, to open and operate 75
Candies(R) branded retail stores in outlet malls and value centers throughout
the United States. The Company plans to open 11 Candies(R) branded stores in
outlet malls during the fiscal year ending February 1, 2003 ("fiscal 2003").

Subsequent to the fiscal year ended February 2, 2002 ("fiscal 2002"), the
Company announced that it had entered into a joint venture with EcKo Complex,
LLC ("EcKo"), a privately held company and leading design-driven lifestyle brand
targeting young men and women. EcKo has worldwide annual sales exceeding $200
million. Under this joint venture agreement, the Company will exclusively open
and operate 75 EcKo(R) branded outlet stores throughout the United States over a
six-year period. The basic terms of the joint venture agreement, which is the
Company's preferred business structure with branded manufacturers, provides for
sharing the operating profits where the Company will hold a 50.5% interest in
the venture with the remaining 49.5% interest being held by EcKo. The agreement
requires EcKo to contribute the inventory requirements for the retail stores and
provide the branded trademarks and branded knowledge, and requires the Company
to contribute its retail operational expertise and operating expenses for the
retail stores. The Company plans to open 5 EcKo(R) branded outlet stores during
fiscal 2003.

The Company is continuing discussions with several other manufacturers as it
strives to become a premier operator of branded retail outlet stores. The
Company believes that manufacturers will find the Company as their logical
solution for an outlet channel of distribution for their branded merchandise.

Store Expansion

The Company's plan for fiscal 2003 is to open a total of 15 to 20 new outlet
stores, 16 of which are scheduled to open in time for the important
back-to-school selling season. The Company expects to open eleven new
Candie's(R) junior footwear and apparel outlet stores by mid-year. Four of these
stores will be built utilizing space from the Company's existing
Levi's(R)/Dockers(R) stores which are located in outlet centers in New York, New
England and Puerto Rico. Several of the Company's existing higher volume
Levi's(R)/Dockers(R) outlet stores currently average 13,000 to 15,000 square
feet which is more than the Company's ideal prototype store size of 9,000 square
feet. By utilizing this excess space for the new Candie's(R) outlet stores, the
Company can leverage expenses while increasing profitability. The remaining
seven Candie's(R) outlet stores to be open will include five in California, one
in Las Vegas, Nevada and one in Miami, Florida.

The Company plans to open its first EcKo(R) outlet stores by the back-to-school
season, of which two stores will be built utilizing space in existing
Levi's(R)/Dockers(R) stores. Other new store locations may be planned for other
branded manufacturers with which the Company is having discussions regarding
potential joint venture arrangements, similar to the arrangement with EcKo.

The Company continually evaluates the performance of its stores and may, from
time to time, decide to close or reduce the size of or remodel certain store
locations.

History

The Company, which started in 1977 and subsequently went public in 1987,
operated exclusively Levi Strauss & Co. branded outlet and full retail priced
mall-based stores until fiscal 1996. In fiscal 1996, the Company embarked on a
private label diversification strategy, acquiring the Boston Traders(R) brand
and 33 existing Boston Traders(R) outlet stores. By fiscal 1997 the Company had
abandoned its private label strategy and had begun to liquidate its private
label merchandise and the Boston Traders(R) stores. The Company incurred
approximately $85 million in operating losses during the fiscal years 1998, 1999
and 2000 as a result of this failed private label diversification strategy.

In October 1999, the stockholders of the Company elected a new board of
directors and then in April 2000 appointed a new Chairman of the Board in
addition to a new Chief Executive Officer and President of the Company. The
following September 2000 a new Chief Financial Officer was also hired. Under new
management, the Company significantly reduced its selling, general and
administrative expenses, reduced its inventory shrink rates from almost 4% to
just over 2%, invested substantial amounts of capital in its inventory
management systems, remodeled the Company's most profitable stores and renewed
the Company's strategy of marketing and selling branded merchandise in the
outlet mall arena, thereby expanding its retail presence. The Company has had
significant improvement in EBITDA (earnings before interest, taxes, depreciation
and amortization) since this management change.

Store Formats

In fiscal 2002, the Company owned stores operating under the names, "Levi's(R)
Outlet by Designs," "Dockers(R) Outlet by Designs," "Levi's(R)/Dockers(R) Outlet
by Designs." In January 2002, in conjunction with the Company entering into a
license agreement with Candie's, the Company also acquired an existing
Candie's(R) Outlet store located in Wrentham, Massachusetts.

During fiscal 2002, the Company continued to update its existing chain of stores
to its updated store proto-type, the Levi's(R)/Dockers(R) Outlet by Designs
store. The Company's preferred proto-type, which is generally 9,000 square feet,
is a combined Dockers(R) Outlet store and Levi's(R) Outlet store that separately
displays each brand in its own unique environment. This differs from the
Company's older Levi's(R) Outlet store format, which averages 10,000 to 12,000
square feet and has no prominent marketing of the individual Levi's(R),
Dockers(R) and Slates(R) brands. By updating the store fixtures and enhancing
visual merchandising, the strong identity of each brand is maximized for the
customer. The total average square footage of the chain has decreased to
approximately 9,800 as the Company continues to open new stores and remodel its
existing stores to the smaller, more profitable proto-type.

At February 2, 2002, the Company operated 102 stores of which 48 are in the
combined Levi's(R)/Dockers(R) Outlet by Designs format. The Company also
operated 11 Dockers(R) Outlet stores, which sell exclusively Dockers(R) and
Slates(R) brand products, and 13 Levi's(R) Outlet stores, which sell exclusively
Levi's(R) brand products. At year end, the Company also owned one Candie's(R)
Outlet store. The remaining 29 stores are the older Levi's(R) Outlet stores that
carry a combination of Levi's(R), Dockers(R) and Slates(R) apparel. The Company
plans to continue to update its store base, where feasible, by remodeling its
remaining older stores to the combined format, relocating or closing stores and
combining the individual Dockers(R) and Levi's(R) outlet stores. Several of the
Company's smaller Dockers(R) and Levi's(R) only stores are located in the same
outlet center and are adjacent to each other. Through fiscal 2002, the Company
had combined six pairs of its standalone Dockers(R) and Levi's(R) outlet stores
that were located in the same mall into combined Levi's(R)/Dockers(R) Outlet
stores.

Customer Base

The Company's Levi's(R) and Dockers(R) Outlet stores continue to attract the
loyal Levi's(R), Dockers(R) and Slates(R) brand customers as well as foreign
travelers looking for these well-known brands. The product selection offered in
these stores is designed to satisfy the casual apparel needs of customers in all
groups and income brackets.

The Candie's(R) brand, consisting of fashion and casual footwear, is designed
primarily to attract women and girls aged 6 to 35. The brand is synonymous with
young, fun and fashionable footwear marketed by innovative advertising and
celebrity spokespersons. The Company believes that Candie's has developed its
merchandise into a strong footwear brand appealing to women and girls in this
generation "Y" demographic.

The Company believes that its EcKo(R) Unltd. outlet stores will represent an
opportunity in the outlet marketplace for the underdeveloped young men's and
junior market. EcKo(R) is considered one of the few truly cross-over youth
brands appealing to both the urban and suburban youth with a core customer
between the ages of 14 to 24 years of age.

Merchandising

The merchandising department is composed of buyers, merchandise buyers and
merchandise allocators, all playing a key role in deciding the appropriate
merchandise assortments to purchase in the stores, the appropriate timing and
quantities for the stores, with adequate replenishment quantities for the stores
in the warehouse, and in determining the appropriate quantities for each store
after considering regional, demographic data, and historical patterns of each
and every store. The Company has separate merchants for each of the brands that
the Company sells. The Company believes that this is important as each brand has
different merchandise characteristics and requires separate merchandise plans,
distribution and allocation methodologies to maximize the respective brand's
performance in the stores.

Levi's(R)/Dockers(R)/Slates(R) brands

The Company offers an exclusive selection of Levi Strauss & Co. brands of
merchandise which include Levi's(R), Dockers(R) and Slates(R) brands. The Levi
Strauss & Co. brands target customers in all age groups and income levels. The
Levi's(R) brand includes various men's, women's and kids' jeanswear products as
well as an assortment of woven and knit tops and accessories. The Dockers(R)
brand includes a broad range of casual pants and are complemented by a variety
of tops and seasonal pant products in a range of fits, fabrics, colors and
styles. The Dockers(R) brand is primarily targeted towards the casual workplace
attire customer. The Slates(R) brand collection of pants, shirts, sweaters and
outerwear combines contemporary styles with modern fabrics and colors. The
Slates(R) brand for both men and women targets the 25- to 34-year old consumers'
desire for a younger and more sophisticated casual look.

The Company's merchandise sales performance of its Levi's(R)/Dockers(R)stores is
dependent upon the acceptance and growth of the Levi Strauss & Co. brands of
merchandise. Since 1996, Levi Strauss & Co. sales have declined 35% from
approximately $7.1 billion to $4.3 billion for that company's fiscal year ended
November 25, 2001. The Levi Strauss & Co. brands have significant competition
across all brands. Private labels which include VF Corporation, marketer of the
Lee, Wrangler, and Rustler brands; fashion labels including names such as Polo
Ralph Lauren Corporation, Calvin Klein, Nautica Enterprises, Guess?, Inc. and
Tommy Hilfiger Corp.; vertically integrated specialty stores such as Gap, Inc.,
Abercrombie & Fitch, American Eagle Outfitters, Inc., J. Crew and Eddie Bauer,
Inc.; lower-volume but high visibility fashion-forward jeanswear brands that
appeal to the teenage market, including FUBU, JNCO, Lucky, MUDD and Diesel
brands; casual wear manufacturers, including Haggar Corp., Liz Claiborne, Inc.,
and Savane International Corp.; retailer private labels including J.C. Penney's
Arizona brand and Sears' Canyon River Blues and Canyon River Khakis brands; and
mass merchandisers, including Wal-Mart Stores, Inc., Target and Kmart. Levi
Strauss & Co. has placed great emphasis on its business turnaround strategy
through supply chain improvements, product improvements, product innovation, new
marketing campaigns and improved retail presentation.

Through the Company's license agreement with Levi Strauss & Co., merchandise
product is made available to the Company throughout the year. The Company has
worked closely with Levi Strauss & Co. to make wider assortments of its brand
offerings regularly available to the Company. The Company has historically
purchased manufacturing overruns, discontinued lines and irregulars from Levi
Strauss & Co. at wholesale cost which has historically been much less than the
wholesale cost of other merchandise purchases from Levi Strauss & Co. The
Company's gross margins have been influenced in part by the varying availability
of this lower wholesale cost merchandise from Levi Strauss & Co.

Candies(R) brand

Candie's(R) footwear features a variety of styles. The retail price of
Candie's(R) footwear generally ranges from $30 - $80 for women's styles and $35
- - $50 for girls' styles. Four major and two interim times per year, as part of
its Spring and Fall collections, 30 to 50 different styles are designed and
marketed. Approximately one-third of Candie's(R) women's styles are "updates" of
the their most popular styles from prior periods, which they consider their
"core" products. Approximately three-quarters of the girls' styles are versions
of the best selling women's styles and the remaining one-quarter are designed
specifically for the girls' line.

Designers from Candie's analyze and interpret fashion trends and translate such
trends into shoe styles consistent with the Candie's(R) image and price points.
Fashion trend information is compiled by the Candie's design team through
various methods, including travel to Europe and throughout the world to identify
and confirm seasonal trends and shop relevant markets, utilization of outside
fashion forecasting services and attendance at trade shows. Each season,
subsequent to the final determination of that season's line by the design team
and management (including colors, trim, fabrics, constructions and decorations),
members of the Candie's design team will travel to their various manufacturers
to oversee the production of the initial sample lines.

EcKo(R) brand

The Company's EcKo(R) Unltd. outlet stores will be geared towards the youth
market offering men and women a broad selection of merchandise that identifies
with everything from hip-hop to extreme sports, and street-wear to fraternity
wear. EcKo's core menswear line consists of fleece, twill and denim bottoms,
wovens, printed tee shirts, shirts, knits and sweaters.

Distribution

The Company operates two distribution centers, both located in Orlando, Florida,
which it uses to regulate the flow of merchandise to its stores. The Company's
distribution strategy is (1) to maintain warehouse facilities that regulate the
flow of merchandise to the stores in order to facilitate improved store-level
inventory management, and (2) to flow through (cross-dock) the higher volume
product in order to maintain optimum inventory levels in the stores and maximize
sales.

Prior to the Company opening its own distribution centers in fiscal 2001, much
of the Company's merchandise was shipped directly to the stores, which resulted
in an unbalance of merchandise throughout the chain.

In fiscal 2002, the Company partnered with United Parcel Services ("UPS") to
improve upon its distribution methods and reduce shipping costs as a result of
not having to use third party trucking companies. By utilizing UPS, the Company
is able to track all deliveries from the warehouse to its individual stores and
gives the Company the added visibility to the status of in-transit shipments.

Levi Strauss & Co. Trademark License Agreement

The Company operates under a trademark license agreement with Levi Strauss &
Co., which was most recently amended in October 1998 (as amended, the "Levi
Outlet License Agreement"). This Levi Outlet License Agreement authorizes the
Company to use certain Levi Strauss & Co. trademarks in connection with the
operation of the Company's Levi's(R) Outlet by Designs and Dockers(R) Outlet by
Designs stores in 25 states in the eastern portion of the United States and in
Puerto Rico. Subject to certain default provisions, the term of the Levi Outlet
License Agreement was extended to September 30, 2004, and the license for any
particular store is the period co-terminous with the lease term for such store
(including extension options). The Levi Outlet License Agreement provides that
the Company has the opportunity to extend the term of the license associated
with one or more of the Company's older Levi's(R) Outlet by Designs stores by
either renovating the store or replacing the store with a new store that has
updated format and fixturing. In order to extend the license associated with
each of the Company's then 59 older outlet stores, the Company must, subject to
certain grace periods, complete these renovations or the construction of
replacement stores by December 31, 2004. Through the end of fiscal 2002, the
Company had completed remodels and or relocations on 30 of the 59 older outlet
stores. As leases expire, the Company may lose the right to use the Levi's(R)
trademark in connection with certain Levi's(R) Outlet by Designs stores and
Dockers(R) Outlet by Designs stores. At February 2, 2002, the average remaining
lease term (including extension options) of the Company's Levi's(R) Outlet by
Designs and Dockers(R) Outlet by Designs stores was approximately 8.3 years.

Candie's Trademark License Agreement

In January 2002, the Company entered into a similar trademark license agreement
with Candie's, Inc., which authorizes the Company to use certain Candie's(R)
trademarks in connection with the operation of the Company's Candie's(R) Outlet
stores. The Candie's license agreement provides the Company with the exclusive
right to open and operate Candie's(R) branded stores in outlet malls and value
centers throughout the United States and Puerto Rico as long as the Company
opens the requisite number of outlet stores per year, and reaches 75 outlet
stores in five years. Generally, to maintain the exclusivity in the value
centers, the Company must open approximately five stores per year. If the
Company does not maintain the store opening schedule required in the license
agreement, the Company may lose the right to operate the existing stores within
an exclusive radius until the expiration of the term. The license agreement also
establishes that product purchased from Candie's will be priced according to a
cost-plus formula. Among other terms of the license agreement, the Company could
source its own Candie's(R) merchandise product for the retail stores if Candie's
or its licensees cannot supply the appropriate merchandise assortments or
quantities, as deemed by the Company.

Joint Venture Agreement with EcKo Complex, LLC

Subsequent to fiscal 2002, the Company entered into a joint venture agreement in
principle with EcKo Complex, LLC under which the Company, a 50.5% partner, would
own and manage retail outlet stores bearing the name EcKo Unltd. and featuring
EcKo(R) branded merchandise. EcKo, a 49.5% partner, will contribute to the joint
venture the use of its trademark and the merchandise requirements, at cost, by
the retail outlet stores. The Company will contribute all real estate and
operating requirements of the retail outlet stores, including but not limited
to, the real estate leases, payroll needs and advertising. Each partner will
share in the operating profits of the joint venture, after each partner has
received reimbursement for its cost contributions. Under the terms of the
agreement, the Company must maintain a prescribed store opening schedule and
open 75 stores over a six-year period in order to maintain the joint venture's
exclusivity. At certain times during the term of the agreement, the Company may
exercise a put option to sell its share of the retail joint venture, and EcKo
has an option to acquire the Company's share of the retail joint venture at a
price based on the performance of the retail outlet stores.

Trademarks

"Dockers(R)," "Levi's(R)" and "Slates(R)" are registered trademarks of Levi
Strauss & Co. "Candie's(R)" is a registered trademark of Candie's, Inc.
"EcKo(R)" is a registered trademark of EcKo Complex, LLC.

Store Operations

The Company currently employs one Senior Vice President of Operations and one
Director of Stores. In order to provide management development and guidance to
individual store managers, the Company employs 13 district managers. Each
district manager is responsible for hiring and developing store managers at the
stores assigned to that district manager's area and for the sales and overall
profitability of those stores. District managers report directly to the Director
of Stores.

The Company's stores utilize interior design and merchandise layout plans
designed by the Company's visual merchandising team which are specifically
designed to promote customer identification as a specialty outlet store selling
quality branded apparel and accessories. The merchandise layout is further
customized by store management and the Company's visual merchandising department
to suit each particular store location. The stores prominently display
Levi's(R), Dockers(R), Slates(R) and Candie's(R) brand logos and utilize
distinctive promotional displays. The Company uses Levi Strauss & Co. logos and
trademarks on store signs with the permission of Levi Strauss & Co. and
similarly uses Candie's Inc. logos and trademarks on store signs in its
Candie's(R) Outlet stores.

In fiscal 2001, in conjunction with the Company's initiatives to improve shrink
and inventory management, the Company out-sourced its loss prevention department
to LP Innovations, Inc., a leader in loss prevention management. By utilizing
exception-based reporting software in addition to implementing stronger and more
effective loss prevention controls, the Company has been able to reduce shrink
from 4% to 2% over an approximate two year period.

Customer Service & Training

"Designs University" was established in fiscal 1996 to offer associate training
and development programs throughout the organization. Sales associate
expectations are established at all levels of training, beginning with the Sales
Associate Development Program. This program introduces the associate to the
Company's operational policies, product information and customer service
objectives. Through this program, associates are taught that servicing the
customer is the highest priority. Management believes that sales associates are
trained towards accomplishing the goal of reinforcing the customer's perception
of the Company's stores as branded specialty stores and of differentiating its
stores from those of the Company's competitors.

All members of store management participate in the Store Management Development
Program. Associates learn how to perform critical management functions required
to successfully operate a store. The Store Management Development Program
focuses on fundamental operational procedures, expense control and personnel
management.

Each Levi's(R) Outlet by Designs and Dockers(R) Outlet by Designs store employs
approximately 17 associates. The Company expects that each of the new
Candie's(R) Outlet stores and EcKo(R) Unltd. Outlet stores will employ
approximately 10 associates. Store staffing typically includes a store manager,
one or more assistant managers and shift supervisors, and a team of full-time
and part-time sales associates. Store manager candidates or assistant manager
candidates may also be included on the team in specific stores. The store
management team is responsible for all operational matters in the store,
including the hiring and training of sales associates.

During fiscal 2003, the Company is standardizing its store managerial functions
and staffing requirements among stores, depending upon store size and sales
volumes. The Company has established sales productivity goals among stores as
well as scheduling sales staff based on the hourly sales volume at each store.
As a result, the Company expects to see improvements in fiscal 2003 in its store
labor productivity.

Management Information Systems

The Company's management information systems, located at both its corporate
headquarters in Needham, Massachusetts and all of its retail stores, consist of
a full range of retail merchandising and financial systems which include
merchandise planning and reporting, distribution center processing, inventory
allocation, in-store systems, sales reporting, and financial processing and
reporting. The Company's primary business applications, JDA Merchandising
Management Systems and Lawson Financial Systems, operate on an IBM AS/400
platform.

All of the Company's stores have point-of-sale terminals supplied by IBM and
supported by point-of-sale business application provided by CRS, that captures
daily transaction information by item, color and size (SKU). The Company
utilizes barcode technology in tracking sales, inventory and pricing
information. Communication between the corporate office and all stores is
facilitated on a daily basis through the use of an electronic mail system. The
JDA Merchandising Management System is updated daily with all store transactions
and provide daily sales, inventory, pricing and merchandise information and
management reports in assisting the Company operate its retail business. Its
merchandising system applications also facilitate the placement of purchase
orders and their tracking, primarily through electronic data interchange (EDI).
The Company evaluates this information, together with weekly reports on
merchandise statistics, prior to making merchandising decisions regarding
reorders of fast-selling items and the allocation of merchandise.

In fiscal 2001, the Company purchased JDA Arthur, a planning and allocation
system that should further enhance the Company's inventory management and
visibility. The added inventory management applications were installed and
implemented during fiscal 2002. In addition, the Company will be enhancing its
warehouse management systems either through the further development of its
existing system with JDA, or through the purchase of a warehouse management
application from a third-party provider. These added applications should greatly
enhance the Company's inventory management capabilities.

The Company utilizes a client-server based network with mixed NT and Novell
environment running on a local area network to communicate and work-share within
its corporate headquarters. The Company also utilizes the services of ADP, an
outside payroll processing provider, to prepare, distribute and report its
weekly payroll.

Advertising

The Company relies on the visibility and recognition of the Levi's(R),
Dockers(R) and Slates(R) and most recently the Candie's(R) brand names, as well
as the natural flow of traffic that results from locating stores in areas of
high retail activity including destination outlet centers and regional malls.
The Levi Outlet License Agreement with Levi Strauss & Co. limits the Company's
advertising ability to billboards and specific outlet center promotions.

The Company has a complete visual merchandising program that, through the use of
in-store signage, focuses on product knowledge and marketing of the individual
Levi's(R), Dockers(R), Slates(R) and Candie's(R) brands and communicates its
value to the customers. During fiscal 2002, the Company updated its visual
marketing programs by redesigning its communication and education in-store
signage for better guidance of the customers through the shopping experience.
Also during fiscal 2002, the Company introduced a gift card program to its
customers in which gift certificates issued in the form of credit cards are sold
to customers for redemption at a later date. Balances and transaction
information are stored electronically and communicated to the customers on their
purchase receipts.

In fiscal 2003, the Company intends to introduce a customer loyalty program
under a similar concept, whereby frequent customers will be rewarded for their
loyalty to Designs operated stores.

Competition

The United States casual apparel market is highly competitive with many national
and regional department stores, specialty apparel retailers and discount stores
offering a broad range of apparel products similar to those sold by the Company.
The Company considers any casual apparel manufacturer operating in outlet parks
throughout the United States to be a competitor in the casual apparel market.

The Company's business involves the sale of branded apparel and accessories sold
by or manufactured under license from Levi Strauss & Co. Levi Strauss & Co. is
involved in the highly competitive fashion apparel industry. Levi's(R) brand
jeans have been impacted by the increased competition from private labels as
well as fashion jeans market entrants and by a decrease in national sales trends
of Levi's(R) brand products.

Management believes that the Company competes with other apparel retailers by
offering superior selection, quality merchandise, knowledgeable in-store service
and competitive price points. The Company stresses product training with its
sales staff and, with the assistance of merchandise materials from its
manufacturers, it can provide its sales personnel with substantial product
knowledge training across all product lines.

As it relates to the Company's future Candie's(R) Outlet stores, the footwear
industry is extremely competitive in the United States and has substantial
competition in each of its product lines from, among other brands, Skechers,
Steve Madden and Esprit. In general, competitive factors include quality, price,
style, name recognition and service. The presence in the marketplace of various
fashion trends and the limited availability of shelf space also can affect
competition.

Employees

As of February 2, 2002, the Company employed approximately 1,500 associates, of
whom 950 were full-time personnel. The Company hires additional temporary
employees during the peak Fall and Holiday seasons.

All qualified full-time employees are entitled, when eligible, to life, medical,
disability and dental insurance and to participate in the Company's 401(k)
retirement savings plan. Store managers, district managers, and corporate office
employees are eligible to receive incentive compensation subject to the
achievement of specific performance objectives related to sales, profitability
and expense control. District managers and certain corporate office employees
are also entitled to use an automobile provided by the Company or to receive an
automobile allowance. Sales personnel are compensated on an hourly basis and,
generally, receive no commissions, but from time to time are eligible to earn
sales incentive payments from individual store sales contests. District
managers, store managers and certain corporate office employees have been
granted stock options to purchase shares of the Company's common stock, par
value $0.01 per share ("Common Stock"). None of the Company's employees are
represented by any collective bargaining agreement.

Item 2. Properties

As of February 2, 2002, the Company operated 102 stores operating under the
names Levi's(R)/Dockers(R) Outlet by Designs, Levi's(R) Outlet by Designs,
Dockers(R) Outlets by Designs and its first Candie's(R) Outlet store. All of
these stores are leased by the Company directly from outlet center owners. In
the past two years, the Company has decreased the average square footage of the
chain to approximately 9,800 as a result of opening new smaller size stores and
remodeling some of its existing stores to a smaller, more profitable prototype.
The store leases are generally five years in length and contain renewal options
extending their terms to between 10 and 15 years. Most of the Company's outlet
store leases provide for annual rent based on a percentage of store sales,
subject to guaranteed minimum amounts.

Sites for store expansion are selected on the basis of several factors intended
to maximize the exposure of each store to the Company's target customers. These
factors include the demographic profile of the area in which the site is
located, the types of stores and other retailers in the area, the location of
the store within the center and the attractiveness of the store layout. The
Company also utilizes financial models to project the profitability of each
location using assumptions such as the center's sales per square foot averages,
estimated occupancy costs and return on investment requirements. The Company
believes that its selection of locations enables the Company's stores to attract
customers from the general shopping traffic and to generate its own customers
from surrounding areas.

The lease for the Company's headquarters office, at 66 B Street, Needham
Massachusetts, which began in November 1995, is for a period of ten years. The
lease provides for the Company to pay all occupancy costs associated with the
land and the 80,000 square foot building. Beginning in fiscal 1998, the Company
began subleasing excess office space as a result of its downsizing. As of
February 2, 2002, the Company had two subtenants that collectively lease
approximately 29,800 of the 80,000 square feet. These leases are for five-year
terms, expiring in March and July 2003.

On November 13, 2000, the Company announced that it had entered into an option
agreement with the landlord of its corporate headquarters. The agreement
provided the landlord with the option, if exercised within 15 months from
November 2000, which was the date of the agreement, to terminate the Company's
lease for its corporate headquarters, which currently will expire on January 31,
2006. If such option, which terminated on February 1, 2002, had been exercised
by the landlord, then the Company would have been entitled to receive $8.9
million for vacating the leased property.

In fiscal 2001, the Company opened its own 60,000 square foot distribution
center located in Orlando, Florida. The Company has leased the property for five
years through August 14, 2005 at which time the Company has the option to extend
its lease for an additional five years. The lease also contains certain exit
rights, which would allow the Company to terminate the lease on August 14, 2002
with six months prior notice. In fiscal 2002, the Company entered into another
lease agreement to lease an additional 16,000 square feet of warehouse space in
Orlando, Florida. The lease for the additional space expires March 31, 2005 and
also contains certain exit rights, which would allow the Company to terminate
the lease on March 31, 2003 with three months prior notice. In fiscal 2002, the
Company also ended its usage of a 30,000 square foot third-party distribution
center in Mansfield, Massachusetts, which it had used to distribute merchandise
until September 2001.

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Capital Expenditures."

Item 3. Legal Proceedings

The Company is a party to litigation and claims arising in the course of its
business. Management does not expect the results of these actions to have a
material adverse effect on the Company's business or financial condition.

In May 1995, the Company purchased from Boston Trading Ltd., Inc. certain assets
including various trademarks and license agreements. The terms of the Asset
Purchase Agreement, which was dated April 25, 1995 (the "Purchase Agreement"),
included the Company delivering a $1 million promissory note ("Purchase Note")
for the balance of the purchase price. The principal amount of the Purchase Note
was stated to be payable in two equal annual installments through May 1997. In
the first quarter of fiscal 1997, the Company asserted certain indemnification
rights under the Purchase Agreement. In accordance with the terms of the
Purchase Agreement, the Company, when exercising its indemnification rights, had
the right, among other courses of action, to offset against the payment of
principal and interest due and payable under the Purchase Note. Accordingly, the
Company did not make the two $500,000 principal payments on the Purchase Note
that were due on May 2, 1996 and May 2, 1997. The Company paid all interest on
the original principal amount through May 2, 1996 and continued to pay interest
thereafter through January 31, 1998 on $500,000 of principal. In January 1998,
Atlantic Harbor, Inc. filed a lawsuit against the Company for failing to pay the
outstanding principal amount of the Purchase Note, which was issued to Boston
Trading Ltd., Inc. (d/b/a Atlantic Harbor, Inc.). In March 1998, the Company
filed a counterclaim against Atlantic Harbor, Inc. alleging that the Company
suffered damages in excess of $1 million because of the breach of certain
representations and warranties made by Atlantic Harbor, Inc. and its
stockholders concerning the existence and condition of certain foreign trademark
registrations and license agreements.

In the first quarter of fiscal 2002, the Company entered into a settlement
agreement with Atlantic Harbor, Inc. whereby the Company agreed to pay $450,000
to Atlantic Harbor, Inc. as settlement for all obligations outstanding under the
Purchase Note. In exchange, the Company agreed to transfer and assign all
trademarks and license agreements acquired as part of the Purchase Agreement to
a new entity in which the Company would have a 15% equity interest, with
Atlantic Harbor, Inc. and its affiliates retaining the remaining interest. The
Company would also be entitled to receive up to an additional $150,000 from
existing license royalties over the next four years. In the fourth quarter of
fiscal 2001, the Company recorded a gain related to the settlement of this
matter in the amount of $550,000, which was included in "Provision for
impairment of assets, store closings and severance" on the Consolidated
Statements of Operations.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II.

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol "DESI."

The following table sets forth, for the periods indicated, the high and low per
share closing sales prices for the Common Stock, as reported on the Nasdaq
consolidated reporting system.

Fiscal Year Ended
February 2, 2002 High Low
- -------------------------------------------------------------------
First Quarter $ 3.0000 $ 1.8750
Second Quarter 5.6000 2.7500
Third Quarter 4.6300 2.0200
Fourth Quarter 4.1900 2.3000

Fiscal Year Ended
February 3, 2001 High Low
- -------------------------------------------------------------------
First Quarter $ 1.5000 $ 1.0938
Second Quarter 2.1250 1.1875
Third Quarter 2.5625 1.9375
Fourth Quarter 2.4688 2.0000

As of April 8, 2002, based upon data provided by independent shareholder
communication services and the transfer agent for the Common Stock, there were
approximately 285 holders of record of Common Stock.

The Company has not paid and does not anticipate paying cash dividends on its
common stock. For a description of financial covenants in the Company's loan
agreement that may restrict dividend payments, see Note C of Notes to
Consolidated Financial Statements.

Item 6. Selected Financial Data

Fiscal Years Ended (1)

February 2, February 3, January 29, January 30, January 31,
2002 2001 2000 1999 1998
(Fiscal 2002) (Fiscal 2001) (Fiscal 2000) (Fiscal 1999) (Fiscal 1998)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

INCOME STATEMENT DATA:
Sales $ 195,119 $194,530 $ 192,192 $ 201,634 $ 265,726
Gross profit, net of occupancy costs 47,221 54,985 47,440(4) 42,249(5) 38,358(6)
Provision for impairment of assets, store
closing and severance -- 107 14,535(4) 15,729(5) 21,600(6)
EBITDA(2) 7,478 12,671 (2,569) (20,659) (34,945)

Pre-tax income(loss) 175 5,488 (10,278)(4) (29,269)(5) (46,562)(6)
Net income(loss) (7,881)(3) 3,216 (12,493) (18,541) (29,063)

Earnings(loss) per share- basic $ (0.54) $ 0.20 $ (0.78) $ (1.17) $ (1.86)
Earnings(loss) per share- diluted $ (0.54) $ 0.20 $ (0.78) $ (1.17) $ (1.86)
- ------------------------------------------------------------------------------------------------------------------------------------

Weighted average shares outstanding
For earnings per share- basic 14,486 16,015 16,088 15,810 15,649

Weighted average shares outstanding
For earnings per share -diluted 14,486 16,292 16,088 15,810 15,649
- ------------------------------------------------------------------------------------------------------------------------------------

BALANCE SHEET DATA:
Working capital $ 13,277 $ 16,306 $ 19,624 $ 24,078 $ 42,104
Inventories 57,734 57,675 57,022 57,925 54,972
Property and equipment, net 20,912 18,577 16,737 17,788 35,307
Total assets 90,901 95,070 95,077 99,317 116,399
Shareholders' equity 42,414 49,825 52,269 63,956 82,380

OPERATING DATA:
Net sales per square foot $ 195 $ 192 $ 190 $ 187 $ 220
Number of stores open at fiscal year end 102 102 103 113 125

(1) The Company's fiscal year is a 52 or 53 week period ending on the Saturday
closest to January 31. The fiscal year ended February 3, 2001 included 53
weeks.

(2) The Company defines EBITDA as Net Income before Taxes, Interest expense
net and Depreciation and amortization.

(3) In the fourth quarter of fiscal 2002, the Company recorded a special
non-cash charge of $8.0 million to reduce the carrying value of certain
deferred tax assets. Due to the general weakness of the economy during
fiscal 2002, which resulted in reduced earnings from fiscal 2001, the full
realizability of certain tax assets can not be assured, accordingly the
Company established additional reserves against those assets. As the
Company's profitability improves, either from improved performance in its
Levi's(R)/Dockers(R) stores, or from its roll-out of the Candies(R),
EcKo(R), and other brands, the Company may have the ability to reinstate
the full value of its deferred tax assets. Conversely, the amount of the
deferred tax assets considered realizable could be reduced in the near
term if projections of future taxable income during the carryforward
period are reduced or if actual results are less than projections..

(4) Pre-tax loss for fiscal 2000 includes the $15.2 million charge taken in
the fourth quarter related to inventory markdowns, the abandonment of the
Company's Boston Traders(R) trademark, severance, and the closure of the
Company's five remaining Designs/BTC(TM) stores and its five Buffalo(R)
Jeans Factory stores. Of the $15.2 million charge, $7.8 million, or 4.1%
of sales, is reflected in gross margin. The pre-tax loss for fiscal 2000
also includes $717,000 of non-recurring income related to excess reserves
from the fiscal 1999 restructuring program.

(5) Pre-tax loss for fiscal 1999 includes the $13.4 million charge taken in
the third quarter related to closing 30 unprofitable stores. Also included
in the pre-tax loss for fiscal 1999 is the $5.2 million charge related to
the closing of one Designs store, three BTC(TM) stores and four Boston
Traders(R) outlet stores, all eight of which were closed in fiscal 2000.
Of the $5.2 million charge, $800,000, or 0.4% of sales, is reflected in
gross margin. In addition, the Company recognized $2.9 million in
restructuring income in the fourth quarter which was the result of
favorable lease negotiations associated with the original estimated $13.4
million charge.

(6) Pre-tax loss for fiscal 1998 includes the $20 million charge taken in the
second quarter related to the Company's strategy shift and the fourth
quarter charge of $1.6 million for the Company's reduction in work force.
Of the $20 million charge, $13.9 million, or 5.2% of sales, is reflected
in gross margin.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following table provides a five-year history of the total sales results of
the Company, together with a summary of the number of stores in operation and
the change in the Company's comparable store sales. "Changes in comparable store
sales" measures the percentage change in sales in comparable stores, which are
those stores open for at least one full fiscal year.

FISCAL YEARS ENDED (1)
---------------------------------------------------------------------------------
Feb. 2, Feb. 3, Jan. 29, Jan. 30, Jan. 31,
2002 2001 2000 1999 1998
(Fiscal 2002) (Fiscal 2001) (Fiscal 2000) (Fiscal 1999) (Fiscal 1998)
- ---------------------------------------------------------------------------------------------------------------------------------

Total Sales (In Thousands) $ 195,119 $ 194,530 $192,192 $ 201,634 $ 265,726
Number of stores in operation at end of the
fiscal year:
Store Type
Levi's(R) Outlet and Dockers(R)Outlet by
Designs 101 102 103 95 59
Candies(R) Outlet 1
Store Concepts closed:
Designs and BTC(TM)(2) -- -- -- 9 22
Buffalo Jeans(R) Factory Outlets(2) -- -- -- 5 --
Boston Trading Co.(R)(2) -- -- -- -- 11
Boston Traders(R) outlets(2) -- -- -- 4 12
Joint Venture:
Original Levi's Stores(TM)(2) -- -- -- -- 11
Levi's(R) Outlet stores (2) -- -- -- -- 11
- ---------------------------------------------------------------------------------------------------------------------------------
Total stores 102 102 103 113 126
Comparable stores 96 92 87 80 112

Changes in total sales 0% 1% (5%) (24%) (8%)
Changes in comparable store sales (4%) (4%) (1%) (18%) (10%)

(1) The Company's fiscal year is a 52 or 53 week period ending on the Saturday
closest to January 31. The fiscal year ended February 3, 2001 covered 53
weeks. Comparable store sales for fiscal 2001 were based upon 52-week
comparisons.

(2) As part of store closing programs in fiscal 1998, 1999 and 2000, the
Company closed all of its non-profitable store concepts.

RESULTS OF OPERATIONS

SALES

Sales for fiscal 2002 were $195.1 million for the 52-week period compared with
sales of $194.5 million for the 53-week period of fiscal 2001. On a comparable
basis, total sales of $195.1 million for fiscal 2002 increased 1.5% when
compared to $192.2 million for the corresponding 52-week period in fiscal 2001.
There were 53 weeks in fiscal 2001 and 52 weeks in fiscal 2002 and 2000.
Comparable store sales for fiscal 2002 decreased 3.9 %.

Fiscal 2002 was a difficult year for the retail industry due to the general
economic conditions and the tragic events of September 11, 2001. In an effort to
manage inventory levels and improve its sales trends, the Company significantly
increased its levels of promotional activities during the second half of fiscal
2002. The impact of this aggressive promotional posture, although negative to
the Company's gross margin, significantly benefited its sales trends in the
second half of fiscal 2002.

Sales for fiscal 2001 were $194.5 million, an increase of 1.2% when compared
with fiscal 2000 sales of $192.2 million. The increase in sales in fiscal 2001,
as compared to fiscal 2000, was due to an additional week of sales of
approximately $2 million and sales from new and remodeled stores offset slightly
by a comparable store sale decrease of 3.8% from the prior year. The comparable
store sales decrease in fiscal 2001 of 4% was due primarily to lower sales in
men's Levi's(R) brand jeans and tops resulting from limited availability and
reduced demand for Levi's(R) brand products. This sales decrease was partially
offset by increased sales of women's Levi's(R) brand jeans and men's and women's
Dockers(R) brand apparel.

GROSS MARGIN

Gross margin, which includes occupancy costs, was 24.2% for fiscal 2002 as
compared with 28.3% in fiscal 2001. The 4.1 percentage point decrease in margin
was primarily the result of the Company's aggressive promotional activity, which
resulted in a significantly higher markdown rate as compared to the prior year.
The gross margin rate for fiscal 2002 was also negatively impacted by a decrease
in initial margins related to increased costs of certain product lines. The
Company was able to partially offset these decreases through its improvements in
inventory shrink.

The gross margin rate for fiscal 2001 of 28.3% was an improvement of 3.6
percentage points when compared with 24.7% in fiscal 2000. The improved gross
margin was primarily due to a substantial markdown reserve recorded in fiscal
2000 of $7.8 million, which was not recurring in fiscal 2001. In addition,
through favorable lease negotiations with several existing landlords, the
Company has reduced its occupancy costs as a percentage of sales by 0.3
percentage points. These favorable improvements in gross margin were partially
offset by a slight deterioration in initial margins due to increasing costs on
merchandise purchases. During fiscal 2001, in an effort by the Company to
provide full merchandise assortments, the Company's average cost of merchandise
purchased increased while retail selling prices remained constant. Merchandise
margins in fiscal 2000 included a LIFO benefit of approximately $558,000.

In fiscal 2003, the Company anticipates that its gross margin rate will continue
to be negatively impacted by more aggressive promotional programs. The Company
expects, by increasing opportunistic purchases of close-out merchandise and
special buy merchandise, it will be able to improve its initial margins, which
the Company expects will offset this higher markdown rate.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses as a percentage of sales were 20.4%
or $39.7 million in fiscal 2002, 21.7% or $42.2 million in fiscal 2001 and 22.6%
or $43.4 million in fiscal 2000. The steady decrease in selling, general and
administrative expenses as a percentage of sales over the past three years is a
result of a series of expense reduction actions undertaken since fiscal 1999
that are still ongoing. Through continued improvements in store labor and other
such related costs, the Company anticipated that these expenses will continue to
show favorable decreases over the prior years.

IMPAIRMENT OF ASSETS

In fiscal 2001, the Company recorded an impairment charge of $837,000 related to
stores whose expected cash flows from operations are not expected to exceed
their net book value prior to the expiration of their expected lease term. In
fiscal 2000, the Company recorded an impairment charge of $611,000 for the
write-down of fixed assets, included as part of the $15.2 million non-recurring
charge recorded in the fourth quarter of fiscal 2000. See "Restructuring -
Fiscal 2000" below. These charges are reflected in "Provision for impairment of
assets, store closings and severance" on the Consolidated Statements of
Operations for fiscal 2001 and 2000.

RESTRUCTURING-Fiscal 2000

During the fourth quarter of fiscal 2000, the Company recorded a pre-tax charge
of $15.2 million, or $0.59 per share after tax, related to inventory markdowns,
the abandonment of the Company's Boston Traders(R) and related trademarks,
severance, and the closure of the Company's five Buffalo Jeans(R) Factory stores
and its five remaining Designs stores. Of the $15.2 million charge, $7.8 million
relating to inventory markdowns was reflected in gross margin in fiscal 2000.
This pre-tax charge of $15.2 million included cash costs of approximately $3.6
million related to lease terminations and corporate and store severance, and
approximately $11.6 million of non-cash costs related to inventory markdowns and
the impairment of trademarks and store assets. There was no remaining reserve
balance related to this $15.2 million charge at February 2, 2002.

As a result of the above charges recorded, the Company recorded a net operating
loss for fiscal 2000. Because of an additional year of net operating losses, the
Company recorded a write-down of tax assets of $6.0 million or $0.37 per share
after tax attributable to the potential that certain deferred federal and state
tax assets may not be realizable.

After the recording of these restructuring charges, all assets related to
businesses other than the remaining Levi's(R)/Dockers(R) Outlet stores had been
written off leaving only the operations and related assets of its retail outlet
and factory stores which sell exclusively product made by or for Levi Strauss &
Co.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense for fiscal 2002 was $5.4 million as
compared with $5.4 million in fiscal 2001 and $6.5 million in fiscal 2000. The
reduced depreciation related to the aging of the Company's older stores is
offset by increased depreciation of its new and remodeled stores. "See Liquidity
and Capital Resources - Capital Expenditures."

INTEREST EXPENSE, NET

Net interest expense for fiscal 2002 was $1.9 million compared to $1.8 million
in fiscal 2001 and $1.2 million in fiscal 2000. This increase is primarily a
result of higher average borrowing levels offset partially by reduced interest
rates under the Company's credit facility as compared to the prior year.
Similarly, the increase in interest expense in fiscal 2001 as compared with
fiscal 2000 was due to higher average borrowings and increased interest rates.
See "Liquidity and Capital Resources."

INCOME TAX PROVISION/(BENEFIT)

The income tax provision for fiscal 2002 includes a special, non-cash charge of
$8.0 million attributable to an increase in the valuation allowance for the
Company's deferred tax assets, related to the potential that certain federal and
state tax assets may not be realized. The provision for fiscal 2000 also
included a $6.0 million charge against the Company's realizability of certain
tax assets.

Realization of the Company's deferred tax assets, which relate principally to
federal net operating loss carryforwards which expire from 2017 through 2022, is
dependent on generating sufficient taxable income in the following first three
years of the carryforward period. Accordingly, the valuation allowance at
February 2, 2002 is primarily attributable to the potential that certain
deferred federal and state tax assets will not be realizable within this period.
Although realization is not assured, management believes it is more likely than
not that the balance of the deferred tax assets in excess of the valuation
allowance will be realized. In reaching this determination, management
considered the Company's historical performance, noting that the losses in
fiscal 1998, 1999 and 2000 which generated the net operating loss carryforwards
described above were principally the result of charges incurred to exit
unprofitable businesses and that the Company's core business of selling Levi
Strauss & Co. branded apparel in outlet stores has been consistently profitable.
However, considering the general economic weakness and reduced profit margin
experienced in fiscal 2002, management increased the valuation allowance further
in fiscal 2002. Assuming improved operating results from its core
Levi's(R)/Dockers(R) Outlet business, management believes that the balance of
deferred tax assets in excess of the valuation allowance may be utilized in the
next three years. Although not considered in assessing the realization of the
Company's deferred tax assets, management expects that the Company's expansion
strategy of opening and operating other branded stores for other brand
manufacturers will generate income in the coming years which could result in the
realization of deferred tax assets currently reserved for. In the event the
Company's performance of its Levi's(R)/Dockers(R) store improves, and/or its
expansion into operating branded retail stores for other brand manufacturers
improves the Company's overall profitability,

the Company's valuation allowance for its deferred tax assets may be reduced.
Conversely, the amount of the valuation allowance deemed necessary could be
increased in the near term if projections of future taxable income during the
carryforward period are reduced or if actual results are less than projections.

As of February 2, 2002, the Company has net operating loss carryforwards of
$33,622,000 for federal income tax purposes and $49,745,000 for state income tax
purposes, which are available to offset future taxable income through fiscal
year 2022. Additionally, the Company has alternative minimum tax credit
carryforwards of $1,166,000, which are available to reduce further income taxes
over an indefinite period.

During the first quarter of fiscal 1999, the Internal Revenue Service ("IRS")
completed an examination of the Company's federal income tax returns for fiscal
years 1992 through 1996. Taxes on the adjustments proposed by the IRS, excluding
interest, amounted to approximately $4.9 million. The IRS challenged the fiscal
tax years in which various income and expense deductions were recognized,
resulting in potential timing differences of previously paid federal income
taxes. The Company appealed these proposed adjustments through the IRS appeals
process.

In the third quarter of fiscal 2002, the Company and the IRS reached a final
settlement on the audit of the Company's federal income tax returns for fiscal
years 1992 through 1996. In accordance with this settlement, the Company paid to
the IRS a total of $1.5 million, which included interest. The settlement of $1.5
million had no material impact on the Company's results of operations for fiscal
2002 due to adequate provisions previously established by the Company.

NET INCOME (LOSS)

The Company reported pre-tax income of $0.2 million for fiscal 2002 as compared
to pre-tax income of $5.5 million in fiscal 2001 and a pre-tax loss of $10.3
million in fiscal 2000. After a non-cash charge of $8.0 million against the
Company's deferred tax assets, the Company reported a net loss of $(7.9) million
or $(0.54) per diluted share in fiscal 2002 compared with net income of $3.2
million or $0.20 per diluted share for fiscal 2001 and a net loss of $(12.5)
million or $(0.78) per diluted share for fiscal 2000. Fiscal 2000 included
non-recurring restructuring charges of $15.2 million, of which $6.0 million
related to the write-down of certain tax assets. See "Restructuring - Fiscal
2000" for further discussion.

SEASONALITY

--------------------------------------------------------------------------------
FISCAL 2002 FISCAL 2001 FISCAL 2000
- -------------------------------------------------------------------------------------------------------------
(SALES DOLLARS IN THOUSANDS)

First quarter $ 39,395 20.2% $ 39,379 20.2% $ 39,835 20.7%
Second quarter 47,698 24.5% 45,693 23.5% 42,907 22.3%
Third quarter 54,301 27.8% 56,587 29.1% 56,703 29.5%
Fourth quarter 53,725 27.5% 52,871 27.2% 52,747 27.5%
--------------------------------------------------------------------------------
$ 195,119 100.0% $ 194,530 100.0% $ 192,192 100.0%

A comparison of sales in each quarter of the past three fiscal years is
presented above. The amounts shown are not necessarily indicative of actual
trends, since such amounts also reflect the addition of new stores and the
remodeling and closing of others during these periods. Historically, the Company
has experienced seasonal fluctuations in revenues and income, exclusive of
non-recurring charges, with increases occurring during the Company's third and
fourth quarters as a result of "Fall" and "Holiday" seasons. A comparison of
quarterly sales, gross profit, net income (loss) per share for the past two
fiscal years is presented in Note K of Notes to Consolidated Financial
Statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary cash needs are for operating expenses, including cash
outlays associated with inventory purchases and capital expenditures for new and
remodeled stores. The Company expects that cash flow from operations, short-term
revolving borrowings and trade credit will enable it to finance its current
working capital, remodeling and expansion requirements.

The following table sets forth financial data regarding the Company's liquidity
position at the end of the past three fiscal years:

FISCAL YEARS
----------------------------------------------------------------------------
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)

Cash provided by (used for)
operations $ 563 $ 6,299 $ (1,227)
Working capital 13,277 16,306 19,624
Current ratio 1.3:1 1.4:1 1.5:1

The Company has financed its working capital requirements, store remodel and
expansion program, stock repurchase programs and acquisitions with cash flow
from operations, borrowings under the Company's credit facility, and proceeds
from common stock offerings. Cash provided by (used for) operating activities
was $0.6 million, $6.3 million and $(1.2) million in fiscal 2002, 2001 and 2000,
respectively. The decrease in cash flow in fiscal 2002 was primarily the result
of lower earnings as compared to fiscal 2001. The Company used the cash proceeds
from operations of $0.6 million and borrowings under its credit facility to
finance its store openings and remodeling program and other capital requirements
of approximately $4.0 million, net of landlord allowances received.
Correspondingly, the Company's net borrowing position increased by approximately
$3.4 million to $27.8 million at February 2, 2002 as compared to the prior year.

In addition to cash flow from operations, the Company's other primary source of
working capital is its Credit Agreement with Fleet Retail Finance, Inc. This
agreement, which was amended on December 7, 2000, provides a revolving line of
credit of up to $45 million and the ability to issue documentary and standby
letters of credit up to $10 million. The Credit Agreement, which expires on
November 30, 2003, was amended to reduce the borrowing costs and tie future
interest costs to excess borrowing availability, eliminate all existing
financial performance covenants and adopt a minimum availability covenant,
increase the amount that can potentially be borrowed by increasing the advance
rate formula to 68% of the Company's eligible inventory, provide the Company the
ability to enter into stock buyback programs and reduce the total commitment
from $50 million to $45 million. The Company's obligation under the Credit
Agreement continues to be secured by a lien on all of its assets. The Company is
subject to a prepayment penalty through December 7, 2002.

At February 2, 2002, the Company had borrowings of approximately $27.8 million
outstanding under this credit facility and had two outstanding standby letters
of credit totaling approximately $2.3 million. Average borrowings outstanding
under this credit facility for fiscal 2002 were approximately $29.4 million. In
fiscal 2002, the average unused availability under this credit facility was
approximately $8.0 million.

Inventory

At February 2, 2002, total inventories of $57.7 million were unchanged when
compared to the prior year total inventories of $57.7 million at February 3,
2001. On a per square foot basis, inventory levels decreased 6% in fiscal 2002
to $57.99 per square foot from $61.94 per square foot in fiscal 2001. The
Company's increased promotional activities in fiscal 2002 and the Company's
continued efforts to control inventory levels were the primary reasons for the
decrease on a per square foot basis.

In the first quarter of fiscal 2002, the Company changed its method of
determining the cost of inventories from the last-in, first-out (LIFO) method to
the first-in, first-out (FIFO) method. Management believes that the FIFO method
better measures the current value of such inventories and provides a more
appropriate matching of revenues and expenses. In the current low-inflationary
environment, management believes that the use of the FIFO method more accurately
reflects the Company's financial position. The effect of this change was
immaterial to the financial results of the prior reporting periods of the
Company and therefore did not require retroactive restatement of results for
those prior periods.

The Company continues to evaluate and, within the discretion of management, act
upon opportunities to purchase substantial quantities of Levi's(R) and
Dockers(R) brand products for its Levi's(R) Outlet and Dockers(R) Outlet stores.

Stock Repurchase Programs

During the second and third quarters of fiscal 2001, the Company repurchased
863,000 shares of its Common Stock at an aggregate cost of $1,861,000 under a
Stock Repurchase Program that was approved by the Company's Board of Directors
in June 2000. In December 2000, the Company repurchased 1.8 million shares at
$2.50 per share through a "Dutch Auction" tender offer. Under the terms of the
offer, the Company invited its stockholders to tender their shares to the
Company at prices specified by the tendering stockholders not in excess of $3.00
nor less than $2.20 per share, in ten-cent ($0.10) increments. The Company
selected the lowest single per-share purchase price that would allow it to buy
1.5 million shares, or up to an additional 1.0 million shares at the Company's
option.

At February 2, 2002, the Company has a total of 3,040,000 shares of repurchased
Common Stock at an aggregate cost of $8.5 million which is reported by the
Company as treasury stock and is reflected as a reduction in stockholders'
equity.

Litigation

In fiscal 2001, the Company had a $1 million promissory note which was payable
to Atlantic Harbor, Inc. in conjunction with the Company's acquisition of
certain assets from Boston Trading Ltd., Inc. ("Boston Trading") in May 1995. In
the first quarter of fiscal 1997, the Company had asserted certain
indemnification rights and accordingly did not pay any principal payments on the
note. In January 1998, Atlantic Harbor, Inc. filed a lawsuit against the Company
for failing to pay the outstanding principal amount of the promissory note, and
in March 1998, the Company filed a counterclaim against Atlantic Harbor, Inc.
alleging that the Company suffered damaged in excess of $1 million because of
the breach of certain representations and warranties made by Atlantic Harbor,
Inc. and its stockholders concerning the existence and condition of certain
foreign trademark registrations and license agreements.

In the first quarter of fiscal 2002, the Company entered into a settlement
agreement with Atlantic Harbor, Inc. whereby the Company agreed to pay $450,000
to Atlantic Harbor, Inc. as settlement for all obligations under the outstanding
promissory note. In exchange, the Company agreed to transfer and assign all
trademarks and license agreements acquired as part of the original purchase
agreement to a new entity in which the Company would have a 15% equity interest,
with Atlantic Harbor, Inc and its affiliates retaining the remaining interest.
In addition, the Company would also be entitled to receive up to an additional
$150,000 from existing license royalties over the next four years. The Company
recorded a gain on the settlement of this matter in the amount of $550,000 in
the fourth quarter of fiscal 2001, which was included in "Provision for
impairment of assets, store closing and severance" on the Consolidated
Statements of Operations. See "Item 3. Legal Proceedings" for more discussion.

CAPITAL EXPENDITURES

The following table sets forth the stores opened, remodeled and closed and the
capital expenditures incurred for the fiscal years presented:

2002 2001 2000
- --------------------------------------------------------------------------------
New Stores:
Levi's(R)/Dockers(R) Outlets 5 6 10
Dockers(R) Outlets 1 -- 2
Candie's(R) Outlet 1 --
Remodeled Stores:
Remodeled Levi's(R) Outlets
By Designs 6 9 6
------------------------------
Total new and remodeled 13 15 18
------------------------------
Total closed stores 4 4 23
------------------------------

Capital expenditures (000's) $4,666 $5,823 $6,006
------------------------------

During fiscal 2002, the Company received approximately $3.7 million in landlord
allowances against the total new and remodeled store capital expenditures of
$4.7 million. The Company incurred capital expenditures of $3.0 million in
fiscal 2002 related to miscellaneous leasehold improvements at the Company's
corporate headquarters, technology expenditures and other store capital.

The Company plans to open its first EcKo(R) outlet stores by the back-to-school
season. As the Company continues to discuss its growth strategy with other
manufacturers, new store locations may be added to the Company's current
expansion plans.

Capital expenditures for fiscal 2003 are expected to be approximately $4.0
million, of which $2.5 million relates to the expansion plan discussed above.
This amount is net of committed landlord allowances of approximately $910,000
that the Company will receive. The expected cost to build a Candie's(R) Outlet
store is approximately $25-30 square foot, net of tenant allowances. These store
locations, which will average approximately 2,800 square feet, will require
limited initial cash requirements which is why the Company will be able to fund
the above expansion plan through the use of its cash from operations and its
existing credit facility.

CRITICAL ACCOUNTING POLICIES

The Company's financial statements are based on the application of significant
accounting policies, many of which require management to make significant
estimates and assumptions (see Note A to the consolidated financial statements).
The Company believes that the following are some of the more critical judgment
areas in the application of its accounting policies that currently affect our
financial condition and results of operations.

Inventory. The Company records inventory at the lower of cost or market on a
first-in first-out basis ("FIFO"). The Company reserves for obsolescence based
on the difference between the weighted average cost of the inventory and the
estimated market value based on assumptions of future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional reserves may be required.

Impairment of Long-Lived Assets. The Company reviews its long-lived assets for
impairment when indicators of impairment are present and the undiscounted cash
flow estimated to be generated by those assets are less than the assets'
carrying amount. The Company evaluates its long-lived assets for impairment at a
store level for all its retail locations. If actual market conditions are less
favorable than management's projections, future write-offs may be necessary.

Deferred Taxes. The Company records a valuation allowance to reduce its deferred
tax assets to the amount that is more likely than not to be realized. The
Company has considered estimated future taxable income and ongoing tax planning
strategies in assessing the amount needed for the valuation allowance. If actual
results differ unfavorably from those estimates used, the Company may not be
able to realize all or part of its net deferred tax assets and additional
valuation allowances may be required.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets" (the "Statements"), effective for fiscal
years beginning after December 15, 2001. Under the new rules, goodwill will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. The Company will apply the new accounting rules under the
Statements beginning in the first quarter of fiscal 2003. Management does not
believe that the adoption of the impairment provisions of the Statements will
have a material impact on the Company's overall financial position or results of
operations.

In July 2001, the FASB also issued Statement No. 143 "Accounting for Asset
Retirement Obligations". This Statement requires recording the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and capitalizing the associated asset retirement costs as part of the
carrying amount of the long-lived asset. Adoption of this Statement is required
for fiscal years beginning after June 15, 2002. Management does not believe that
the adoption of this Statement will have a material impact on the Company's
overall financial position or results of operations.

In October 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This Statement supercedes
Statement No. 121. Although this Statement retains many of the fundamental
provisions of Statement No. 121, it expands the scope of discontinued operations
to include more disposal transactions and significantly changes the criteria for
classifying an asset as held-for-sale. The provisions of this Statement are
effective for fiscal years beginning after December 15, 2001. Management does
not believe that the adoption of this Statement will have a material impact on
the Company's overall financial position or results of operations.

EFFECTS OF INFLATION

Although the Company's operations are influenced by general economic trends, the
Company does not believe that inflation has had a material effect on the results
of its operations in the last three fiscal years.

RISKS AND UNCERTAINTIES

This Annual Report on Form 10-K, including the foregoing discussion of results
of operations, liquidity, capital resources and capital expenditures, contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Forward-looking statements are statements other than historical
information or statements of current conditions. Some forward-looking statements
may be identified by use of terms such as "believe," "anticipate," "intends," or
"expects." These forward-looking statements in this Annual Report on Form 10-K
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. Numerous factors
could cause the Company's actual results to differ materially from such
forward-looking statements. The Company encourages readers to refer to the
Company's Current Report on Form 8-K, previously filed with the Securities and
Exchange Commission on April 28, 2000, which identifies certain risks and
uncertainties that may have an impact on future earnings and the direction of
the Company. The Company undertakes no obligation to release publicly the
results of any future revisions it may make to forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, the financial position and results of
operations of the Company are routinely subject to a variety of risks, including
market risk associated with interest rate movements on borrowings. The Company
regularly assesses these risks and has established policies and business
practices to protect against the adverse effects of these and other potential
exposures. The Company utilizes cash from operations and a revolving credit
facility to fund its working capital needs. The Company's revolving credit
facility is not used for trading or speculative purposes. In addition, the
Company has available letters of credit as sources of financing for its working
capital requirements. Borrowings under this credit agreement, which expires in
November 2003, bear interest at variable rates based on FleetBoston, N.A.'s
prime rate or the London Interbank Offering Rate ("LIBOR"). These interest rates
at February 2, 2002 were 4.75% for prime based borrowings and included various
LIBOR contracts with interest rates ranging from 4.016% to 4.374%. Based upon
sensitivity analysis as of February 2, 2002, a 10% increase in interest rates
would result in a potential increase in interest expense of approximately
$140,000.

Item 8. Financial Statements and Supplementary Data

DESIGNS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Management's Responsibility for Financial Reporting 25

Report of Ernst & Young, Independent Auditors 26

Independent Auditors' Report 27

Consolidated Financial Statements:

Consolidated Balance Sheets at February 2, 2002
and February 3, 2001 28

Consolidated Statements of Operations for the Fiscal Years Ended
February 2, 2002 February 3, 2001 and January 29, 2000 29

Consolidated Statements of Changes in Stockholders'
Equity for the Fiscal Years Ended February 2, 2002, February
3, 2001 and January 29, 2000 30

Consolidated Statements of Cash Flows for the Fiscal Years
Ended February 2, 2002, February 3, 2001 and January 29, 2000 31

Notes to Consolidated Financial Statements 32

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The integrity and objectivity of the financial statements and the related
financial information in this report are the responsibility of the management of
the Company. The financial statements have been prepared in conformity with
generally accepted accounting principles and include, where necessary, the best
estimates and judgments of management.

The Company maintains a system of internal accounting control designed to
provide reasonable assurance, at appropriate cost, that assets are safeguarded,
transactions are executed in accordance with management's authorization and the
accounting records provide a reliable basis for the preparation of the financial
statements. The system of internal accounting control is regularly reviewed by
management and improved and modified as necessary in response to changing
business conditions.

The Audit Committee of the Board of Directors, consisting solely of outside
directors, meets periodically with management and the Company's independent
auditors to review matters relating to the Company's financial reporting, the
adequacy of internal accounting control and the scope and results of audit work.
The independent auditors have free access to the Audit Committee.

Ernst & Young LLP, independent auditors, have been engaged to examine the
financial statements of the Company for the fiscal year ended February 2, 2002.
The Report of Ernst & Young Independent Auditors expresses an opinion as to the
fair presentation of the financial statements in accordance with generally
accepted accounting principles and is based on an audit conducted in accordance
with auditing standards generally accepted in the United States.

/s/ DAVID A. LEVIN /s/ DENNIS R. HERNREICH

David A. Levin Dennis R. Hernreich
President and Chief Executive Officer Senior Vice President, Chief
Financial Officer & Treasurer

REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of Designs, Inc:

We have audited the accompanying consolidated balance sheets of Designs, Inc. as
of February 2, 2002 and February 3, 2001 and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for each of the
two years in the period ended February 2, 2002. Our audits also included the
financial statement schedule for the years ended February 2, 2002 and February
3, 2001 listed in the Index as Item 14 (a)(2). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Designs, Inc. at
February 2, 2002 and February 3, 2001, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
February 2, 2002 in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

Boston, Massachusetts /s/ ERNST & YOUNG LLP
March 11, 2002

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Designs, Inc:

We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Designs, Inc. (the "Company") for the
year ended January 29, 2000. Our audit also included the financial statement
schedule listed in the Index at Item 14 (a) (2). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the results of the Company's operations and cash flows for the year
ended January 29, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

Boston, Massachusetts /s/ DELOITTE & TOUCHE LLP
April 11, 2000

DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
February 2, 2002 and February 3, 2001

February 2, 2002 February 3, 2001
(Fiscal 2002) (Fiscal 2001)
----------------------------------
ASSETS (In thousands, except share data)

Current assets:
Cash and cash equivalents $ -- $ --
Accounts receivable 491 18
Inventories 57,734 57,675
Deferred income taxes 652 765
Prepaid expenses 2,887 3,093
-------------------------
Total current assets 61,764 61,551

Property and equipment, net of
accumulated depreciation and amortization 20,912 18,577

Other assets:
Deferred income taxes 7,326 14,347
Other assets 899 595
-------------------------
Total assets $ 90,901 $ 95,070
=========================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 7,074 $ 6,280
Accrued expenses and other current liabilities 10,538 10,809
Accrued rent 2,541 2,376
Reserve for severance and store closings -- 852
Payable to affiliate 582 583
Notes payable 27,752 24,345
-------------------------
Total current liabilities 48,487 45,245
-------------------------

Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued -- --
Common stock, $0.01 par value, 50,000,000 shares authorized,
17,608,000 and 17,488,000 shares issued at
February 2, 2002 and February 3, 2001, respectively 176 175
Additional paid-in capital 56,189 55,697
(Accumulated deficit) retained earnings (5,304) 2,577
Treasury stock at cost, 3,040,000 and 3,035,000 shares at
February 2, 2002 and February 3, 2001, respectively (8,450) (8,427)
Note receivable from officer (197) (197)
-------------------------
Total stockholders' equity 42,414 49,825
-------------------------
Total liabilities and stockholders' equity $ 90,901 $ 95,070
=========================

The accompanying notes are an integral part of the consolidated financial
statements.

DESIGNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the fiscal years ended February 2, 2002, February 3, 2001 and
January 29, 2000

Fiscal Fiscal Fiscal
2002 2001 2000
(52 weeks) (53 weeks) (52 weeks)
---------------------------------------
(In thousands, except share data)

Sales $ 195,119 $ 194,530 $ 192,192
Cost of goods sold including occupancy 147,898 139,545 144,752
---------------------------------------
Gross profit 47,221 54,985 47,440

Expenses:
Selling, general and administrative 39,743 42,207 43,401
Provision for impairment of assets, store closings and severance -- 107 6,608
Depreciation and amortization 5,398 5,373 6,502
---------------------------------------
Total expenses 45,141 47,687 56,511
---------------------------------------

Operating income (loss) 2,080 7,298 (9,071)
Interest expense, net 1,905 1,810 1,207
---------------------------------------
Income (loss) before income taxes 175 5,488 (10,278)

Provision for income taxes 8,056 2,272 2,215
---------------------------------------

Net (loss) income $ (7,881) $ 3,216 $ (12,493)
======================================

Net (loss) income per share - basic ($0.54) $ 0.20 ($0.78)
Net (loss) income per share - diluted ($0.54) $ 0.20 ($0.78)

Weighted-average number of common shares outstanding:
Basic 14,486 16,015 16,088
Diluted 14,486 16,292 16,088

The accompanying notes are an integral part of the consolidated financial
statements.

DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
For the fiscal years ended February 2, 2002, February 3, 2001 and January 29,
2000
(IN THOUSANDS)

Additional
Common Stock Treasury Stock Paid-in
Shares Amounts Shares Amounts Capital
---------------------- ----------------------- ----------

Balance at January 30, 1999 16,178 $ 162 (286) $ (1,830) $ 53,908

Issuance of Common Stock:
Board of Directors compensation 157 2 256
Vesting of restricted stock award
Issuance of shares to related party
for professional services 355 3 407
Net loss
----------------------------------------------------------------
Balance at January 29, 2000 16,690 $ 167 (286) $ (1,830) $ 54,571
----------------------------------------------------------------

Issuance of Common Stock:
Exercises under option program 38 -- 82
Board of Directors compensation 119 1 186
Issuance of shares to related party for
professional services 386 4 520
Repurchase of common stock (2,621) (6,314) --
Restricted stock cancelled (23) (53) 1
Exercise of options and repurchase of
shares from director 105 1 (105) (230) 132
Sale of stock to officer 150 2 195
Income tax benefit from stock option exercised 10
Net income
----------------------------------------------------------------
Balance at February 3, 2001 17,488 $ 175 (3,035) $ (8,427) $ 55,697
----------------------------------------------------------------

Issuance of Common Stock:
Exercises under option program 19 28
Board of Directors compensation 35 99
Issuance of shares to related party for
professional services 66 1 316
Issuance of options for professional
services rendered 33
Repurchase of common stock (5) (23)
Income tax benefit from stock option exercised 16
Net loss
----------------------------------------------------------------
Balance at February 2, 2002 17,608 $ 176 (3,040) $ (8,450) $ 56,189
================================================================

(Accumulated
Note Deficit)
Deferred Receivable Retained
Compensation from Officer Earnings Total
------------ ------------ ------------ --------

Balance at January 30, 1999 $ (138) $ -- $ 11,854 $ 63,956

Issuance of Common Stock:
Board of Directors compensation 258
Vesting of restricted stock award 138 138
Issuance of shares to related party
for professional services 410
Net loss (12,493) (12,493)
---------------------------------------------------
Balance at January 29, 2000 $ -- $ -- $ (639) $ 52,269
---------------------------------------------------
Issuance of Common Stock:
Exercises under option program 82
Board of Directors compensation 187
Issuance of shares to related party for
professional services 524
Repurchase of common stock (6,314)
Restricted stock cancelled (52)
Exercise of options and repurchase of
shares from director (97)
Sale of stock to officer
Income tax benefit from stock option exercised (197) --
Net income 3,216 3,216
---------------------------------------------------
Balance at February 3, 2001 $ -- $ (197) $ 2,577 $ 49,825
---------------------------------------------------

Issuance of Common Stock:
Exercises under option program 28
Board of Directors compensation 99
Issuance of shares to related party for
professional services 317
Issuance of options for professional
services rendered 33
Repurchase of common stock (23)
Income tax benefit from stock option exercised 16
Net loss (7,881) (7,881)
---------------------------------------------------
Balance at February 2, 2002 $ -- $ (197) $ (5,304) $ 42,414
===================================================

The accompanying notes are an integral part of the consolidated financial
statements.

DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the fiscal years ended February 2, 2002, February 3, 2001 and January 29,
2000

Fiscal Fiscal Fiscal
2002 2001 2000
----------------------------------

Cash flows from operating activities:
Net (loss) income $(7,881) $ 3,216 $(12,493)
Adjustments to reconcile net (loss) income to net cash
provided by (used for) operating activities:
Depreciation and amortization 5,398 5,373 6,503
Deferred income taxes 7,134 2,023 (4,323)
Loss (gain) from disposal of property and equipment 42 145 (75)
Vesting of restricted stock, net of cancellations -- -- 138
Issuances of common stock to Board of Directors 99 187 258
Issuance of common stock to related party 317 524 410
Issuance of common stock for professional services 33 -- --

Changes in operating assets and liabilities:
Accounts receivable (473) 65 95
Inventories (59) (653) (6,944)
Prepaid expenses 206 (2,051) (131)
(Increase) reduction in other assets (399) (98) 2,368
Payment to Internal Revenue Service on settlement of audit (1,500) -- --
Accounts payable 794 (521) (1,915)
Reserve for severance, store closings and impairment charges (852) (2,376) 14,844
Accrued expenses, other current liabilities and payable to affiliate (2,461) 342 (200)
Accrued rent 165 123 238
------- ------- --------
Net cash provided by (used for) operating activities 563 6,299 (1,227)
------- ------- --------

Cash flows from investing activities:
Additions to property and equipment, net (4,012) (4,493) (5,046)
Proceeds from disposal of property and equipment 21 57 108
Termination (establishment) of investment trust -- 2,365 (2,365)
------- ------- --------
Net cash used for investing activities (3,991) (2,071) (7,303)
------- ------- --------

Cash flows from financing activities:
Net borrowings under credit facility 3,407 2,143 8,377
Repurchase of common stock (23) (6,597) --
Issuances of common stock under option program (1) 44 226 --
------- ------- --------
Net cash provided by (used for) financing activities 3,428 (4,228) 8,377
------- ------- --------
Net decrease in cash and cash equivalents -- -- (153)
Cash and cash equivalents:
Beginning of the year -- -- 153
------- ------- --------
End of the year $ -- $ -- $ --
======= ======= ========

(1) Includes related tax benefit.

The accompanying notes are an integral part of the consolidated financial
statements.

DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 2, 2002

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Line of Business

Designs, Inc. (the "Company") is engaged in the retail sales of branded apparel
and accessories primarily in the outlet channel of distribution. The Company
operates a chain of outlet stores located in the eastern part of the United
States and Puerto Rico. Levi Strauss & Co. is currently the most significant
vendor of the Company, representing substantially all of the Company's
merchandise purchases. The Company also purchases merchandise, primarily
accessories, from licensees of Levi Strauss & Co. brand products. During the
fourth quarter of fiscal 2002, the Company started to expand its business by
entering into agreements with other branded manufacturers to operate outlet
stores for these brands.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and
its subsidiaries and affiliates. All significant intercompany accounts,
transactions and profits are eliminated.

The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
liabilities as of the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from estimates.

Certain amounts from prior years have been reclassified to conform to the
current year presentation.

Fiscal Year

The Company's fiscal year is a 52- or 53-week period ending on the Saturday
closest to January 31. Fiscal years 2002, 2001 and 2000 ended on February 2,
2002, February 3, 2001 and January 29, 2000, respectively. Fiscal years 2002 and
2000 were 52-week periods and fiscal year 2001 was a 53-week period.

Revenue Recognition

Revenue is recorded upon purchase of merchandise by customers. In connection
with gift certificates, a deferred revenue amount is established upon purchase
of the certificate by the customer and revenue is recognized upon redemption and
purchase of merchandise.

Cash and Cash Equivalents

Short-term investments, which have a maturity of ninety days or less when
acquired, are considered cash equivalents. The carrying value approximates fair
value.

Restricted Investment

In fiscal 2000, the Company had a $2.3 million restricted investment which
represented a trust established for the purpose of securing pre-existing
obligations of the Company to certain executives under their respective
employment agreements. These funds were being held in a trust to pay the amounts
that might become due under their employment agreements and also to pay any
amounts that might become due to them pursuant to their indemnification
agreements and the Company's by-laws. In fiscal 2001 the trust was terminated,
and accordingly, the funds were no longer restricted.

Inventories

All merchandise inventories were valued at the lower of cost or market using the
retail method. In the first quarter of fiscal 2002, the Company changed its
method of determining the cost of inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. Management believes that the
FIFO method better measures the current value of such inventories and provides a
more appropriate matching of revenues and expenses. In the current
low-inflationary

environment, management believes that the use of the FIFO method more accurately
reflects the Company's financial position.

The effect of this change was immaterial to the financial results of the prior
reporting periods of the Company and therefore did not require retroactive
restatement of results for those prior periods. The benefit for LIFO was
$350,000 and $558,000 in fiscal 2001 and 2000, respectively. The benefit in
fiscal 2001 was offset by a provision for a lower of cost or market adjustment
to merchandise inventories of $350,000. If inventory had been valued on the FIFO
basis at February 3, 2001 inventory would have been approximately $57,675,000.

Property and Equipment

Property and equipment are stated at cost. Major additions and improvements are
capitalized while repairs and maintenance are charged to expense as incurred.
Upon retirement or other disposition, the cost and related depreciation of the
assets are removed from the accounts and the resulting gain or loss is reflected
in income. Depreciation is computed on the straight-line method over the assets'
estimated useful lives as follows:

Motor vehicles Five years
Store furnishings Five to ten years
Equipment Five to eight years
Leasehold improvements Lesser of useful lives or related lease life
Software Three to five years

Pre-opening Costs

In accordance with Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities," the Company expenses all pre-opening costs for its stores
as incurred.

Advertising Costs

Advertising costs, which are included in selling, general and administrative
expenses, are expensed when incurred. Advertising expense was $1,004,000,
$931,000 and $1,034,000 for fiscal 2002, 2001 and 2000, respectively.

Net Income (Loss) Per Share

Statement of Financial Accounting Standards No. 128, "Earnings per Share",
requires the computation of basic and diluted earnings per share. Basic earnings
per share is computed by dividing net income (loss) by the weighted-average
number of shares of common stock outstanding during the year. Diluted earnings
per share is determined by giving effect to the exercise of stock options using
the treasury stock method.

Fiscal Years Ended
February 2, 2002 February 3, 2001 January 29, 2000
-------------------------------------------------------
(in thousands)

Basic weighted-average common shares
outstanding 14,486 16,015 16,088
Stock options, excluding anti-dilutive options
of 578 and 114 shares for February 2, 2002
and January 29, 2000, respectively -- 277 --
------ ------ ------
Diluted weighted-average shares outstanding 14,486 16,292 16,088
------ ------ ------

Options to purchase shares of the Company's Common Stock, par value $0.01 per
share (the "Common Stock"), of 933,900, 283,350 and 320,700 for fiscal 2002,
2001 and 2000, respectively, were outstanding during the respective periods but
were not included in the computation of diluted EPS because the exercise price
of the options was greater than the average market price of the Common Stock for
the period reported. These options, which expire between June 9, 2002 and July
31, 2011, have exercise prices ranging from $3.48 to $17.75 in fiscal 2002 and
$2.00 to $17.75 in fiscal years 2001 and 2000.

Impairment of Long-Lived Assets

The Company accounts for long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company
reviews its long-lived assets for events or changes in circumstances that might
indicate the carrying amount of the assets may not be recoverable. The Company
assesses the recoverability of the assets by determining whether the carrying
value of such assets over the remaining lives can be recovered through projected
undiscounted future cash flows. The amount of impairment, if any, is measured
based on projected discounted future cash flows using a discount rate reflecting
the Company's average cost of funds. No such charge was necessary for the fiscal
year ended February 2, 2002. In fiscal 2001, the Company recorded an impairment
charge of $837,000 for the write-down of fixed assets. The impairment charge
related to stores whose expected cash flows from operations are not expected to
exceed their net book value prior to the expiration of their expected lease
term. In fiscal 2000, the Company recorded an impairment charge of $611,000 for
the write-down of fixed assets which was included as part of the $15.2 million
non-recurring charge recorded in the fourth quarter of fiscal 2000. For further
discussion, see Note I. The impairment charge of $611,000 was related to eight
stores which the Company acquired in October 1998 from Levi's Only Stores
("LOS"), a wholly owned subsidiary of Levi Strauss & Co. It was not until the
end of fiscal 2000 that the Company had a full year of operating results for
these stores on which to make an assessment regarding their future profitability
and the realizability of their assets.

B. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at the dates indicated:

February 2, 2002 February 3, 2001
-----------------------------------
(in thousands)
Motor vehicles $ -- $ 46
Store furnishings 20,142 17,869
Equipment 7,249 6,429
Leasehold improvements 20,875 19,323
Purchased software 6,669 5,931
Reserve on impaired assets (216) (875)
Construction in progress 529 528
-------------------------
55,248 49,251
Less accumulated depreciation 34,336 30,674
-------------------------
Total property and equipment $ 20,912 $ 18,577
-------------------------

Depreciation expense for fiscal 2002, 2001 and 2000 was $5,303,000, $5,177,000
and $5,949,000, respectively.

C. DEBT OBLIGATIONS

Credit Agreement with Fleet Retail Finance, Inc.

On December 7, 2000, the Company amended and restated its credit facility with
Fleet Retail Finance Inc. (the "Amended Credit Agreement"). The Amended Credit
Agreement, among other things, provided for an extension of the credit facility
to November 30, 2003, reduced the borrowing costs and tied future interest costs
to excess borrowing availability, eliminated all existing financial performance
covenants and adopted a minimum availability covenant, increased the amount that
can potentially be borrowed by increasing the advance rate formula to 68% from
60% of the Company's eligible inventory, provided the Company the ability to
enter into further stock buyback programs and reduced the total commitment from
$50 million to $45 million. Under the Amended Credit Agreement, the Company is
also able to issue documentary and standby letters of credit up to $10 million.
The Company's obligations under the Amended Credit Agreement continue to be
secured by a lien on all of its assets. The Company is subject to a prepayment
penalty for the first two years of the extended facility. The Amended Credit
Agreement continues to include certain covenants and events

of default customary for credit facilities of this nature, including change of
control provisions and limitations on payment of dividends by the Company.

At February 2, 2002, the Company had borrowings of approximately $27.8 million
outstanding under this credit facility and had two outstanding standby letters
of credit totaling approximately $2.3 million. The fair value of amounts
outstanding under this credit facility approximate the carrying value at
February 2, 2002 and February 3, 2001. The interest rates on these borrowings at
February 2, 2002 were 4.75% for prime based borrowings with varying rates on
LIBOR contracts of 4.02% to 4.37%. Average borrowings outstanding under this
facility during fiscal 2002 were approximately $29.4 million. The Company had
average unused excess availability under this facility of approximately $8.0
million during fiscal 2002, and unused excess availability of $4.3 million at
February 2, 2002. The Company was in compliance with all debt covenants under
the Amended Credit Agreement at February 2, 2002.

Promissory Note with Boston Trading, Ltd., Inc.

On May 2, 1995, the Company delivered a non-negotiable promissory note in the
principal amount of $1,000,000 (the "Purchase Note") in connection with the
acquisition of certain assets of Boston Trading Ltd., Inc. ("Boston Trading") in
accordance with the terms of an Asset Purchase Agreement dated April 21, 1995
among Boston Trading, its stockholders, Designs Acquisition Corp., and the
Company (the "Purchase Agreement"). The principal amount of the Purchase Note
was stated to be payable in two equal annual installments through May 1997. The
note bore interest at the published prime rate, payable semi-annually from the
date of acquisition.

In the first quarter of fiscal 1997, the Company asserted certain
indemnification rights under the Purchase Agreement. In accordance with the
Purchase Agreement, the Company, when exercising its indemnification rights, has
the right, among other courses of action, to offset against the payment of
principal and interest due under the Purchase Note. Accordingly, the Company did
not make the two $500,000 payments of principal on the Purchase Note that were
due on May 2, 1996 and May 2, 1997. The Company paid interest on the original
principal amount of the Purchase Note through May 2, 1996 and continued to pay
interest thereafter through January 31, 1998 on $500,000 of principal. In
January 1998, Atlantic Harbor, Inc. filed a lawsuit against the Company for
failing to pay the outstanding principal amount of the Purchase Note. In March
1998, the Company filed a counterclaim against Atlantic Harbor, Inc. alleging
that the Company suffered damaged in excess of $1 million because of the breach
of certain representations and warranties made by Atlantic Harbor, Inc. and its
stockholders concerning the existence and condition of certain foreign trademark
registrations and license agreements.

In the first quarter of fiscal 2002, the Company entered into a settlement
agreement with Atlantic Harbor, Inc. whereby the Company agreed to pay $450,000
to Atlantic Harbor, Inc. as settlement for all obligations under the outstanding
Purchase Note. In exchange, the Company agreed to transfer and assign all
trademarks and license agreements acquired as part of the Purchase Agreement to
a new entity in which the Company would have a 15% equity interest, with
Atlantic Harbor, Inc. and its affiliates retaining the remaining equity
interest. In addition, the Company would also be entitled to receive up to an
additional $150,000 from existing license royalties over the next four years.
The Company recorded a gain on settlement of this dispute in the amount of
$550,000 in the fourth quarter of fiscal 2001, which was included in "Provision
for impairment of assets, store closing and severance" on the Consolidated
Statement of Operations for fiscal 2001.

The Company paid interest and fees on all the above described debt obligations
totaling $1,906,000, $2,112,000, and $1,558,000 for fiscal 2002, 2001 and 2000,
respectively.

D. 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 tax assets and liabilities are recognized based on temporary
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. SFAS 109 requires current recognition of
net deferred tax assets to the extent that it is more likely than not that such
net assets will be realized. To the extent that the Company believes that its
net deferred tax assets will not be realized, a valuation allowance must be
recorded against those assets.

As of February 2, 2002, the Company has net operating loss carryforwards of
$33,622,000 for federal income tax purposes and $49,745,000 for state income tax
purposes which are available to offset future taxable income through fiscal year
2022. Additionally, the Company has alternative minimum tax credit carryforwards
of $1,166,000, which are available to further reduce income taxes over an
indefinite period.

The components of the net deferred tax assets as of February 2, 2002 and
February 3, 2001 are as follows:

February 2, February 3,
2002 2001
-----------------------------

Deferred tax assets - current:
Inventory reserves $ 569 $ 765
Accrued expenses 83 --
-----------------------------
Net deferred tax assets - current $ 652 $ 765
-----------------------------

Deferred tax assets - noncurrent:
Excess of book over tax
depreciation/amortization $ 4,388 $ 3,275
Restructuring reserve 67 408
Net operating loss carryforward 14,565 15,760
Alternative minimum tax credit carryforward 1,166 1,138
-----------------------------
Subtotal 20,186 20,581
Valuation allowance (12,860) (6,234)
-----------------------------
Total deferred tax assets, net - noncurrent $ 7,326 $ 14,347
-----------------------------

In the fourth quarter of fiscal 2002, the Company recorded a charge of $8.0
million against its deferred tax assets, attributable to the potential that
certain of these assets may not be realizable. The Company had previously
recorded, in fiscal 2000, a valuation allowance of $6.2 million against its tax
assets related to losses incurred as a result of restructuring and other
non-recurring charges.

The provision for income taxes consists of the following:

FISCAL YEARS ENDED
February 2, February 3, January 29,
2002 2001 2000
------------------------------------------
Current: (in thousands)
Federal $ (627) $ -- $ --
State 1,549 249 508
-----------------------------------------
922 249 508
-----------------------------------------
Deferred:
Federal 5,107 362 439
State 2,027 1,661 1,268
-----------------------------------------
7,134 2,023 1,707
-----------------------------------------
Total provision $ 8,056 $ 2,272 $ 2,215
-----------------------------------------

The following is a reconciliation between the statutory and effective income tax
rates in dollars:

FISCAL YEARS ENDED
February 2, February 3, January 29,
2002 2001 2000
--------------------------------------------

Federal income tax at the statutory rate $ 60 $ 1,866 $ (3,495)
State income and other taxes, net of federal tax benefit 5 357 (164)
Permanent items 38 49 21
Change in valuation allowance 8,000 -- 5,694
Other, net (47) -- --
Expiration of capital loss carryforward -- -- 159
-----------------------------------------
Provision for income tax $ 8,056 $ 2,272 $ 2,215

The Company received income tax refunds of $75,000 for fiscal year 2000 and the
Company paid income taxes of $184,000 for fiscal year 2001. In fiscal 2002, the
Company paid income taxes, excluding its settlement with the Internal Revenue
Service ("IRS"), of $231,000. These figures represent the net of payments and
receipts.

During the first quarter of fiscal year 1999, the Internal Revenue Service
("IRS") completed an examination of the Company's federal income tax returns for
fiscal years 1992 through 1996. Taxes on the adjustments proposed by the IRS,
excluding interest, amounted to approximately $4.9 million. The IRS challenged
the fiscal tax years in which various income and expense deductions were
recognized, resulting in potential timing differences of previously paid federal
income taxes. The Company appealed these proposed adjustments through the IRS
appeals process and on August 25, 2001 reached a settlement on the audit. In
accordance with the settlement, the Company paid to the IRS a total of $1.5
million in fiscal 2002 including interest. The settlement of $1.5 million had no
material impact on the Company's results of operations in fiscal 2002 due to
adequate provisions previously established by the Company.

E. COMMITMENTS AND CONTINGENCIES

At February 2, 2002, the Company was obligated under operating leases covering
store and office space, automobiles and certain equipment for future minimum
rentals as follows:

TOTAL
FISCAL (in thousands)
2003 $ 17,709
2004 17,054
2005 14,369
2006 9,974
2007 6,260
Thereafter 19,044
--------
$ 84,410
--------

In addition to future minimum rental payments, many of the store leases include
provisions for common area maintenance, mall charges, escalation clauses and
additional rents based on a percentage of store sales above designated levels.

The Company signed a lease for its corporate headquarters in Needham,
Massachusetts, during fiscal 1996. The term of the lease is for ten years ending
in November 2005. The lease provides for the Company to pay all related costs
associated with the land and headquarters building. Over the past four years,
the Company has subleased a large portion of these corporate headquarters. At
February 2, 2002, the Company had two subtenants. One of the subtenants has
vacated the leased premises, of approximately 14,500 square feet, but is still
paying the required rent through the end of their lease, which expires March
2003. The second tenant, whose lease expires in July 2003, leases approximately
15,300 square feet. In September 2000, the Company had entered into a third
lease agreement with an additional subtenant for 9,500 square feet. That
subtenant filed bankruptcy in fiscal 2001.

Under the lease for the corporate headquarters, a portion of the sublease
income, net of the Company's rental cost and certain apportioned common area
maintenance charges, is due back to the landlord when more than 30,000 square
feet of the office space becomes subleased. At February 2, 2002, the Company
sub-leased approximately 29,800 of the 80,000 square feet of its corporate
offices. The Company's commitment under this lease is reduced by the expected
future rental income to be received from the Company's two sublessees. The
Company expects to receive approximately $0.7 million in fiscal 2003 and $0.2
million in fiscal 2004 in rental income under these sublease agreements.

In November, 2000, the Company entered into an option agreement with the
landlord of its corporate headquarters. The agreement provided the landlord with
the option, if exercised within 15 months from the date of the agreement, to
terminate the Company's lease for its corporate headquarters, which expires
January 31, 2006. If such option was exercised by the landlord, then the Company
would have been entitled to receive $8.9 million provided that certain
conditions in connection with vacating the leased property were met. This
option, which was not exercised by the landlord, terminated on February 1, 2002.

The Company leases two warehouse facilities in Orlando, Florida, which it
utilizes as its merchandise distribution centers. One lease, which is for
approximately 60,000 square feet, is a five year lease which expires on August
14, 2005. At that time, the Company has the option to extend its lease for an
additional five year term. In fiscal 2002, the Company entered into a lease
agreement for an additional 16,000 square feet. The lease for this additional
space expires March 31, 2005. Until September 2001, the Company had also
utilized a 30,000 square foot third party distribution center in Mansfield,
Massachusetts. With its distribution centers in Florida in full operation, the
Company no longer required the services of a third party distributor.

Amounts charged to operations for all occupancy costs, automobile and leased
equipment expense were $23,038,000, $22,250,000 and $22,571,000 in fiscal 2002,
2001 and 2000, respectively. Of these amounts charged to operations, $49,000,
$75,000 and $23,000 represent payments based upon a percentage of adjusted gross
sales as provided in the lease agreement for fiscal 2002, 2001 and 2000,
respectively.

The Company is also subject to various legal proceedings and claims that arise
in the ordinary course of business. Management believes that the resolution of
these matters will not have an adverse impact on the results of operations or
the financial position of the Company.

F.STOCK OPTIONS

On April 3, 1992, the Board of Directors adopted the 1992 Stock Incentive Plan
(the "1992 Plan"), which became effective on June 9, 1992 when it was approved
by the stockholders of the Company. Under the original terms of the 1992 Plan,
up to 1,850,000 shares of Common Stock could be issued pursuant to "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended), options which are not "incentive stock options," conditioned stock
awards, unrestricted stock awards and performance share awards. The 1992 Plan is
administered by the Compensation Committee, all of the members of which are
non-employee directors. The Compensation Committee makes all determinations with
respect to amounts and conditions covering awards under the 1992 Plan. No
incentive stock options could be granted under the original terms of the 1992
Plan after April 2, 2002. Options have never been granted at a price less than
fair value on the date of the grant. Options granted to employees, executives
and directors typically vest over five, three and three years, respectively,
with the exception of the premium priced options issued to the executives which
vest over a five-year period. Options granted under the 1992 Plan expire ten
years from the date of grant. The 1992 Plan terminates when all shares issuable
thereunder have been issued.

By written consent dated as of April 28, 1997, the Board of Directors authorized
an increase in the number of shares of Common Stock issuable under the 1992 Plan
to 2,430,000 shares. In addition, the Board of Directors authorized an increase
in the number of options to purchase shares of Common Stock that could be
granted during any fiscal year to any individual participant from 75,000 to
270,000 shares, but only if all such stock options had a per share exercise
price not less than 200% of fair market value of one share of Common Stock on
the date of grant. Furthermore, they authorized the elimination of certain
provisions of the 1992 Plan that were no longer required by Rule 16b-3 under the
Securities Exchange Act of 1934, as amended. The stockholders approved this
increase and the other amendments to the 1992 Plan at the Annual Meeting of
Stockholders held on June 10, 1997.

On May 19, 2000, the Board of Directors approved an amendment to the 1992 Plan
to increase the number of shares of Common Stock authorized for issuance from
2,430,000 shares to 4,430,000 shares and to extend the date of termination of
the 1992 Plan from April 2, 2002 to April 2, 2007. This amendment was
subsequently approved by the Company's stockholders at the Annual Meeting of
Stockholders on June 26, 2000. At the Annual Meeting of Stockholders held on
July 31, 2001, the shareholders approved an amendment to the 1992 Plan to allow
the Company to grant options to purchase up to 270,000 shares of Common Stock to
any individual participant during any fiscal year so long as the exercise price
is not less than fair market value on the date of grant.

A summary of shares subject to the 1992 Plan:

FISCAL YEAR
-------------------------------------------
2002 2001 2000
- ----------------------------------------------------------------------------------------------

Outstanding at
beginning of year 851,850 501,075 2,103,225
Options granted 523,769 886,352 261,106
Options canceled 74,413 354,225 1,625,600
Options exercised 59,392 181,352 237,656
-------------------------------------------

Outstanding at end of year 1,241,814 851,850 501,075
-------------------------------------------

Options exercisable at
end of year 470,551 246,105 396,075
Common shares reserved
for future grants at
end of year 2,628,033 3,077,389 1,624,266

Weighted-average exercise price per option:
Outstanding at beginning of year $ 2.87 $ 6.68 $ 10.94
Granted during the year 3.69 1.40 1.60
Canceled during the year 1.88 5.41 12.15
Exercised during the year 2.49 1.54 1.10
Outstanding at end of year $ 3.31 $ 2.87 $ 6.68

The following table summarizes information about stock options outstanding under
the 1992 Plan at February 2, 2002:

Options Outstanding Options Exercisable
--------------------------------------- ------------------------------

Weighted Average
Range of Exercise Number Remaining Exercise Number Weighted Average
Prices Outstanding Contractual Life Price Exercisable Exercise Price

$0.81 to $2.15 608,414 8.0 years $ 1.35 280,451 $ 1.36
2.16 to 4.30 378,300 9.3 years 3.63 5,000 2.38
4.31 to 6.45 126,750 8.5 years 4.37 56,750 4.38
6.46 to 8.60 49,750 2.3 years 7.81 49,750 7.81
8.61 to 10.75 25,000 1.5 years 9.00 25,000 9.00
10.76 to 12.90 30,600 0.2 years 11.17 30,600 11.17
12.91 to 17.74 -- -- -- -- --
17.75 to 17.75 23,000 0.8 years 17.75 23,000 17.75
- --------------- --------- ------ ------- ------
$0.81 to $17.75 1,241,814 $ 3.31 470,551 $ 4.26
--------- ------ ------- ------

Agreements with Jewelcor Management, Inc. and Mr. Holtzman

On October 28, 1999, the Company entered into a consulting agreement with
Jewelcor Management, Inc. ("JMI"), currently the beneficial holder of
approximately 21% of the outstanding Common Stock, to assist in developing and
implementing a strategic plan for the Company and other related consulting
services as may be agreed upon between the Company and JMI. As compensation for
these services, JMI was given the right to receive a non-qualified stock option
exercisable for up to 400,000 shares of the Common Stock. These options, which
were originally scheduled to expire on April 30, 2002 and extended to April 30,
2004, were granted as compensation for consulting services to be performed over
the six-month term of the agreement, which commenced October 28, 1999. These
400,000 options, which were fully vested and exercisable, were issued outside of
the 1992 Plan at an exercise price of $1.16 per share equal to the market price
of the Common Stock on the date of grant. The fair market value of these
options, which was determined by an independent third party using a growth
model, was $63,560.

On May 25, 2001, the Board of Directors of the Company hired Seymour Holtzman,
who had acted as the non-employee Chairman of the Board, as an executive officer
and employee of the Company. Mr. Holtzman is also the President and Chief
Executive Officer, and indirectly, with his wife, the primary shareholder of
JMI. As part of Mr. Holtzman's employment with the company, he received an
option to purchase up to 300,000 shares of Common Stock at a price of $3.88 per
share, the closing price of the Common Stock on the date of grant. These
options, which were issued outside of the 1992 Plan, will vest at a rate of
100,000 shares annually and will expire 10 years from the date of grant. See
Note G for a full discussion of the Company's consulting agreements with JMI and
Mr. Holtzman.

Stock Options with Other Board Members

During the fourth quarter of fiscal 2000, stock options to purchase an aggregate
of 90,000 shares of Common Stock were issued outside of the 1992 Plan to three
non-employee directors as part of their consulting agreements with the Company.
These options have exercise prices between $1.16 and $1.44 and are fully vested
and exercisable. Of the 90,000 options issued, 60,000 remain outstanding at
February 2, 2002. See Note G for further discussion.

Stock Option Agreements with Executives

In March 2000, in connection with his initial employment with the Company, David
A. Levin, President and Chief Executive Officer was granted 300,000 options to
purchase shares of Common Stock at an exercise price of $1.19 per share. Of
these 300,000 options, 225,000 of them were issued outside of the 1992 Plan. On
May 26, 2001, the Company granted Mr. Levin an additional 125,000 options at an
exercise price of $3.88 per share, 50,000 of which were granted outside of the
1992 Plan.

In September 2000, in connection with his initial employment with the Company,
Dennis R. Hernreich, Senior Vice President and Chief Financial Officer, was
granted 60,000 options to purchase shares of Common Stock at an exercise price
of $2.06 per share. In November 2000, Mr. Hernreich was granted an additional
25,000 options to purchase shares of Common Stock at an exercise price of $2.38
per share. Of these 25,000 options, 10,000 of them were issued outside of the
1992 Plan. On May 26, 2001, the Company granted to Mr. Hernreich an additional
100,000 options at an exercise price of $3.88 per share, 25,000 of which were
granted outside of the 1992 Plan.

In October 2001, in connection with his initial employment with the Company,
Ronald N. Batts, Senior Vice President of Operations, was granted 50,000 options
to purchase shares of Common Stock at an exercise price of $2.75 per share.

The Company applies APB Opinion No. 25 and related Interpretations in accounting
for its plans. FASB Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), and requires the Company to elect either expense recognition under
SFAS 123 or its disclosure-only alternative for stock-based employee
compensation. The Company has elected the disclosure-only alternative and,
accordingly, no compensation cost has been recognized. The Company has disclosed
the pro forma net income or loss and per share amounts using the fair value
based method. Had compensation costs for the Company's grants for stock-based
compensation been determined consistent with SFAS 123, the Company's net income
(loss) and income (loss) per share would have been as indicated below:

FISCAL YEARS ENDED
----------------------------------------------------------------
(In Thousands, Except per Share Amounts) February 2, 2002 February 3, 2001 January 29, 2000
----------------------------------------------------------------

Net income (loss) - as reported $ (7,881) $ 3,216 $ (12,493)
Net income (loss) - pro-forma $ (8,158) $ 3,109 $ (12,614)

Income (loss) per share- basic and diluted as reported $ (0.54) $ 0.20 $ (0.78)
Income (loss) per share- basic and diluted pro- forma $ (0.56) $ 0.19 $ (0.78)

The effects of applying SFAS 123 in this pro-forma disclosure are not likely to
be representative of the effects on reported net income for future years. SFAS
123 does not apply to awards prior to 1995 and additional awards are
anticipated.

The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 2002, 2001 and 2000: expected volatility
of 91.8% in fiscal 2002, 91.7% in fiscal 2001 and 93.7% in fiscal 2000;
risk-free interest rate of 5.0%, 4.8% and 6.6% in fiscal 2002, 2001 and 2000,
respectively; and expected lives of 4.5 years. No dividend rate was used for
fiscal 2002, 2001 and 2000. The weighted- average fair value of options granted
in fiscal 2002, 2001 and 2000 was $2.78, $1.22 and $1.60, respectively.

Stock Repurchase Programs

During the second and third quarters of fiscal 2001, the Company repurchased
863,000 shares of Common Stock at an aggregate cost of $1,861,000 under a Stock
Repurchase Program that was approved by the Company's Board of Directors in June
2000. In the fourth quarter of fiscal 2001, the Company repurchased 1.8 million
shares of Common Stock at $2.50 per share through a "Dutch Auction" tender
offer. Under the terms of the offer, the Company invited its shareholders to
tender their shares to the Company at prices specified by the tendering
shareholders not in excess of $3.00 nor less than $2.20 per share, in ten-cent
($0.10) increments. The Company selected the lowest single per-share purchase
price that would allow it to buy 1.5 million shares, or up to an additional 1.0
million shares at the Company's option.

At February 2, 2002, the Company has a total of 3,040,000 million shares of
repurchased stock at an aggregate cost of $8.5 million which is reported by the
Company as treasury stock and is reflected as a reduction in stockholders'
equity.

In fiscal 2001, the Company utilized two brokerage firms in connection with the
repurchase of the 863,000 shares of Common Stock. Sterling Financial Investment
Group, Inc. ("Sterling Financial"), one of the firms used, is owned by a family
relation of Seymour Holtzman, the Chairman of the Company's Board of Directors.
The Company negotiated a commission of $0.03 per share with each brokerage firm
for trades executed as part of the Company's stock repurchase program. The
Company paid Sterling Financial total commissions of $20,940 for trades they
executed as part of the Company's stock repurchase program.

These shares were purchased in the open market and were recorded by the Company
as treasury stock and are reflected as a reduction in stockholders' equity.
Treasury shares also include restricted shares of the Company which were
forfeited by associates.

G. RELATED PARTIES

Jewelcor Management, Inc.

On October 28, 1999, the Company entered into a consulting agreement with
Jewelcor Management, Inc. ("JMI") to assist in developing and implementing a
strategic plan for the Company and for other related consulting services as may
be agreed upon between JMI and the Company. Seymour Holtzman, who became the
Company's Chairman of the Board on April 11, 2000, is the beneficial holder of
approximately 22% of the outstanding Common Stock (principally held by JMI). He
is also the President and Chief Executive Officer, and indirectly, with his
wife, the primary shareholder of JMI. As compensation for these services, JMI
was given the right to receive a non-qualified stock option to purchase up to
400,000 shares of Common Stock, exercisable at the closing price of the Common
Stock on October 28, 1999. JMI was also entitled to certain additional
compensation in respect of its services under the consulting agreement, which
was paid to JMI in shares of Common Stock in lieu of cash. The total value of
the compensation paid to JMI under this agreement was $347,560, which consisted
of (i) stock options to purchase 400,000 shares of Common Stock, which was
valued by an independent third party, using a growth model, at $63,560 and (ii)
the issuance of 203,489 shares of Common Stock, which had an aggregate market
value of $240,000.

On June 26, 2000, the Company extended its consulting arrangement with JMI for
an additional one-year period commencing on April 29, 2000 and ending on April
29, 2001. As payment for services rendered under this extended agreement, the
Company issued to JMI 182,857 non-forfeitable and fully vested shares of Common
Stock. The fair value of those shares on June 26, 2000, the date of issuance,
was $240,000 or $1.3125 per share. The agreement also includes a significant
disincentive for non-performance, which would require JMI to pay to the Company
a penalty equal to 150% of any unearned consulting services.

On May 25, 2001, the Board of Directors approved the extension of the existing
consulting agreement with Jewelcor Management Inc. ("JMI") for an additional
one-year term commencing on April 29, 2001 and ending on April 28, 2002. As
payment for services rendered under this agreement, the Company issued to JMI
61,856 non-forfeitable and fully vested shares of Common Stock. The fair value
of those shares on May 25, 2001, the date of issuance, was $240,000 or $3.88 per
share.

On May 25, 2001, the Board of Directors decided to hire Mr. Holtzman, who had
served as the Company's non-employee Chairman of the Company, as an officer and
employee of the Company. In connection with the hiring of Mr. Holtzman, the
Board granted Mr. Holtzman an option, outside of the 1992 Plan, to purchase an
aggregate of 300,000 shares of Common Stock at an exercise price of $3.88 per
share, equal to the closing price of the Common Stock on that date. The option
represents the principal portion of Mr. Holtzman's compensation as an employee
of the Company.

In fiscal 2000, the Company also reimbursed JMI in the amount of $400,000, which
was paid in shares of Common Stock, for expenses incurred by JMI in connection
with the 2000 proxy solicitation. Based on the closing price of the stock on
October 29, 1999, JMI received 346,021 shares of Common Stock.

Arrangements with Other Directors

In fiscal 2000, the Company also entered into three consulting agreements with
three of its other Board members: John J. Schultz, Robert L. Patron and George
T. Porter, Jr.

On October 28, 1999, the Company engaged John J. Schultz, under a consulting
agreement, to act as President and Chief Executive Officer of the Company on an
interim basis and to assist in the search for a permanent President and Chief
Executive Officer. Mr. Schultz was paid a rate of $2,000 per day, payable at his
election in cash or in shares of Common Stock, plus reimbursement of reasonable
out-of-pocket expenses. Mr. Schultz was paid $63,179 and $83,311 as compensation
and reimbursement of related expenses during fiscal 2001 and 2000, respectively.
As part of his compensation, Mr. Schultz was also granted stock options
exercisable for up to 95,000 shares of Common Stock. The per share exercise
price of these options was the closing price of the Common Stock on the date of
grant. On January 12, 2001, Mr. Schultz resigned as a Director of the Company.
In conjunction with his resignation, Mr. Schultz exercised 105,000 options and
sold the shares issued upon exercise back to the Company. Such options related
to his services as a board member in addition to his consulting agreement. The
Company paid Mr. Schultz $97,032, which represented the spread between the
closing price of Common Stock on January 12, 2001 of $2.1875 per share and the
exercise price of the various options. The Company holds these 105,000
repurchased shares of Common Stock as treasury stock at February 2, 2002.

On November 19, 1999, the Company entered into a consulting agreement with
Business Ventures International, Inc., a company affiliated with Robert Patron,
a member of the Company's Board, to advise the Company with regard to real
estate matters. As compensation for these services, Mr. Patron is paid a rate of
$2,000 per day, payable at his election in cash or in shares of Common Stock,
plus reimbursement of reasonable out-of-pocket expenses. Mr. Patron was paid
$35,362 and $14,000 as compensation and reimbursement of related expenses for
fiscal 2001 and 2000, respectively. No compensation for professional services
under this agreement were paid in fiscal 2002. As part of his compensation, Mr.
Patron was also granted stock options exercisable for up to 30,000 shares of
Common Stock. The per share exercise price of these options was the closing
price of shares of Common Stock on the date of grant. All 30,000 options remain
outstanding at February 2, 2002.

On February 8, 2000, the Company retained Mr. Porter as a consultant to advise
the Company with regard to merchandising strategies and operations. As
compensation for these services, Mr. Porter is paid a rate of $2,000 per day,
payable at his election in cash or in shares of Common Stock, plus reimbursement
of reasonable out-of-pocket expenses. Mr. Porter was paid $13,661 and $7,373 as
compensation and reimbursement for related expenses for fiscal 2001 and 2000,
respectively. No compensation for professional services under this agreement
were paid in fiscal 2002. As part of his compensation, Mr. Porter was also
granted stock options exercisable for up to 30,000 shares of Common Stock. The
per share exercise price of these options was the closing price of shares of
Common Stock on the date of grant. All 30,000 options remain outstanding at
February 2, 2002.

On June 26, 2000, the Company extended a loan to David A. Levin, its President
and Chief Executive Officer, in the amount of $196,875 in order for Mr. Levin to
acquire from the Company 150,000 newly issued shares of Common Stock at the
closing price of the Common Stock on that day. The Company and Mr. Levin entered
into a secured promissory note, whereby Mr. Levin agrees to pay to the Company
the principal sum of $196,875 plus interest due and payable on June 26, 2003.
The promissory note bears interest at a rate of 6.53% per annum and is secured
by the 150,000 acquired shares of Common Stock.

H. EMPLOYEE BENEFIT PLANS

The Company has a defined contribution 401(k) plan that covers all eligible
employees who have completed one year of service. Under this plan, the Company
may provide matching contributions up to a stipulated percentage of employee
contributions. The expenses of the plan are fully funded by the Company; and the
matching contribution, if any, is established each year by the Board of
Directors. For fiscal 2002, the matching contribution by the Company was set at
50% of contributions by eligible employees up to a maximum of 6% of salary. The
Company recognized $137,000, $159,000 and $141,000 of expense under this plan in
fiscal 2002, 2001 and 2000, respectively.

I.RESTRUCTURING

Fiscal 2000

During the fourth quarter of fiscal 2000, the Company recorded a pre-tax charge
of $15.2 million related to inventory markdowns, the abandonment of the
Company's Boston Traders(R) and related trademarks, severance, the closure of
the Company's five Buffalo Jeans (R) Factory Stores and its five remaining
Designs stores. All of these stores were closed and all employees were severed
by the end of fiscal 2000. Of the $15.2 million charge, $7.8 million, which
relates to markdowns, is reflected as a reduction in gross margin for fiscal
2000. This pre-tax charge of $15.2 million included cash costs of approximately
$3.6 million related to lease terminations and corporate and store severance,
and approximately $11.6 million of non-cash costs related to inventory markdowns
and the impairment of trademarks and store assets. In addition, the Company also
recorded a write-down of tax assets of $6.0 million attributable to the
potential that certain deferred federal and state tax assets may not be
realizable.

The total cost of store closings and severance was $182,000 less than the
original charge due to favorable lease negotiations on lease termination
payments. As a result, the Company recognized income of $182,000 in the fourth
quarter of fiscal 2001 which was reflected in the Provision for impairment of
assets, store closings and severance on the Consolidated Statement of Operations
for fiscal 2001. There is no remaining restructuring reserve balance at February
2, 2002.

J.ACQUISITIONS AND NEW BUSINESS ARRANGEMENTS

License Agreement with Candies, Inc.

In January 2002, the Company entered into a license agreement with Candie's,
Inc. ("Candie's"), a leading designer and marketer of young women's footwear,
apparel and accessories. The Candie's(R) license agreement provides the Company
with the exclusive right to open and operate Candie's(R) branded stores in
outlet malls and value centers throughout the United States and Puerto Rico as
long as the Company opens the requisite number of outlet stores per year, and
reaches 75 outlet stores in five years. Generally, to maintain the exclusivity
in the value centers, the Company must open approximately five stores per year.
If the Company does not maintain the store opening schedule required in the
license agreement, the Company may lose the right to operate the existing stores
within an exclusive radius until the expiration of the term. The license
agreement also establishes that product purchased from Candie's will be priced
according to a cost-plus formula. Among other terms of the license agreement,
the Company can source its own Candie's(R) merchandise product for the retail
stores of Candie's or its licensees cannot supply the appropriate merchandise
assortments or quantities, as deemed by the Company.

In conjunction with this agreement, the Company also acquired from Candies, Inc.
one of its existing outlet stores located in Wrentham, Massachusetts. The
Company paid a purchase price of $434,000 for the appraised value of the assets,
which included inventory of approximately $105,000, furniture and fixtures of
approximately $154,000 and goodwill for the remaining $175,000. The Company also
assumed the obligations associated with the real estate leases for that store.
The operations of the Candie's(R) Outlet store, which were immaterial to the
consolidated results for the Company, were included in financial results of the
Company for the period of January 9, 2002 through February 2, 2002.

Joint Venture Agreement with EcKo Complex, LLC

Subsequent to fiscal 2002, the Company announced that it had entered into a
joint venture with EcKo Complex, LLC ("EcKo"), a privately held company with
worldwide annual sales exceeding $200 million, to open and operate EcKo(R)
branded outlet stores throughout the United States. EcKo(R) is a leading
design-driven lifestyle brand targeting young men and women.

Under the joint venture with EcKo, the Company, a 50.5% partner, would own and
manage retail outlet stores bearing the name EcKo(R) Unltd. and featuring
EcKo(R) branded merchandise. EcKo's contribution to the joint venture is the use
of its trademark and the merchandise requirements at cost of the retail outlet
stores. The Company will contribute all real estate and operating requirements
of the retail outlet stores, including but not limited to, the real estate
leases, payroll needs and advertising. Each partner will share in the operating
profits of the joint venture, after each partner has received reimbursement for
cost contributions. Under the terms of the agreement, the Company must maintain
a prescribed store

opening schedule and open 75 stores over a six year period in order to maintain
the joint venture's exclusivity. At certain times during the term of the
agreement, the Company may exercise a put option to sell its share of the retail
joint venture, and EcKo has an option to acquire the Company's share of the
retail joint venture at a price based on the performance of the retail outlet
stores.

For financial reporting purposes, the joint venture's assets, liabilities and
results of operations will be consolidated with those of the Company and EcKo's
49.5% ownership interest in the joint venture will be included in the Company's
consolidated financial statements as minority interest.

K. SELECTED QUARTERLY DATA (UNAUDITED)

FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FULL YEAR
---------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)

FISCAL YEAR 2002
Net Sales $ 39,395 $ 47,698 $ 54,301 $ 53,725 $ 195,119
Gross Profit 9,405 13,015 12,644 12,157 47,221
Net Income (Loss) (1) (1,368) 715 538 (7,766) (7,881)
Earnings (loss) per Share - Basic (0.09) 0.05 0.04 (0.53) (0.54)

Earnings (loss) per Share - Diluted (0.09) 0.05 0.04 (0.53) (0.54)
FISCAL YEAR 2001
Net Sales $ 39,379 $ 45,693 $ 56,587 $ 52,871 $ 194,530
Gross Profit 10,652 13,421 17,385 13,527 54,985
Net Income (Loss) (474) 1,084 2,891 (285) 3,216
Earnings (loss) per Share - Basic (0.03) 0.07 0.18 (0.02) 0.20
Earnings (loss) per Share - Diluted (0.03) 0.06 0.18 (0.02) 0.20

(1) In the fourth quarter of fiscal 2002, the Company recorded a write-down of
its deferred tax assets of $8.0 million attributable to the potential that
certain federal net operating loss carryforwards may not be realizable.

Historically, the Company has experienced seasonal fluctuations in net sales,
gross profit and net income, with increases occurring during the Company's third
and fourth quarters as a result of "Fall" and "Holiday" seasons. In recent
years, as the Company's percentage of outlet business increases in relation to
total sales, the Company expects that the third and fourth quarters will
decrease as a percentage of total sales. Quarterly sales comparisons are not
necessarily indicative of actual trends, since such amounts also reflect the
addition of new stores, closing of stores and the remodeling of stores during
these periods.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

On October 3, 2000, Deloitte & Touche LLP resigned as the Company's independent
accountants. On October 11, 2000, Ernst & Young LLP (Ernst & Young) was engaged
as the Company's new principal independent auditors. The Company's Board of
Directors and its Audit Committee unanimously approved the change of principal
independent auditors.

Since Deloitte & Touche LLP was retained on December 21, 1999 and thereafter
through October 3, 2000, there were no disagreements between the Company and
Deloitte & Touche LLP on matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to the satisfaction of Deloitte & Touche LLP, would have caused
Deloitte & Touche LLP to make reference to the subject matter thereof in its
reports. Since Deloitte & Touche LLP was retained on December 21, 1999 and
thereafter through October 3, 2000, there was no occurrence of the kinds of
events described in Item 304(a)(1)(v) of Regulation S-K promulgated by the
Securities and Exchange Commission. In addition, none of the reports issued by
Deloitte & Touche LLP concerning the Company's financial statements since it was
retained on December 21, 1999 and thereafter through October 3, 2000 contain any
adverse opinion or disclaimer of opinion. Such report was not qualified or
modified as to uncertainty, audit scope, or accounting principles.

PART III.

Item 10. Directors and Executive Officers of the Registrant

Certain information concerning the directors of the Company is set forth below:

DIRECTOR
NAME (1) AGE POSITION SINCE
--------- ------- -------------- -------------

Seymour Holtzman............... 65 Chairman of the Board and Director 2000

David A. Levin................. 51 President, Chief Executive Officer and Director 2000

Stanley I. Berger.............. 72 Director 1976-1999
and 2000

Jesse Choper................... 66 Director (2),(3) 1999

Alan Cohen..................... 65 Director 2000

Jeremiah P. Murphy, Jr......... 50 Director (2),(4) 1999

Joseph Pennacchio.............. 55 Director (2),(3),(4) 1999

George T. Porter, Jr........... 55 Director 1999

(1) Robert Patron, a director of the Company since October 2000, resigned his
position effective March 11, 2002.

(2) Current member of the Audit Committee.

(3) Current member of the Compensation Committee.

(4) Current member of the Corporate Governance Committee.

Seymour Holtzman was appointed a director of the Company on April 7, 2000 and
Chairman of the Board on April 11, 2000. On May 25, 2001, the Board of Directors
of the Company hired Mr. Holtzman as an officer and an employee of the Company.
Mr. Holtzman is Chairman and Chief Executive Officer of: Jewelcor Management
Inc.; C.D. Peacock, Inc., a prominent Chicago, Illinois retail jewelry
establishment; and S.A. Peck & Company, a retail and mail order jewelry company.
In addition, Mr. Holtzman served as President and Chief Executive Officer of
Jewelcor Incorporated (a formerly New York Stock Exchange listed company) from
1973 to 1988. From 1986 to 1988, Mr. Holtzman was Chairman and Chief Executive
Officer of Gruen Marketing Corporation (a formerly American Stock Exchange
listed company), which distributed watches nationwide and operated retail
factory outlets. Mr. Holtzman is currently on the Board of Directors of Little
Switzerland, Inc. and Ambanc Holding Co., Inc.

David A. Levin was appointed President and Chief Executive Officer of the
Company on April 10, 2000 and a director of the Company on April 11, 2000. From
1999 to 2000, he served as the Executive Vice President of eOutlet.com. Mr.
Levin was President of Camp Coleman, a division of The Coleman Company, from
1998 to 1999. Prior to that, Mr. Levin was President of Parade of Shoes, a
division of J. Baker, Inc., from 1995 to 1997. In addition, Mr. Levin was
President of Prestige Fragrance & Cosmetics, a division of Revlon, Inc., from
1991 to 1995. Mr. Levin has worked in the retail industry for almost 30 years.

Stanley I. Berger is a founder of the Company and served as Chairman of the
Board from 1976 to 1999. Mr. Berger also served as the Company's Chief Executive
Officer from January 1993 until December 1994. Prior to January 1993, Mr. Berger
served as the President and Chief Operating Officer of the Company since 1977.
Mr. Berger has been a director of the Company since its inception, except for
the period between October 8, 1999 and April 11, 2000.

Jesse Choper was elected a director of the Company on October 8, 1999. Mr.
Choper is the Earl Warren Professor of Public Law at the University of
California at Berkeley School of Law, where he has taught since 1965. From 1960
to 1961 Professor Choper was a law clerk for Supreme Court Chief Justice Earl
Warren. Mr. Choper is also on the Board of Directors of musicmaker.com, Inc.

Alan Cohen was appointed as a director of the Company on May 2, 2000. Mr. Cohen
has been Chairman of Alco Capital Group, which specializes in corporate
restructuring, reorganizations, and other turnaround situations, since 1975.
Currently he serves as the court appointed trustee of County Seat Stores, Inc.,
a nation-wide chain of specialty apparel stores. Mr. Cohen is also on the Board
of Directors of Ames Department Stores, Inc.

Jeremiah P. Murphy, Jr. was elected a director of the Company on October 8,
1999. Mr. Murphy has been the President of the Harvard Cooperative Society, a
120-year-old member based retail business, since 1992. From 1987 to 1992, Mr.
Murphy was Vice-President/General Manager of Neiman Marcus' largest and most
profitable store, North Park in Dallas, Texas.

Joseph Pennacchio was elected a director of the Company on October 8, 1999. Mr.
Pennacchio has been Chief Executive Officer of Aurafin LLC, a privately held
jewelry manufacturer and wholesaler, since 1997. From May 1994 to May 1996, Mr.
Pennacchio was President of Jan Bell Marketing, a $250 million jewelry retailer,
which is listed on the American Stock Exchange. Mr. Pennacchio was also
President of Jordan Marsh Department Stores from 1992 to 1994.

George T. Porter, Jr. was appointed a director of the Company on October 28,
1999. Mr. Porter was President of Levi's USA for Levi Strauss & Co. from 1994 to
1997. Beginning in 1974, Mr. Porter held various positions at Levi Strauss &
Co., including President of Levi's Men's Jeans Division. Mr. Porter was also
Corporate Vice President, General Manager, Nike USA from 1997 to 1998.

All directors hold office until the next Annual Meeting of Stockholders and
until their respective successors have been duly elected and qualified.

Executive Officers

Dennis R. Hernreich, 45, has been Senior Vice President, Chief Financial Officer
and Treasurer since September 5, 2000. Prior to joining the Company, from 1996
through 1999, Mr. Hernreich held the position of Senior Vice President and Chief
Financial Officer of Loehmann's Inc., a national retailer of women's apparel.
Most recently, from 1999 to August 2000, Mr. Hernreich was Senior Vice President
and Chief Financial Officer of Pennsylvania Fashions, Inc., a 275-store retail
outlet chain operating under the name Rue 21.

Ronald N. Batts, 52, has been Senior Vice President of Operations since October
22, 2001. Mr. Batts previously worked as Senior Vice President of Retail for the
Haggar Clothing Company where he established and directed Haggar Direct, Inc., a
consumer direct start-up company. Prior to Haggar, Mr. Batts was Chief Operating
Officer for Mothercare stores, a 238 store national maternity and childrenswear
specialty chain. In addition, he has served as Chief Executive Officer of CSVA,
Inc., a venture capital funded retail acquisition company, as President of
Eckerd Apparel, a division of Jack Eckerd Corporation, and as President of two
divisions of Mercantile Stores.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than 10% of a registered class of the Company's equity
securities (collectively, the "Reporting Persons"), to file reports of ownership
and changes in ownership with the Commission. The Reporting Persons are required
to furnish the Company with copies of all Section 16(a) reports they file. Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to the
Company during fiscal 2002 and Forms 5 and amendments thereto furnished to the
Company with respect to fiscal 2002, the Company believes that the current
Reporting Persons complied with all applicable Section 16(a) reporting
requirements and all required reports were filed in a timely manner.

Item 11. Executive Compensation

Summary Compensation Table. The following Summary Compensation Table sets
forth certain information regarding compensation paid or accrued by the Company
with respect to the Chief Executive Officer, the Chief Financial Officer and the
Senior Vice President of Operations of the Company as of the end of fiscal 2002
and as of February 3, 2001 ("fiscal 2001"). The table also includes two former
executives of the Company, including John J. Schultz, former Interim President
and Chief Executive Officer from January 2000 through April 2000, and Dan O.
Paulus, former Senior Vice President and General Merchandising Manager who
resigned November 14, 2000 (collectively, the "Named Executive Officers"), for
fiscal 2001 and the fiscal year ended January 29, 2000 ("fiscal 2000").

Summary Compensation Table

Long-Term
Name and Annual Compensation
Principal Position Fiscal Compensation Awards All Other
(at February 2, 2002) Year Salary Bonus Options Compensation(1)
--------------------- ---- ------ ----- ------- ---------------

Seymour Holtzman 2002 $ 18,616 $ -0- 300,000 $ -0-
Chairman of the Board (2)

David A. Levin 2002 $ 382,374 -0- 125,000 $ 14,484
President and Chief Executive 2001 $ 311,758 -0- 300,000 $ 449
Officer

Dennis R. Hernreich 2002 $ 229,615 $ 15,000 100,000 $ 6,829
Senior Vice President and 2001 $ 121,610 $ 6,250 85,000 $ 85,307
Chief Financial Officer and
Treasurer (3)

Ronald N. Batts 2002 $ 86,432 $ 6,000 50,000 $ 10,403
Senior Vice President of Operations (4)

John J. Schultz 2001 $ 63,179 $ -0- 60,000 $ -0-
Former Interim President and 2000 $ 58,000 $ -0- 30,000 $ -0-
Chief Executive Officer (5)

Dan O. Paulus 2001 $ 221,928 $ -0- 35,000 $ 5,570
Former Senior Vice President and 2000 $ 233,700 $ 70,000 -0- $ 3,540
General Merchandise Manager (6)

- ---------------
(1) The amounts disclosed in this column with respect to fiscal 2002
represent: (i) payments by the Company of insurance premiums for term life
insurance for the benefit of the executive officers (Mr. Levin $3,131, Mr.
Hernreich $411 and Mr. Batts $124); (ii) matching contributions made by
the Company for the benefit of each of the following executive officers to
the Company's retirement plan (the "401(k) Plan") established pursuant to
Section 401(k) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code") (Mr. Levin $4,482 and Mr. Hernreich $469); (iii)
car allowances (Mr. Levin $6,872 and Mr. Hernreich $2,771); and (iv)
reimbursement for relocation costs (Mr. Hernreich $3,177 and Mr. Batts
$10,279).

(2) Mr. Holtzman was hired by the Company as an executive officer and employee
of the Company on May 25, 2001. As compensation for his services, the
Company granted to Mr. Holtzman an option to purchase up to 300,000 shares
of the Company's common stock, see "Employment Agreements" for more
discussion.

(3) Mr. Hernreich's employment agreement entitles him to receive minimum
monthly payments in respect of his annual bonus at the rate of $1,250 per
month. Any annual bonus that the Compensation Committee determines shall
be paid to Mr. Hernreich would be reduced by the total of all such
payments made to the executive. During fiscal 2002 and fiscal 2001, Mr.
Hernreich received a total of $15,000 and $6,250, respectively.

(4) Mr. Batts has been Senior Vice President of Operations since October 22,
2002. Mr. Batts' employment agreement entitles him to receive minimum
monthly payments in respect of his annual bonus at the rate of $2,000 per
month for the initial term of the agreement. Any annual bonus that the
Compensation Committee determines shall be paid to Mr. Batts would be
reduced by the total of all such payments made to the executive. During
fiscal 2002, Mr. Batts received a total of $6,000, which represents the
three months from when Mr. Batts started with the Company.

(5) Mr. Schultz acted in the position of interim President and Chief Executive
Officer from October 20, 1999 until April 10, 2000.

(6) Mr. Paulus served as the Company's Senior Vice President and General
Merchandise Manager from February 4, 2000 to November 14, 2000.

Option Grants Table. The following Option Grants Table sets forth certain
information as of February 2, 2002, regarding stock options granted during
fiscal 2002 by the Company to the Named Executive Officers.

Option Grants In Last Fiscal Year

Potential Realizable
Individual Grants Value of Assumed
------------------------------------------------------ Annual Rates of
Percent of Stock Price
Number of Total Options Appreciation for
Shares of Common Stock Granted Exercise Option Term (1)
Underlying to Employees in Price Per Expiration ---------------
Options Granted Fiscal Year Share Date 5% 10%
----------------------- ---------------- --------- ---------- -----------------------

Seymour Holtzman 300,000 33.8% $ 3.88 5/25/11 $ 732,033 $ 1,855,116

David A. Levin 125,000 14.1% $ 3.88 5/25/11 $ 305,014 $ 772,965

Dennis R. Hernreich 100,000 11.3% $ 3.88 5/25/11 $ 244,011 $ 618,372

Ronald N. Batts 50,000 5.6% $ 2.75 10/22/11 $ 86,473 $ 219,140

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

(1) The amounts shown on these columns represent hypothetical gains that could
be achieved for the options if exercised at the end of the option term.
These gains are based on assumed rates of stock appreciation (based on a
market value on the date of the grant) of 5% and 10% compounded annually
from the date the options were granted to their expiration date. The gains
shown are net of the option exercise price, but do not include deductions
for taxes or other expenses associated with the exercise. Actual gains, if
any, on stock option exercises will depend on the future performance of
the Common Stock and the date on which the options are exercised.

Aggregate Option Exercises and Fiscal Year-End Option Value Table. The following
table sets forth information for the Named Executive Officers with respect to
the exercise of stock options during the fiscal year ended February 2, 2002 and
the year-end value of unexercised options.

Aggregated Option Exercises in Fiscal 2002 and Fiscal Year-End Option Values
Number and Value of Securities

Underlying Exercisable/
Unexercisable Shares (1)
Shares ------------------------------------
Acquired on Value Exercisable Unexercisable
Name Exercise (#) Realized ($) # of Shares Value # of shares Value
- -----------------------------------------------------------------------------------------------------------

Seymour Holtzman -0- -0- 15,000 $ 40,938 315,000 $ 77,563
David A. Levin -0- -0- 100,000 $ 281,250 325,000 $ 577,500
Dennis R. Hernreich -0- -0- 28,334 $ 52,293 156,666 $ 16,582
Ronald N. Batts -0- -0- -0- $ -0- 50,000 $ 62,500

(1) Amounts are based on the difference between the closing price of the
Company's Common Stock on February 1, 2002 ($4.00) and the exercise price.

401(k) Plan

On January 27, 1993, the Board of Directors adopted the 401(k) Plan. All
eligible employees of the Company are entitled to participate in such plan. The
401(k) Plan permits each participant to defer up to fifteen percent of such
participant's annual salary up to a maximum annual amount ($11,000 in calendar
year 2002 and $10,500 in calendar years 2001 and 2000). The Board of Directors
of the Company may determine, from fiscal year to fiscal year, whether and to
what extent the Company will contribute to the 401(k) Plan by matching
contributions made to such plan by eligible employees. During fiscal 2002, the
matching contribution by the Company continued to be 50% of contributions by
eligible employees up to a maximum of six percent of salary.

Key Man Insurance

In fiscal 2001, the Company obtained a key man life insurance policy in the
amount of $2,000,000 on the life of Mr. Levin. In fiscal 2002, the Company
obtained a key man life insurance policy in the amount of $2,000,000 on the life
of Mr. Hernreich.

Employment Agreements

The Company entered into an employment agreement, effective as of March 31,
2000, with David A. Levin for a two-year term ending April 10, 2002. Mr. Levin's
agreement was extended on April 10, 2001 by unanimous consent of the Board of
Directors for an additional two- year term to end on April 10, 2004.

As of September 4, 2000, the Company entered into an employment agreement with
Dennis R. Hernreich for a one-year term ending September 1, 2001. Mr.
Hernreich's agreement was also extended as of April 25, 2001 by the unanimous
consent of the Board of Directors for an additional one-year term to end on
September 4, 2002.

As of October 22, 2001, the Company entered into an employment agreement with
Ronald N. Batts for a one-year term ending October 22, 2002.

All three of these employment agreements with Messrs. Levin, Hernreich and Batts
(collectively, the "Employment Agreements") automatically renew for successive
one-year terms unless either party notifies the other to the contrary at least
90 days, or 60 days in the case of Mr. Batts, prior to expiration of the then
current term.

The Employment Agreements require each executive officer to devote substantially
all of the executive officer's time and attention to the business of the Company
as necessary to fulfill his respective duties. Pursuant to the Employment
Agreements, Messrs. Levin, Hernreich and Batts will be paid a base salary at an
annual rate of $375,000, $225,000 and $240,000, respectively. The Employment
Agreements with Messrs. Hernreich and Batts also contain a guaranteed
discretionary prepayment of bonus in the annual amount of $15,000 and $24,000,
respectively. The Employment Agreements provide that the annual rate of base
salary for the renewal term may be increased by the Compensation Committee of
the Board of Directors in its sole discretion. The Employment Agreements also
provide for the payment of bonuses in such amounts as may be determined by the
Compensation Committee. While Messrs. Levin, Hernreich and Batts are employed by
the Company, the Company will provide each executive an automobile allowance in
the amount of $600 per month. Each executive is entitled to vacation and to
participate in and receive any other benefits customarily provided by the
Company to its senior executives (including any bonus, retirement, short and
long-term disability insurance, major medical insurance and group life insurance
plans in accordance with the terms of such plans), including stock option plans,
all as determined from time to time by the Compensation Committee.

The Employment Agreements for Messrs. Hernreich and Batts also provide for
compensation to relocate to the Boston area. In accordance with their
agreements, Messrs. Hernreich and Batts are entitled to receive a total amount
of $85,000 for moving costs associated with their relocation to Boston. Mr.
Hernreich received $85,000 less applicable taxes in fiscal 2001. In addition,
Messrs. Hernreich and Batts are entitled to receive reimbursement for reasonable
expenses associated with their temporary living arrangements.

Mr. Levin is entitled to receive an annual bonus of up to 50%, Mr. Hernreich is
entitled to receive an annual bonus of up to 45%, and Mr. Batts is entitled to
receive an annual bonus of up to 40% of their respective annual base salaries
depending on the performance of the Company. The Compensation Committee of the
Board of Directors shall determine, in its sole discretion, the amount of bonus
to be paid to the executive officers. Mr. Levin is entitled to receive an annual
bonus of 10% if the Company meets its annual projections for its fiscal budget
plan, as approved by the Board of Directors. Any bonus paid to Messrs. Hernreich
and Batts will first be reduced by the amount of the prepaid discretionary
bonuses discussed above. No bonuses were paid, above the $15,000 paid to Mr.
Hernreich and the $6,000 paid to Mr. Batts, in fiscal 2002.

On January 31, 2002, the Compensation Committee increased Messrs. Levin's and
Hernreich's base salary to $430,000 and $280,000, respectively. Under the new
terms, Mr. Hernreich's guaranteed discretionary prepayment of bonus is
eliminated going forward. Messrs. Levin and Hernreich also received bonuses for
fiscal 2002 of $70,000 and $45,000, respectively. These bonuses were paid in
fiscal 2003; however, Mr. Hernreich's paid bonus was $30,000 which reflected the
$15,000 prepayment paid in fiscal 2002.

The Employment Agreements provide that in the event the executive officer's
employment is terminated by the Company at any time for any reason other than
"justifiable cause" (as defined in the Employment Agreements), disability or
death, the Company is required to pay executive the lesser of (1) the base
salary for the remaining term of the related Employment Agreement or (2) an
amount equal to one half of the executive's annual salary. If the remaining term
of the related Employment Agreement on the date of termination is more than six
months, the executive must make a good faith effort to find new employment and
mitigate damages, costs and expenses to the Company. If he is terminated without
justifiable cause within one year after a Change of Control of the Company (as
defined in the Employment Agreements) has occurred, the executive shall receive
a lump sum payment in the amount of (1) the base salary for the remaining term
of the related Employment Agreement or (2) an amount equal to the current base
salary for one year. The Employment Agreements contain confidentiality
provisions pursuant to which each executive agrees not to disclose confidential
information regarding the Company. The Employment Agreements also contain
covenants pursuant to which each executive agrees, during the term of his
employment and for a one-year period following the termination of his
employment, not to have any connection with any business which competes with the
business of the Company.

For purposes of the Employment Agreements, a "Change in Control of the Company"
shall mean (i) any sale of all or substantially all of the assets of the Company
to any person or group of related persons within the meaning of Section 13(d) of
the Exchange Act ("Group"), (ii) any acquisition by any person or Group of
shares of capital stock of the Company representing more than 50% of the
aggregate voting power of the outstanding capital stock of the Company entitled
under ordinary circumstances to elect the directors of the Company ("Voting
Stock") or (iii) any replacement of a majority of the Board of Directors of the
Company over the twelve-month period following the acquisition of shares of the
capital stock of the Company representing more than 10% of the Voting Stock by
any person or Group which does not currently own more than 10% of such Voting
Stock (unless such replacement shall have been approved by the vote of the
majority of the directors then in office who either were members of the Board of
Directors at the beginning of such twelve-month period or whose elections as
directors were previously so approved).

On May 25, 2001, the Board of Directors hired Seymour Holtzman, who had served
as the Company's non-employee Chairman of the Board, as an executive officer and
employee of the Company. In connection with his hiring, the Board awarded Mr.
Holtzman an option to purchase an aggregate of 300,000 shares of the Company's
Common Stock at $3.88 per share, equal to the closing price of the Common Stock
on that date. The option vests at a rate of 100,000 shares per year over three
years and expires ten years from date of grant. The option represents the
principal portion of Mr. Holtzman's compensation as an employee of the Company.
Except for payment to Mr. Holtzman of $3,000 for his non-employee director fees,
which were received prior to May 25, 2001, Mr. Holtzman received $18,616 in
compensation during fiscal 2002.

Director Compensation

During fiscal 2002, non-employee directors of the Company were paid $3,000 plus
expenses for each meeting of the Board of Directors in which they participated.
During fiscal 2001, non-employee directors of the Company were paid, in addition
to reimbursement of expenses, for meetings of committees of the Board in which
they participated as follows: $3,000 for each Compensation Committee meeting;
$1,500 for each Audit Committee meeting; and $1,500 for each Corporate
Governance Committee meeting. During fiscal 2002, non-employee directors of the
Company were also eligible to participate in the Company's 1992 Stock Incentive
Plan, as amended (the "1992 Stock Incentive Plan"). Prior to January 20, 2000,
under the provisions of the 1992 Stock Incentive Plan, each non-employee
director of the Company who was elected by the stockholders to the Board would
automatically be granted, upon such election, a stock option to purchase 10,000
shares of Common Stock at the fair market value of Common Stock on the date of
grant. Each non-employee director of the Company who was re-elected by the
stockholders to the Board would be granted, upon such re-election, a stock
option to purchase 3,000 shares of Common Stock at the then fair market value of
Common Stock. On January 20, 2000, the Board of Directors amended the plan to
provide for the grant to each non-employee director of the Company a stock
option to purchase 15,000 shares of Common Stock upon such director's election
and a stock option to purchase 15,000 shares of Common Stock upon such
director's re-election. On June 26, 2001, the plan was further amended by the
Board of Directors to provide that each of such stock options would become
exercisable in three equal annual installments commencing with the date of
grant. All options are granted with a term of ten years .

The 1992 Stock Incentive Plan also provides that non-employee directors of the
Company may elect to receive all or a portion of their directors' fees, on a
current or deferred basis, in shares of Common Stock that are free of any
restrictions under the 1992 Stock Incentive Plan by entering into an irrevocable
agreement with the Company in advance of the beginning of a calendar year.
During fiscal 2002, all non-employee directors elected to receive their
directors' fees in Common Stock.

Compensation Committee Interlocks and Insider Participation

Persons serving on the Compensation Committee had no relationships with the
Company in fiscal 2002 other than their relationship to the Company as directors
entitled to the receipt of standard compensation as directors and members of
certain committees of the Board and their relationship to the Company as
beneficial owners of shares of Common Stock and options exercisable for shares
of Common Stock. No person serving on the Compensation Committee or on the Board
of Directors is an executive officer of another entity for which an executive
officer of the Company serves on such entity's board of directors or
compensation committee.

COMPENSATION COMMITTEE REPORT

Decisions concerning the compensation of the Company's executive officers
generally are made by the two-member Compensation Committee of the Board of
Directors. Each member of the Compensation Committee is a non-employee director
of the Company. This Compensation Committee Report summarizes the Company's
executive officer compensation practices and policies for fiscal year 2002. The
Compensation Committee consists of two members, Joseph Pennacchio and Jesse
Choper.

Compensation Policies

The Company's compensation policies are designed to link executive officer
compensation to the annual and long-term performance of the Company and to
provide industry-competitive compensation for such officers. The Company's
executive officer compensation consists of two key components: (1) an annual
component, consisting of annual base salary and annual incentive bonus, if any,
and (2) a long-term component consisting of the grant of stock options.

The policies with respect to each of these elements, as well as the bases for
determining the compensation of the Company's executives, are described below.

(1) Annual Component: Base Salary and Annual Incentive Bonus

The Compensation Committee reviews all base salaries for executive officers and
establishes them by reviewing the performance of each executive officer,
evaluating the responsibilities of each executive officer's position and
comparing the executive officers' salaries with salaries of executive officers
of other companies in the specialty retail apparel industry (the "Industry").
The Compensation Committee defines the Industry as public companies in the
specialty retail apparel business with similar sales and market capitalization.
Annual base salary adjustments are influenced by the Company's performance in
the previous fiscal year and the individual's contribution to that performance,
the individual's performance, promotions of the individual that may have
occurred during the fiscal year, and any increases in the individual's level of
responsibility (which is measured by various factors including, but not limited
to, the number of departments and employees for which the executive officer is
responsible). Under the Company's employment agreements with Messrs. Levin,
Hernreich and Batts, compensation for such executive officers had a base salary
element and annual cost of living increases for fiscal 2002. As discussed
previously, on January 31, 2002, the Compensation Committee increased the base
salaries of Messrs. Levin and Hernreich.

(2) Long-Term Component: Stock Options

To align executive officers' interests more closely with the interests of the
stockholders of the Company, the Company's long-term compensation program
emphasizes the grant of stock options exercisable for shares of Common Stock.
The amount of such awards is determined one or more times in each fiscal year by
the Compensation Committee. Stock options normally are granted to executive
officers in amounts based largely upon the size of stock-based awards of other
companies in the Industry for comparable positions as well as the availability
of shares of Common Stock under the 1992 Stock Incentive Plan. The Compensation
Committee may take into account other factors in determining the size of stock
option grants, including, but not limited to, the need to attract and retain
individuals the Compensation Committee perceives to be valuable to the Company.

In addition to the foregoing, executive officers receive benefits under certain
group health, long-term disability and life insurance plans, which are generally
available to the Company's eligible employees. After one year of service with
the Company, the executive officers are eligible to participate in the 401(k)
Plan. Benefits under these plans are not tied to corporate performance.

The Securities and Exchange Commission requires that this Compensation Committee
Report comment upon the Compensation Committee's policy with respect to Section
162(m) of the Internal Revenue Code, which limits the Company's tax deduction
with regard to compensation in excess of $1 million paid to the chief executive
officer and the four most highly compensated executive officers (other than the
chief executive officer) at the end of any fiscal year unless the compensation
qualifies as "performance-based compensation." The Compensation Committee's
policy with respect to Section 162(m) is to make every reasonable effort to
cause compensation to be deductible by the Company while simultaneously
providing executive officers of the Company with appropriate rewards for their
performance.

THE COMPENSATION COMMITTEE
Joseph Pennacchio
Jesse Choper

PERFORMANCE GRAPH

The following Performance Graph compares the Company's cumulative
stockholder return with that of a broad market index (Standard & Poor's
Industrials Index) and one published industry index (Standard & Poor's 500 -
Composite Retail Index) for each of the most recent five years ended January 31.
The cumulative stockholder return for shares of the Company's Common Stock and
each of the indices is calculated assuming that $100 was invested on January 31,
1997. The Company paid no cash dividends during the periods shown. The
performance of the indices is shown on a total return (dividends reinvested)
basis. The graph lines merely connect January 31 of each year and do not reflect
fluctuations between those dates. In addition there is a chart of the annual
percentage return of the Company's Common Stock, the S & P Industrial and
Composite Retail 500.

[GRAPHIC OMITTED]

Annual Return Percentage
Years Ending

Company/Index Jan 98 Jan 99 Jan 00 Jan 01 Jan 02

DESIGNS, INC. (63.54) 28.58 (46.67) 50.00 77.78
S&P INDUSTRIALS 23.80 32.14 16.12 (8.48) (18.56)
COMPOSITE RETAIL- 500 46.73 62.73 (1.65) 3.46 4.13

Indexed Returns

Base Period
Company/Index Jan 97 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02

DESIGNS, INC. 100 36.46 46.88 25.00 37.50 66.67
S&P INDUSTRIALS 100 123.80 163.59 189.96 173.86 141.59
COMPOSITE RETAIL - 500 100 146.73 238.78 234.85 242.97 253.01

To supplement the five year historical performance shown above, below is a
Performance Graph which compares the Company's cumulative stockholder return
since the change in control which occurred in October 1999. At the Company's
Annual Meeting of Stockholders held in October 1999, the stockholders voted to
elect a new slate of directors supported by Jewelcor Management, Inc.

[GRAPHIC OMITTED]

Item 12. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

The following table sets forth certain information with respect to persons
known to the Company to be the beneficial owners of more than five percent of
the issued and outstanding shares of Common Stock as of April 8, 2002. The
Company is informed that, except as indicated, each person has sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such person, subject to community property laws where
applicable.

Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned of Class (1)
- ------------------------------------ ------------------ ------------

Jewelcor Management, Inc........................................... 3,152,223 (2) 21.06%
100 N. Wilkes Barre Blvd.
Wilkes Barre, Pennsylvania 18702

Franklin Resources, Inc............................................ 1,030,000 (3) 7.07%
One Franklin Parkway
San Mateo, California 94403

Stanley I. Berger.................................................. 1,004,679 (4) 6.88%
100 Essex Road
Chestnut Hill, Massachusetts 02467

Dimensional Fund Advisors.......................................... 791,400 (5) 5.43%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401

- ----------
(1) As of April 8, 2002, 14,567,886 shares of Common Stock were issued and
outstanding.

(2) The Company has received a Statement of Changes in Beneficial Ownership on
Form 4 dated February 4, 2002, stating that Jewelcor Management Inc.
("JMI") was the beneficial owner of the number of shares of Common Stock
set forth opposite its name in the table. Includes options to acquire
400,000 shares of Common Stock. Excludes 132,765 shares, including options
to acquire 120,000 shares, owned individually by Seymour Holtzman and
30,000 shares owned by Mr. Holtzman's grandchildren. Mr. Holtzman is the
Chairman, President and Chief Executive Officer and, indirectly with his
wife, the primary shareholder of JMI.

(3) The Company has received a Schedule 13G dated February 14, 2002, stating
that Franklin Resources, Inc. was the beneficial owner of the number of
shares of Common Stock set forth opposite its name in the table.

(4) Includes options to acquire 25,000 shares of Common Stock.

(5) The Company has received a Schedule 13G dated January 30, 2002, stating
that Dimensional Fund Advisors was the beneficial owner of the number of
shares of Common Stock set forth opposite its name in the table.

Security Ownership of Management

The following table sets forth certain information as of April 8, 2002,
with respect to the directors of the Company, the Named Executive Officers and
the directors and executive officers of the Company as a group. Except as
indicated, each person has sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by such person, subject to
community property laws where applicable.

Number of Shares Percent
Name and Title Beneficially Owned of Class (1)
- -------------- ------------------ ------------

Seymour Holtzman 3,314,988 (2) 21.97%
Chairman of the Board and Director

David A. Levin 457,167 (3) 3.09%
Chief Executive Officer, President and Director

Dennis R. Hernreich 84,268 (4) *
Chief Financial Officer, Senior Vice President and Treasurer

Ronald N. Batts -- *
Senior Vice President of Operations

Stanley I. Berger, Director 1,004,679 (5) 6.88%

Jesse Choper, Director 67,136 (5) *

Alan Cohen, Director 42,545 (5) *

Jeremiah P. Murphy, Jr. , Director 63,446 (5) *

Joseph Pennacchio, Director 60,332 (5) *

George T. Porter, Jr. , Director 82,283 (6) *

Directors and Executive Officers as a group (10 persons)(8) 5,176,844(2)(7) 33.25%

- ----------

* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person that
are currently exercisable, or that become exercisable within 60 days, are
deemed outstanding. Such shares, however, are not deemed outstanding for
the purpose of computing the percentage ownership of any other person.
Percentage ownership is based on 14,567,886 shares of Common Stock
outstanding as of April 8, 2002, plus securities deemed to be outstanding
with respect to individual stockholders pursuant to Rule 13d-3(d)(1) under
the Exchange Act.

(2) Mr. Holtzman may be deemed to have shared voting and investment power over
3,314,988 shares of Common Stock, which includes 3,152,223 shares
(including options to acquire 400,000 shares) beneficially owned by JMI,
of which Mr. Holtzman is the Chairman, President and Chief Executive
Officer and indirectly, with his wife, the primary shareholder; 132,765
shares owned individually, which includes 120,000 shares subject to stock
options exercisable within 60 days; and 30,000 shares owned by Mr.
Holtzman's grandchildren as to which he disclaims beneficial ownership.

(3) Includes 241,667 shares subject to stock options exercisable within 60
days.

(4) Includes 61,668 shares subject to stock options exercisable within 60
days.

(5) Includes 25,000 shares subject to stock options exercisable within 60
days.

(6) Includes 55,000 shares subject to stock options exercisable within 60
days.

(7) Includes 1,003,335 shares subject to stock options exercisable within 60
days.

(8) Excludes 560,790 shares owned by Mr. Patron whom ceased to be a director
of the Company during fiscal year 2002.

Item 13. Certain Relationships and Related Transactions

Jewelcor Management, Inc.

On October 28, 1999, the Company entered into a consulting agreement with
Jewelcor Management, Inc. ("JMI") to assist in developing and implementing a
strategic plan for the Company and for other related consulting services as may
be agreed upon between JMI and the Company. Seymour Holtzman, who became the
Company's Chairman of the Board of Directors on April 11, 2000, is a beneficial
holder of approximately 22% of the outstanding Common Stock of the Company
(principally held by JMI). He is also the President and Chief Executive Officer,
and indirectly, with his wife, the primary shareholder of JMI. In fiscal 2000,
JMI received compensation under this agreement totaling $347,560 which consisted
of (i) a stock option to purchase 400,000 shares of the Company's Common Stock,
which was valued by an independent third party, using a growth model, at $63,560
and (ii) the issuance of 203,489 shares of the Company's Common Stock, which had
an aggregate market value of $240,000.

In June 2000, JMI received 182,857 non-forfeitable and fully vested shares of
the Company's Common Stock in connection with the Company extending its
consulting arrangement with JMI for an additional one-year period commencing on
April 29, 2000 and ending on April 29, 2001. The fair value of those shares on
June 26, 2000, the date of issuance, was $240,000 or $1.3125 per share. This
consulting agreement was again extended through April 29, 2002 at the same terms
and conditions. Under this extended agreement, JMI receives Common Stock of the
Company each month equal to $20,000 per month. The agreement also includes a
significant disincentive for non-performance, which would require JMI to pay to
the Company a penalty equal to 150% of any unearned consulting services.

In fiscal 2000, the Company also reimbursed JMI in the amount of $400,000, which
was paid in shares of the Company's Common Stock, for expenses incurred by JMI
in connection with the October 1999 proxy solicitation. Based on the closing
price of the stock on October 29, 1999, JMI received 346,021 shares of the
Company's Common Stock.

Certain Arrangements with Other Directors

On February 8, 2000, the Company retained Mr. Porter as a consultant to advise
the Company with regard to merchandising strategies and operations. As
compensation for these services, Mr. Porter is paid a rate of $2,000 per day,
payable at his election in cash or in shares of Common Stock, plus reimbursement
of reasonable out-of-pocket expenses. Mr. Porter was paid $4,000 and $13,661 as
compensation and reimbursement of related expenses for fiscal 2002 and 2001,
respectively. As part of his compensation, Mr. Porter was also granted stock
options exercisable for up to 30,000 shares of the Company's Common Stock. The
per share exercise price of these options was the closing price of the Common
Stock on the date of grant.

In June 2000, the Company extended a loan to David A. Levin, its President and
Chief Executive Officer, in the amount of $196,875 in order for Mr. Levin to
acquire from the Company 150,000 newly issued shares of the Company's Common
Stock at the closing price of the Common Stock on that day. The Company and Mr.
Levin entered into a secured promissory note, whereby Mr. Levin agrees to pay to
the Company the principal sum of $196,875 plus interest due and payable on June
26, 2003. The promissory note bears interest at a rate of 6.53% per annum and is
secured by the 150,000 acquired shares of the Company's Common Stock.

PART IV.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

14(a)(1) Financial Statements

The list of consolidated financial statements and notes required by this Item
14(a)(1) is set forth in the "Index to Financial Statements" on page 24 of this
Annual Report.

14(a)(2) Financial Statement Schedules

Schedule II- Valuation and Qualifying Accounts for the three fiscal years ended
February 2, 2002, February 3, 2001 and January 29, 2000 on page 65 of this
Annual Report.

All other schedules, other than the schedule listed above, have been omitted
because the required information is not applicable or is not present in amounts
sufficient to require submission of the schedules, or because the information
required is included in the financial statements or notes thereto.

14(a)(3) Exhibits

The list of exhibits required by this Item 14(a)(3) is set forth in the "Index
to Exhibits" beginning on page 66 of this Annual Report.

14(b) Reports on Form 8-K

None.

SCHEDULE II
DESIGNS, INC.

VALUATION AND QUALIFYING ACCOUNTS
For the Three Fiscal Years Ended February 2, 2002

Balance at Balance
Beginning of Net Provision Charges/ At End
Description Year (Benefit) Write-offs Year
(In thousands)

Accrued Restructuring Reserves
Year ended January 29, 2000 $7,161 $14,545 (1) $(15,010) $6,696 (3)
Year ended February 3, 2001 6,696 (182)(2) (5,662) 852 (4)
Year ended February 2, 2002 852 -- (852) 0

(1) Included in the severance and store closing charge for fiscal 2000 of
$14.5 million, is a markdown reserve of $7.8 million which was included in
costs of goods sold for the fiscal 2000. In addition, the total provision
of $14.5 million, included restructuring income of $717,000 recorded in
the fourth quarter due to excess reserves which were established in fiscal
1999.

(2) The ($182,000) recognized in fiscal 2001 represents income recognized as a
result of favorable lease negotiations on lease termination payments
relating to the fiscal 2000 restructuring program.

(3) Included in the reserve balance at year end is a markdown reserve of $3.5
million which was included in inventory on the consolidated balance sheet.

(4) Included in the reserve balance at year end are the remaining severance
and landlord settlement payments to be made in accordance with the fiscal
2000 restructuring program.

Exhibits

3.1 Restated Certificate of Incorporation of the Company, as
amended (included as Exhibit 3.1 to Amendment No. 3 of the
Company's Registration Statement on Form S-1 (No. 33-13402),
and incorporated herein by reference). *

3.2 Certificate of Amendment to Restated Certificate of
Incorporation, as amended, dated June 22, 1993 (included as
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
dated June 17, 1996, and incorporated herein by reference). *

3.3 Certificate of Designations, Preferences and Rights of a
Series of Preferred Stock of the Company established Series
A Junior Participating Cumulative Preferred Stock dated May
1, 1995 (included as Exhibit 3.2 to the Company's Annual
Report on Form 10-K dated May 1, 1996, and incorporated
herein by reference). *

3.4 By-Laws of the Company, as amended (included as Exhibit 3.4
to the Company's Quarterly Report on Form 10-Q dated
December 12, 2000, and incorporated herein by reference). *

10.1 1992 Stock Incentive Plan, as amended (included as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q dated
September 18, 2001, and incorporated herein by reference). *

10.2 License Agreement between the Company and Levi Strauss & Co.
dated as of April 14, 1992 (included as Exhibit 10.8 to the
Company's Annual Report on Form 10-K dated April 29, 1993,
and incorporated herein by reference). *

10.3 Amended and Restated Trademark License Agreement between the
Company and Levi Strauss & Co. dated as of October 31, 1998
(included as Exhibit 10.4 to the Company's Current Report on
Form 8-K dated December 3, 1998, and incorporated herein by
reference). *

10.4 Amendment to the Amended and Restated Trademark License
Agreement dated March 22, 2000 (included as Exhibit 10.7 to
the Company's Annual Report on Form 10-K dated April 28,
2000, and incorporated herein by reference). *

10.5 Second Amended and Restated Loan and Security Agreement
dated as of December 7, 2000 among the Company and Fleet
Retail Finance Inc., as agent for the Lender(s) identified
therein (included as Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q dated December 12, 2000, and
incorporated herein by reference). *

10.6 Amendment and Distribution Agreement dated as of October 31,
1998 among the Designs Partner, the Levi's Only Stores
Partner and the Original Levi Store Partnership (included as
Exhibit 10.2 to the Company's Current Report on Form 8-K
dated December 3, 1998, and incorporated herein by
reference). *

10.7 Guaranty by the Company of the indemnification obligation of
the Designs Partner dated as of October 31, 1998 in favor of
LS & Co. (included as Exhibit 10.3 to the Company's Current
Report on Form 8-K dated December 3, 1998, and incorporated
herein by reference). *

10.8 Asset Purchase Agreement between Levi's Only Stores and the
Company relating to

the sale by the Company of stores located in Minneapolis,
Minnesota dated January 28, 1995 (included as Exhibit 10.9
to the Company's Current Report on Form 8-K dated April 24,
1995, and incorporated herein by reference). *

10.9 Asset Purchase Agreement among Boston Trading Ltd., Inc.,
Designs Acquisition Corp., the Company and others dated
April 21, 1995 (included as Exhibit 10.16 to the Company's
Quarterly Report on Form 10-Q dated September 12, 1995, and
incorporated herein by reference). *

10.10 Non-Negotiable Promissory Note between the Company and
Atlantic Harbor, Inc., formerly know as Boston Trading Ltd.,
Inc., dated May 2, 1995 (included as Exhibit 10.17 to the
Company's Quarterly Report on Form 10-Q dated September 12,
1995, and incorporated herein by reference). *

10.11 Asset Purchase Agreement dated as of September 30, 1998
between the Company and LOS relating to the purchase by the
Company of 16 Dockers(R) Outlet and nine Levi's(R) Outlet
stores (included as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated December 3, 1998, and incorporated
herein by reference). *

10.12 Agreement Regarding Leases dated November 2, 2000 between
the Company and O.M. 66 B Street LLC (included as Exhibit
10.41 to the Company's Quarterly Report on Form 10-Q dated
December 12, 2000, and incorporated herein be reference). *

10.13 Consulting Agreement dated as of December 15, 1999 between
the Company and George T. Porter, Jr. (included as Exhibit
10.22 to the Company's Annual Report Form 10-K dated April
28, 2000, and incorporated herein by reference). *

10.14 Consulting Agreement dated as of November 14, 1999 between
the Company and Business Ventures International, Inc.
(included as Exhibit 10.23 to the Company's Annual Report on
Form 10-K dated April 28, 2000, and incorporated herein by
reference). *

10.15 Extension to Consulting Agreement, dated as of April 28,
2001, between the Company and Jewelcor Management, Inc.
(included as Exhibit 10.15 to the Company's Quarterly Report
on Form 10-Q dated September 18, 2001, and incorporated
herein by reference). *

10.16 Employment Agreement dated as of March 31, 2000 between the
Company and David A. Levin (included as Exhibit 10.27 to the
Company's Annual Report on Form 10-K dated April 28, 2000,
and incorporated herein by reference). *

10.17 Amendment to Employment Agreement dated as of March 31, 2000
between the Company and David A. Levin (included as Exhibit
10.19 to the Company's Quarterly Report on Form 10-Q dated
June 19, 2001, and incorporated herein by reference). *

10.18 Secured Promissory Note dated as of June 26, 2000 between
the Company and David A. Levin (included as Exhibit 10.28 to
the Company's Quarterly Report on Form 10-Q dated September
12, 2000, and incorporated herein by reference). *

10.19 Pledge and Security Agreement dated June 26, 2000 between
the Company and David A. Levin (included as Exhibit 10.29 to
the Company's Quarterly Report on Form 10-Q dated September
12, 2000, and incorporated herein by reference). *

10.20 Employment Agreement dated as of August 14, 2000 between the
Company and Dennis R. Hernreich (included as Exhibit 10.30
to the Company's Quarterly Report on Form 10-Q dated
September 12, 2000, and incorporated herein by reference). *

10.21 Amendment to Employment Agreement dated as of August 14,
2000 between the Company and Dennis R. Hernreich (included
as Exhibit 10.23 to the Company's Quarterly Report on Form
10-Q dated June 19, 2001, and incorporated herein by
reference). *

10.22 Employment Agreement dated as of October 22, 2001 between
the Company and Ronald N. Batts (included as Exhibit 10.25
to the Company's Quarterly Report on Form 10-Q dated
December 14, 2001, and incorporated herein by reference). *

10.23 Retail Store License Agreement dated as of January 9, 2002
between the Company and Candie's, Inc. **

10.24 Retail Store License Agreement Amendment No. 1 dated January
15, 2002 between the Company and Candie's, Inc.

18.1 Letter of Preferability from Ernst & Young dated June 13,
2001 (included as Exhibit 18.1 to the Company's Form 10-Q
dated June 19, 2001, and incorporated herein by reference). *

21 Subsidiaries of the Registrant.

23.1 Consent of Ernst & Young LLP.

23.2 Consent of Deloitte & Touche LLP.

99 Report of the Company on Form 8-K, dated April 28, 2000 concerning
certain cautionary statements of the Company to be taken into
account in conjunction with consideration and review of the Company's
publicly-disseminated documents (including oral statements made by
others on behalf of the Company) that include forward looking
information. *

* Previously filed with the Securities and Exchange Commission.

** Material has been omitted from this exhibit pursuant to a request for
confidential treatment. The omitted material has been filed separately
with the Securities and Exchange Commission.

SIGNATURES

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

DESIGNS, INC.
May 1, 2002

By: /s/ David A. Levin
----------------------------------------
David A. Levin
President and Chief Executive Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company in the capacities indicated, on May 1, 2002.

Signatures

/s/ David A. Levin President and Chief Executive Officer
- ------------------------------------ (Principal Executive Officer)
David A. Levin

/s/ Dennis R. Hernreich Senior Vice President, Chief Financial Officer
- ------------------------------------ and Treasurer
Dennis R. Hernreich (Principal Financial Officer)

/s/ Seymour Holtzman Chairman of the Board of Directors
- ------------------------------------
Seymour Holtzman

/s/ George T. Porter, Jr. Director
- ------------------------------------
George T. Porter, Jr.

/s/ Joseph Pennacchio Director
- ------------------------------------
Joseph Pennacchio

/s/ Jeremiah P. Murphy, Jr. Director
- ------------------------------------
Jeremiah P. Murphy, Jr.

/s/ Stanley L. Berger Director
- ------------------------------------
Stanley L. Berger

/s/ Jesse H. Choper Director
- ------------------------------------
Jesse H. Choper

Director
- ------------------------------------
Alan Cohen

OTHER SHAREHOLDER INFORMATION

Board of Directors

Seymour Holtzman
Chairman of the Board of Directors
Chief Executive Officer
Jewelcor Management, Inc.

Stanley L. Berger

Jesse Choper
Law Professor
University of California Law School

David A. Levin
President and Chief Executive Officer

Jeremiah P. Murphy, Jr.
President of Harvard Coop

Joseph Pennacchio
Chief Executive Officer of Aurafin

George T. Porter, Jr.

Alan Cohen

Executive Officers

David A. Levin
President and Chief Executive Officer

Dennis R. Hernreich
Senior Vice President
Chief Financial Officer, Treasurer and Secretary

Ronald N. Batts
Senior Vice President of Operations

Corporate Officers

Martin Goldstein
Vice President
Real Estate and Construction

Susan J. Murray
Director
Human Resources

Robert Wilbur
Vice President
Chief Information Officer

Corporate Offices
66 B Street
Needham, MA 02494
(781) 444-7222

Financial Information

Requests for financial information should be directed to the Investor Relations
Department at the Company's headquarters: Designs, Inc., 66 B Street, Needham,
MA 02494, (781) 444-7222. A copy of the Company's Annual Report on Form 10-K for
the fiscal year ended February 2, 2002, filed with the Securities and Exchange
Commission, may be obtained without charge upon request to the Investor
Relations Department.

Annual Meeting

The 2002 Annual Meeting of Stockholders of Designs, Inc. is expected to be held
on or about August 8, 2002.

Approximate reporting dates for fiscal year 2003 quarterly earnings are:

Quarter 1: May 20, 2002
Quarter 2: August 19, 2002
Quarter 3: November 18, 2002
Quarter 4 and fiscal year end: March 17, 2003

Transfer Agent and Registrar

Inquiries regarding stock transfer requirements, address changes and lost stock
certificates should be directed to:

Fleet National Bank
c/o EquiServe, LP
P.O. Box 43010
Providence, RI 02940
shareholder services: 781-575-3400

www.equiserve.com

Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072

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