<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a2058680z10-k.txt
<DESCRIPTION>10-K
<TEXT>
<Page>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                     For the fiscal year ended May 26, 2001

  [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
            For the transition period from ___________ to ___________

                         COMMISSION FILE NUMBER 0-19369

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

               DELAWARE                                  66-0476514
   (State or other jurisdiction of          (I.R.S. Employer Identification No.)
    incorporation or organization)

            161-B CROWN BAY
          ST. THOMAS U.S.V.I.                              00802
(Address of Principal Executive Offices)                 (Zip Code)

(Registrant's Telephone Number, Including Area Code)             (340) 776-2010

           Securities Registered Pursuant to Section 12(b) of the Act:

     Title of each class               Name of each exchange on which registered
     -------------------               -----------------------------------------
            None                                          N/A

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

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

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. [ ]

As of August 31, 2001, 16,435,635 shares of $0.01 par value Common Stock of
the registrant were outstanding of which 7,267,408 shares were held by
non-affiliates of the Company. The aggregate market value of the voting stock
held by non-affiliates of the registrant based upon the closing price of
$2.35 per share for the registrant's Common Stock, as reported on the OTCBB
as of August 31, 2001, was $17,078,409.

<Page>


PART I

ITEM 1.  BUSINESS.


GENERAL

         Little Switzerland, Inc. ("Little Switzerland" or the "Company") is
a specialty retailer of luxury items operating 18 distinctively-designed
retail stores on five Caribbean islands (duty-free) and Alaska. For a
description of the Company's properties see Item 2, "Properties." The Company
markets a wide selection of high-quality products including jewelry, watches,
crystal, china, gifts and accessories. The Company is the exclusive retailer
of certain brand-name products on some islands and in some areas of Alaska.
The Company's customers are primarily tourists from the United States.

         Little Switzerland was incorporated in the state of Delaware on May
23, 1991. L.S. Wholesale, Inc. ("L.S. Wholesale") and L.S. Holding, Inc.
("L.S. Holding") are wholly owned subsidiaries of Little Switzerland. The
Company's executive offices are located at 161-B Crown Bay, St. Thomas,
U.S.V.I. 00802, and its telephone number is (340) 776-2010. As of May 26,
2001, there were 10 subsidiaries of L.S. Holding incorporated in various
jurisdictions, of which six subsidiaries are currently operating retail
outlets. L.S. Wholesale purchases and resells products to all of the
Company's stores. As used throughout this report on Form 10-K, the terms
fiscal 2001, 2000, and 1999 refer to the Company's 12-month periods ended May
26, 2001, May 27, 2000 and May 29, 1999, respectively. Unless otherwise
specified, the term the "Company" as used in this Form 10-K includes Little
Switzerland and its subsidiaries.

MERCHANDISING

         High-Quality Merchandise. Little Switzerland offers high-quality
merchandise generally available in the world's finest stores and, in some
locations, it is the exclusive retailer of certain brand name products. The
Company sells internationally renowned product lines such as:

         Jewelry  -- Aaron Basha, Antonini, Bagley & Hotchkiss, Roberto
                     Coin, Stefan Hafner and John Hardy

         Watches  -- Baume Mercier, Breitling, Cartier, Concord, Corum, ESQ,
                     Movado, Omega, Rado, Raymond Weil, Tag-Heuer, Tissot and
                     Zenith

         Crystal  -- Baccarat, Daum, Kosta Boda, Lalique, Orrefors, Swarovski
                     and Waterford

         China/Gifts -- Christofle, D'Argenta, Goebel, Herend, Lladro and
                        Rosenthal

         Presentation of Merchandise. The Company places particular emphasis
on effective merchandise presentation through well-designed stores situated
in prime retail locations. The layout, fixtures and upscale presentation of
merchandise creates an inviting and relaxed atmosphere, which is conducive to
shopping for luxury items. The Company has placed a strong emphasis on
superior customer service from a knowledgeable and courteous sales staff.

         Availability of Merchandise. Little Switzerland's customers are
tourists, a large percentage traveling by cruise ship, who may be staying in one
location only a short time. To meet the demands and interests of these tourists,
the Company stocks a broad selection of luxury products and carries a
significant inventory so that most items offered by a particular store are
available for immediate delivery. The cruise ship customer base accounted for
approximately 46% of the Company's sales in the 12-month period ended May 26,
2001.

<Page>

         Name Recognition. Little Switzerland has strong name recognition in the
United States and in the Caribbean. The Company continues to capitalize on its
name recognition by linking all of its signage and marketing activities around
its trademark, the Little Switzerland Shopping Bag. This bag represents Little
Switzerland's reputation for providing a wide variety of luxury products through
stores that are recognized as desirable places to shop.

PRODUCT LINES

         The Company operates in one industry segment consisting of the sale
of luxury items. See Note 3 of the accompanying Notes to Consolidated
Financial Statements under "Segment Information". The principal product lines
offered by the Company are jewelry, watches, crystal, china and gifts. The
Company has focused its attention on building a business around its trademark
and the world class brands it represents. The last few years the Company has
emphasized jewelry. While jewelry will continue to be an important category,
the Company intends to place renewed emphasis on the watch business. Over the
last two years, the Company has expanded its world class watch brands to
include Baume Mercier, Charriol, Concord, ESQ, Montblanc and Movado. These
brands accounted for approximately $3.8 million in sales in fiscal 2001.

         Jewelry. Currently, the most significant product line for Little
Switzerland is jewelry (gold and gemstones). Most of the jewelry sold by the
Company is produced by international manufacturers and sales of such items
accounted for 44%, 38% and 37% of sales in fiscal 2001, 2000 and 1999,
respectively. Jewelry items include rings, earrings, bracelets, necklaces,
pendants and charms, which generally range in price from $100 to over
$10,000. Many new branded jewelry lines were added over the past few seasons
such as Aaron Basha, Antonini, Carrera Y Carrera, John Hardy, Lagos and
Stefan Hafner.

         Watches. The second most significant product line for Little
Switzerland is watches. Sales of watches accounted for approximately 34%, 33%
and 34% of sales in fiscal 2001, 2000 and 1999, respectively. The primary watch
lines marketed by Little Switzerland during the last three fiscal years included
such quality brand names as Baume Mercier, Breitling, Cartier, Citizen, ESQ,
Movado, Omega, Rado, Raymond Weil, Tag-Heuer and Tissot. Retail prices for these
watch lines also generally range from $100 to over $10,000.

           The Swatch Group, which includes Omega, Rado, Longines, Tissot,
Calvin Klein and Swatch, comprised 7.1%, 13.5% and 10.4% of the Company's sales
in fiscal 2001, 2000 and 1999, respectively.

         Crystal, China, Gifts and Flatware. The Company sells numerous lines of
crystal, china, gifts and flatware, including Baccarat, Christofle, Daum,
Goebel, Herend, Kosta Boda, Lalique, Lladro, Orrefors, Portmeirion, Rosenthal,
Swarovski and Waterford. Prices generally range from $20 to $3,000. Sales of
this product category accounted for 21%, 23% and 20% of sales in fiscal 2001,
2000 and 1999, respectively. The Company realizes the potential of this product
line and is working closely with its suppliers to expand this line in the
future.

         Accessories. During fiscal 1999, the Company decided to liquidate the
inventory in its accessory category. Accessories included sunglasses, costume
jewelry and leather products. The Company has re-merchandised this category with
a limited assortment of price point top-selling items.

         Fragrances. Since late 1999, when the Company decided to exit this
category in most stores, the Company has sold fragrances through a leased
department. Sales from this category are not included in the Company's
reported sales.

<Page>

PRICING

         Little Switzerland seeks to price its branded merchandise at levels
that compare favorably to prices generally available for the same products in
the United States. The majority of inventory purchased by the Company is at a
cost often lower than the cost to retail stores in other markets because the
Company does not have to pay a duty or tariff on most incoming products. In
addition, since the Company purchases inventory directly from manufacturers,
price advantages are passed along to the customer. Within the Caribbean, there
are no sales taxes in the jurisdictions in which the Company operates. In
addition, tourists from the United States may bring certain amounts of
merchandise home from the Caribbean duty-free. The Company regularly monitors
prices available for comparable merchandise in the United States and adjusts
pricing structures to maintain Little Switzerland's competitive advantage.

         Little Switzerland makes manufacturers' warranties available to its
customers and generally accepts the return of merchandise within 30 days of its
purchase. Merchandise returns historically have been nominal.

PURCHASING AND DISTRIBUTION

         Little Switzerland purchases its merchandise from suppliers
worldwide. The Company has developed long-term relationships with a number of
its key suppliers and the Company believes these relationships are an
important factor in its success. These relationships have enabled the Company
to become the exclusive authorized retailer of selected brands of merchandise
in certain locations. Most of these exclusive relationships are not based on
binding agreements with suppliers, but rather are based on factors such as
the Company's effective presentation of product lines and the suppliers'
long-standing relationships with the Company. The Company believes that the
loss of any major supplier could adversely affect the Company's results of
operations.

         The Company is working on increasing the timing of its orders in its
high selling season to provide for a more efficient reordering of basic, high
turn items. There is a historical buildup of product coming into the Fall/Winter
season, the start of the high season. Merchandise is shipped by vendors
primarily to the Company's distribution facility in St Thomas; however, vendors
also ship certain merchandise to other warehouse facilities operated by the
Company that supply the stores in their respective regions.

MARKETING AND ADVERTISING

      In fiscal 2001, the Company's marketing plan included targeted
advertising in high-circulation travel publications. These include island
specific magazines, cruise line magazines, travel magazines, and in-flight
magazines. These publications are distributed to the overnight guest and
cruise ship passengers on each island and Alaska where Little Switzerland
stores are located. With approximately 46% of the Company's sales coming from
tourists traveling on cruise ships, participation in on board promotional and
port lecturer programs offered by all cruise ship lines had also
traditionally been an effective marketing tool.

      In late 2001, however, the Company reviewed the cost and structure of
this marketing program compared to the sales being generated as a consequence
thereof and concluded that the program, as structured today, had lost
effectiveness. In May 2001, the Company notified the largest operator of the
port lecturer program of the Company's decision to discontinue its
participation in the port lecturer program. The Company believes that the
elimination of this program's costs will more than offset any sales shortfall
and is currently monitoring the situation. The Company has redeployed a
portion of the cost savings to sales associate incentives and new marketing
tools. Finally, the Company has decided to continue the in-cabin publications
and island shopping videos which are viewed on the ships closed circuit TV as
the Company believes these are valuable means of targeting this market.

<Page>

         The Company is increasing its marketing to the hotel customer. This
customer segment is an ongoing growth opportunity for the Company in key
markets such as Aruba, Barbados and Curacao, as well as other markets. The
Company is developing innovative marketing promotions geared directly at this
group to increase store traffic.

           On September 5th 2000, the Company's website,
WWW.LITTLESWITZERLAND.COM, was activated and has an average of 5,000 hits per
week. The Company does not sell products on this website but believes it to
be a valuable marketing tool.

         Finally, the Company is placing emphasis on in-store point of sale
promotional and informational materials. As the Company works to draw customers
to its stores through innovative marketing programs, management believes that it
is critical to develop both in-store presentation and signage to assist our
employees in closing sales transactions.

COMPETITION

         The Company's markets contain numerous retail stores and the
competition for tourist dollars is intense. Little Switzerland also competes
with stores selling similar products in the United States and in other markets
where tourists travel. The majority of the Company's local competitors are
independently owned stores and, in the Company's opinion, do not offer the
variety of brand name luxury products that Little Switzerland markets. The
Company believes that its present and past status as the exclusive authorized
retailer of certain world class brand name products in a number of markets
enhances its competitive position. The loss of one or more of these exclusive
relationships could adversely affect the Company's ability to compete in its
markets.

EMPLOYEES

         As of May 26, 2001, Little Switzerland employed approximately 424
full-time employees. The number of employees, including the number of sales
personnel, varies from season to season based on the Company's needs. Currently,
the Company has no collective bargaining agreements and has never experienced a
work stoppage.

MANAGEMENT CHANGES

         On April 30, 2001, in connection with the related transactions with
Tiffany & Co. International ("Tiffany International") and its parent, Tiffany
and Company ("Tiffany"), as more fully described in Note 11 of the
Accompanying Notes to Consolidated Financial Statements (collectively the
"Tiffany Transaction"), Alex J. Nobile, a Class I director, Peter Mc Mullin,
a Class II director and Kenneth Watson, a Class II director, each resigned
from the Board of Directors of the Company. Simultaneously, James E. Quinn
and Patrick B. Dorsey, both representatives of Tiffany, were appointed as
Class I and Class II directors, respectively.

<Page>

SEASONALITY

         The Company's business is seasonal in nature, reflecting travel
patterns to the Caribbean and Alaska. The peak selling season in the
Caribbean runs from late Fall through Spring; the peak selling season in
Alaska runs from Spring through Summer. Working capital requirements
generally reflect this seasonality as the Company increases its inventory in
anticipation of the applicable peak selling season. With the growth of the
Alaska market, the Company is working to effectively leverage the inventory
in its Caribbean store base for use in Alaska at the end of the Caribbean
high season as well as the timely transfer the Alaska inventory to the
Caribbean at the end of the Alaska peak selling season. The Company
merchandised Alaska with a greater percentage of fresh merchandise this
season to assess the total potential of the Alaska market. The merchandise
acquired will be repositioned into the Caribbean at the end of the Alaska
season in time for the start of the Caribbean cruise season.

INFLATION

         Historically, the Company has generally been able to increase prices to
reflect cost increases resulting from inflation and expects to be able to do so
in the future. While the Company cannot precisely determine the effect of
inflation on its operations, the Company does not believe that its operations
have been materially affected by inflation during the three most recent fiscal
years.

OTHER MATTERS

         Foreign and Domestic Operations. See Note 3 of the accompanying Notes
to Consolidated Financial Statements.

         Environmental. In the opinion of the Company, compliance with current
laws and regulations pertaining to the environment, health and safety has not
materially affected its business or financial condition and will not do so in
the foreseeable future.

         Customers. The Company is not dependent upon any single customer or
upon any single group of customers, the loss of which would have a material
adverse effect on Little Switzerland.

         Patents and Trademarks. The Company owns a number of licenses,
trademarks and trade names. Except for the trademarks and trade names related to
"Little Switzerland," the Company does not believe such intellectual property is
material to Little Switzerland.

         Other. The Company does not have significant research and development
expenditures.

         The Company does not have a significant backlog of orders and
inventory. Little Switzerland must carry adequate inventory to enable tourists
to receive immediate delivery of merchandise.

         The Company does not have any business under government contract.

RISK FACTORS

           You should carefully consider the risks described below and other
information in this report. The Company's business, financial condition and
operating results could be materially adversely affected if any of these
risks materialize. The trading price of the Company's common stock may also
decline due to any of these risks.

<Page>

The Company Has Had Substantial Operating Losses in Recent Fiscal Years

           The Company has had substantial operating losses in its recent
fiscal years. For the fiscal years ended May 26, 2001, May 27, 2000 and May
29, 1999, the Company's net losses were approximately $7.6 million, $15.5
million and $11.1 million, respectively. If the Company is unable to generate
sufficient revenue from operations to cover its costs, its business,
financial condition and results of operations will be materially and
adversely affected.

The Company May Need Additional Financing

           The Company requires additional capital to finance its growth and
working capital needs. The Company can provide no assurance that it will
obtain additional financing sufficient to meet its needs on commercially
reasonable terms or otherwise.

There May Be Limited Liquidity in the Company's Common Stock and Its Price
May Be Subject to Fluctuation.

           The Company's common stock is currently traded on the OTC Bulletin
Board. The Company can provide no assurance that it will be able to have its
common stock listed on an exchange or quoted on Nasdaq or that it will
continue to be traded on the OTC Bulletin Board. The trading volume in the
Company's common stock has historically been low. Accordingly, investments in
the Company's common stock may not be liquid, and investors in the Company's
common stock must be prepared to bear the economic risks of such investment
for an indefinite period of time.

The Company's Business Depends on Tourism

           The Company's revenues depend upon tourism in the Caribbean and
Alaska. During periods of economic slowdown, fewer tourists may travel to
these destinations and those who do may make fewer purchases of luxury items.
Tourist travel to these destinations depends upon the development of cruise
ship, airline and hotel operations, the continued attractiveness of the
Caribbean and Alaska compared to other leisure travel destinations and the
efforts of local governments to promote tourism. Other factors such as poor
weather, airline strikes, political and economic instability in the Caribbean
and the availability of duty-free shopping could also affect tourism.

The Company Depends on Its Relationships with Its Suppliers

           The Company's relationships with its merchandise suppliers are an
important factor in its business and have allowed the Company to become the
exclusive retailer of certain brands of merchandise in its Caribbean and Alaskan
markets. However, the Company does not have binding written agreements with most
of its suppliers, so it can provide no assurance that it will remain the
exclusive retailer for certain brands or that it will not lose the right to
market certain brands altogether.

The Company Needs to Expand to Grow Its Business

           The growth of the Company's business depends in part on the addition
of new stores, expansion into other Caribbean islands where the Company does not
have stores and the expansion of existing stores and product lines. The
Company's ability to expand depends upon many factors, including the
availability of financing, the development of tourist facilities in proposed
locations, its ability to find suitable retail space, staffing, regulatory
restrictions and establishing suppliers.

Competition May Adversely Affect the Company's Business

           Competition for tourist dollars in the Caribbean and Alaska is
intense. The Company's ability to attract customers depends in large part on
the location and appearance of its stores, its selection of products and
pricing. The Company also competes with stores selling similar products in
the United States or in other markets from which tourists have traveled.

<Page>

The Company's Success Depends on Key Personnel

           The Company's success is dependent upon the efforts of its senior
management. Competition for qualified personnel in the retailing industry is
intense, and the Company can provide no assurance that it will be able to retain
existing personnel or attract and retain additional qualified personnel
necessary to manage its business.

Stockholders Are Unlikely to Receive Dividends for the Foreseeable Future

           The Company has not paid dividends on its common stock and the
Company believes it is highly unlikely that it will pay dividends in the near
future. This means that the potential for gain from ownership of the Company's
common stock depends on appreciation in its value.

Certain Provisions of Delaware Law May Affect the Price of the Company's
Common Stock.

           The Company is incorporated in the State of Delaware. Certain
provisions of Delaware law applicable to the Company, including Section 203 of
the Delaware General Corporation Law, could have the effect of delaying,
deterring or preventing a change of control in the Company and may discourage
bids for the Company's common stock at a premium over the market price of the
Company's common stock. As a result, the price of the Company's common stock
may be adversely affected.

SEC Rules Concerning Sales of Low-Priced Securities May Hinder Re-Sales of
the Company's Common Stock.

           Because the Company's common stock has a market price that is less
than five dollars per share: (i) it is not listed on an exchange or quoted on
NASDAQ and is traded on the OTC Bulletin Board and (ii) brokers and dealers
who handle trades in the Company's common stock are subject to certain SEC
disclosure rules when effecting trades in the Company's common stock,
including disclosure of the following: the bid and offer prices of the
Company's common stock, the compensation of the brokerage firm and the
salesperson handling a trade and legal remedies available to the buyer. These
requirements may hinder re-sales of the Company's common stock and may
adversely affect its market price.

           If any circumstances giving rise to the above risks actually
occur, there could be a material and adverse effect on the Company's
business, financial condition and results of operations.

ITEM 2.  PROPERTIES.

         Little Switzerland's 18 stores operating today are all situated in
desirable retail locations and are designed to place the customer in an
environment that is conducive to the purchasing of luxury items. Most stores
are designed by the same architectural firm and decorated in a similar
fashion to present a consistent theme of luxury retailing. Stores are located
in areas that are easily accessible to tourists, often in duty-free ports
visited by cruise ships. The quantity and mix of products carried by Little
Switzerland stores vary from location to location based on store size and
tourist buying patterns and preferences.

         In addition to approximately 52,000 square feet of selling space,
the Company has approximately 35,000 square feet of warehouse space, 11,000
square feet of which is at the Company's main warehouse on St. Thomas. The
Company occupies the building on St. Thomas which functions as a headquarters
and warehouse, on land leased from the Virgin Islands Port Authority under a
10-year ground lease with two five-year extension options. Currently, the
Company is operating in its first five-year option period and has already
exercised its second and final five-year option term which expires in July
2009. This lease may be terminated by the lessor prior to the expiration of
its term, subject to payment to the Company of the fair market value of the
Company's improvements.

         On July 28, 2000, the Company sold its facility in Philipsburg, St.
Maarten for $4.5 million and entered into a leaseback arrangement for five years
with one five-year option at market rates.

<Page>

ITEM 3.  LEGAL PROCEEDINGS.

         CLASS ACTION LAWSUIT

         On May 14, 2001, a memorandum of understanding (the "MOU") was
executed which sets forth an agreement in principle of the terms of
settlement with respect to the class action complaint filed on March 22,
1999, in the United States District Court for the District of Delaware (Civil
Action No. 99-176), against the Company, certain of its former officers and
directors, Destination Retail Holdings Corporation ("DRHC") and Stephen G.E.
Crane. Under the MOU, none of the defendants have admitted any wrongdoing. If
the terms of settlement described in the MOU are approved by the court and
holders of a certain agreed upon number of shares held by the putative class
do not opt out of the proposed settlement, the case will be dismissed. The
settlement amount payable in accordance with the terms of the MOU is
approximately $1.0 million and will be paid from the proceeds of existing
insurance coverage. However, there can be no assurance that the case will be
settled as contemplated by the MOU.

         The original complaint alleged that the defendants violated federal
securities laws by failing to disclose that DRHC's financing commitment to
purchase the Company's shares expired on April 30, 1998 before the Company's
stockholders were scheduled to vote on the proposed merger between the Company
and DRHC at the May 8, 1998 special meeting of stockholders (the "Financing
Disclosure Allegations"). The plaintiffs are seeking monetary damages,
including, without limitation, reasonable expenses in connection with this
action. The plaintiffs amended their complaint on November 10, 1999 and the
Company filed a motion to dismiss the plaintiff's amended complaint on December
7, 1999. On January 28, 2000, the plaintiffs filed their opposition to the
motion to dismiss. In March 2001, the District Court, among other things,
granted the Company's motion to dismiss with respect to certain allegations in
the amended complaint that the defendants violated federal securities laws by
failing to disclose the status of the Company's relationship with a particular
watch vendor; however, the District Court denied the motion to dismiss with
respect to the Financing Disclosure Allegations. In addition, the District Court
dismissed the claims against defendants DRHC and Stephen G.E. Crane.


NXP

           On February 16, 2001, the Company and NXP-Jewels Corporation ("NXP")
entered into a settlement agreement and mutual general release from the
litigation arising between the Company and NXP with respect to their general
obligations under a letter of intent to sell the Company's Barbados operations
to NXP. The Company, as part of the settlement, refunded a $100,000 deposit held
in escrow and made a $5,000 settlement payment.

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


           On March 15, 2001, the Company held its annual meeting of
stockholders. At this meeting, the stockholders of the Company elected
Seymour Holtzman as a Class III Director of the Company to serve for a term
expiring at the 2003 annual meeting; ratified the appointment of Arthur
Andersen LLP as the independent accountants of the Company for the fiscal
year ended May 26, 2001; and approved the Company's 2000 Stock Option and
Incentive Plan. In connection with the Tiffany Transaction, the Company
subsequently dismissed Arthur Andersen LLP as its independent accountants and
appointed PricewaterhouseCoopers LLP as the independent accountants for the
fiscal year ended May 26, 2001.

<Page>

           The following is a report of the votes cast at the March 15, 2001
annual meeting in connection with the above:

<Table>
<Caption>

                                                                              Broker
                                               FOR      AGAINST    ABSTAIN   NON-VOTES
                                               ---      -------    -------   ---------
<S>                                         <C>         <C>         <C>      <C>
Election of Seymour Holtzman as
 Class III Director, for a term
 expiring at the 2003 annual
 meeting                                    7,484,334         --     33,875         --

Ratification of Arthur Andersen LLP
 as the independent accountants of
 the Company for the fiscal year
 ended May 26, 2001                         7,507,509      9,200      1,500         --

Approval of the Company's 2000 Stock
 Option and Incentive Plan                  3,095,434    111,848    159,104  4,151,823
</Table>


PART II

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

(a) Market Information

         The Company's Common Stock currently is traded on the over-the-counter
bulletin board under the symbol "LSVI". The following table sets forth, for the
periods indicated, the high and low sales prices per share of the Common Stock
on the NASDAQ NMS as reported by NASDAQ through December 21, 1999 and the
over-the-counter bulletin board thereafter.

<Table>
<Caption>

                                                  HIGH                LOW
                                                  ----                ---
<S>                                               <C>                 <C>
FISCAL YEAR ENDED MAY 26, 2001

Quarter ended August 26, 2000                     1.13                0.22
Quarter ended November 25, 2000                   0.94                0.50
Quarter ended February 24, 2001                   1.22                0.66
Quarter ended May 26, 2001                        1.56                0.88


FISCAL YEAR ENDED MAY 27, 2000

Quarter ended August 28, 1999                     0.97                0.38
Quarter ended November 27, 1999                   0.84                0.19
Quarter ended February 26, 2000                   1.06                0.47
Quarter ended May 27, 2000                        1.50                0.44
</Table>


(b) Holders

         As of May 26, 2001, there were 128 holders of record of the
Company's Common Stock. Certain of the Company's stockholders hold shares
under "street name" and are not identified individually. Accordingly, the
Company estimates that it has a total of approximately 1,600 beneficial
stockholders. As of May 26, 2001 the Company had 16,435,635 shares of Common
Stock outstanding of which 9,168,227 shares were held by affiliates of the
Company and 7,267,408 shares were held by non-affiliates.

<Page>

(c) Dividends

         The Company has never paid cash dividends on its Common Stock. Pursuant
to its loan agreement with Tiffany, as discussed in Note 7 of the accompanying
Notes to Consolidated Financial Statements, the Company may not declare or pay
any dividend or make any distribution on its capital stock or make any
distribution of assets to its stockholders, whether in cash, assets or
obligations, or allocate or otherwise set aside any sum for the payment of any
dividend or distribution by reduction of capital or otherwise in respect of any
shares of its capital stock. The Company presently intends to retain any
earnings for use in the operation and expansion of its business and, therefore,
does not anticipate paying any cash dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

           On May 1, 2001, in consideration of the execution of the several
related loan agreements with The Chase Manhattan Bank ("Chase"), discussed in
Note 7 to the accompanying Notes to Consolidated Financial Statements, the
Company granted to Chase 50,000 warrants each exercisable to purchase one
share of common stock at an exercise price of $1 per share. Such warrants
expire on February 28, 2003. The Company recorded $44,727 of selling, general
and administrative expense in connection with this issuance of securities.
The sale and issuance of the securities described in this paragraph were
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), by virtue of section 4(2) of the Securities
Act.

           On May 1, 2001, the Company sold 7,410,000 newly issued shares of
Common Stock to Tiffany International at $1.25 per share. The proceeds received
by the Company of approximately $9,262,500, were used to reduce existing debt
and for working capital. The sale and issuance of the securities described in
this paragraph were exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.

ITEM 6.  SELECTED FINANCIAL DATA.

         The table below presents selected consolidated financial data of the
Company as of and for the five years ended May 26, 2001, May 27, 2000, May 29,
1999, May 30, 1998 and May 31, 1997. This data has been derived from the
historical audited consolidated financial statements of the Company and should
be read in conjunction with the Company's "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Consolidated Financial
Statements, including the notes thereto, included elsewhere herein. The
historical results are not necessarily indicative of results to be expected for
any future period.

<Page>

<Table>
<Caption>

                                                   (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                                                   Fiscal Year Ended
                                       -------------------------------------------------------------------------
                                       MAY 26,            MAY 27,        MAY 29,        MAY 30,          MAY 31,
                                        2001               2000           1999           1998             1997
                                        ----               ----           ----           ----             ----
<S>                                  <C>                <C>            <C>            <C>              <C>
INCOME STATEMENT DATA:

Net sales                            $  56,276          $  55,026      $  76,435      $ 100,368        $ 88,314

Operating (loss) income                 (6,524)           (13,320)        (8,527)        (1,165)          2,661

(Loss) income before income
taxes and cumulative
effect of change in accounting
priciple                                (7,568)           (14,436)        (9,882)        (2,705)          1,159


Net (loss) income                    $  (7,600)         $ (15,456)     $ (11,082)    $   (3,803)       $  1,159

PER SHARE DATA:

Basic and diluted (loss)
earnings per share before
cumulative effect of change in
accounting principle                 $   (0.82)         $   (1.79)     $   (1.29)     $  (0.42)        $   0.14

Basic and diluted (loss)
earnings per share                   $   (0.82)         $   (1.79)     $   (1.29)     $  (0.45)        $   0.14


BALANCE SHEET DATA:

Total assets                         $  45,333          $  42,479     $   60,844      $ 77,151         $ 77,391
Current debt                         $      --          $  10,175     $   13,275      $ 10,050         $ 10,325
Long-term debt                       $   4,022          $      --     $       --      $  3,894         $  6,119


OPERATING DATA:

Gross profit margin                      43.7%              35.1%          40.4%          42.5%            43.7%
Operating (loss) income margin          (11.6)%            (24.2)%        (11.2)%         (1.2)%            3.0%
Stores open at period end                  18                 18 (a)         22 (b)         26               27
Comparable store net sales
Increase (decrease)                      11.7%             (18.2)% (c)    (21.7)% (d)      8.7%           (14.3)% (e)
</Table>

      (a)   In fiscal 2000, as part of the Company's restructuring plan, the
            Company sold four stores.
      (b)   In fiscal 1999, the Company closed four stores.
      (c)   Decrease due primarily to restructuring measures taken by the
            Company throughout the fiscal year.
      (d)   Decrease due primarily to the loss of distribution relationship with
            Rolex in fiscal 1999.
      (e)   Decrease primarily the result of store closures due to damage caused
            by Hurricanes Luis and Marilyn.


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


         This Annual Report contains certain statements that are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended. The
words "believe," "expect," "anticipate," "intend," "estimate" and other
expressions, which are predictions or indicate future events and trends and
which do not relate to historical matters, identify forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results and performance of the Company
to differ materially from anticipated future results and performance expressed
or implied by such forward-looking statements.

         The future operating results and performance trends of the Company may
be affected by a number of factors, including the Company's ability to obtain
financing to pay off its existing indebtedness to Chase and fund its working
capital needs, the Company's relationship with its existing lenders, the
volume of tourism in the Company's markets, the Company's relationships with
its suppliers, the Company's ability to expand and add new product lines,
weather conditions in the Company's markets, and economic conditions that
affect the buying patterns of the Company's core customer base. In addition
to the foregoing, the Company's actual future results could differ materially
from forward-looking statements as a result of the risk factors set forth
under "Risk Factors" in Item 1 above and changes in general economic
conditions and interest and exchange rates.

<Page>

         The following represents the components of operating results for the
fiscal years ended:

<Table>
<Caption>

                                                                          Fiscal Year Ended
                                                    -------------------------------------------------------------
                                                       May 26,                 May 27,                 May 29,
                                                        2001                    2000                    1999
                                                    -------------------------------------------------------------
<S>                                                     <C>                     <C>                     <C>
Net sales                                               100.0%                  100.0%                  100.0%
Cost of sales                                            56.3                    64.9                    59.6
                                                    ----------------     ------------------      ----------------
Gross profit                                             43.7                    35.1                    40.4

Selling, general and administrative expenses             57.7                    59.3                    52.0

Gain on insurance proceeds                                2.4                      --                    (0.4)
                                                    ----------------     ------------------      ----------------
Operating loss                                          (11.6)                  (24.2)                  (11.2)
Interest expense, net                                     1.8                     2.0                     1.8
                                                    ----------------     ------------------      ----------------
Loss before provision for income taxes                  (13.4)                  (26.2)                  (13.0)

Provision for income taxes                                0.1                     1.9                     1.5
                                                    ----------------     ------------------      ----------------
Net loss                                                (13.5)%                 (28.1)%                 (14.5)%
                                                    ================     ==================      ================
</Table>

RECENT DEVELOPMENTS

Expansion

         On June 12, 2001, the Company completed a transaction with DutyFree
Holdings, Inc., Colombian Emeralds International, Inc., and Colombian
Emeralds, Inc. (collectively "Colombian Emeralds") to sublet a Key West,
Florida store and acquire the furniture and fixtures therein, and also
assumed the lease of a former Perfect Time store adjacent to the Company's
flagship store on Main Street in St. Thomas, USVI. The Company paid Colombian
Emeralds $350,000 in connection with the foregoing transaction. The Key West
store is a 4,100 sq. ft. location, which will operate as a clearance center
until mid-November when the store will re-open with some of Little
Switzerland's finest timepieces as well as jewelry from renowned European and
American designers.

Possible Settlement of Class Action

         On May 14, 2001, the parties entered into a memorandum of understanding
setting forth an agreement in principle to settle the class action lawsuit
filed against the Company, certain of its former shareholders, officers and
directors, DRHC, and Stephen G.E. Crane. See Item 3, Legal Proceedings, under
"Class Action Lawsuit".

Tiffany Boutiques

         In August 2001, the Company and Tiffany agreed in principle to create a
Tiffany boutique in the Company's store located in Barbados. Pursuant to this
agreement, the Company will sell Tiffany products, together with other
prestigious brands. This will be the Company's first Tiffany boutique and will
replace retail space previously devoted to fragrances.

Termination of Port Lecturer program

         In June 2001, the Company notified the largest operator of the port
lecturer program of its decision to discontinue its participation in the on
board port lecturer program. See Item 1, Marketing and Advertising.

<Page>

Non-renewal of Gift Market Lease

         On July 31, 2001, the Company made the decision not to renew its
lease at its Gift Market store in St. Thomas. With the recent expansion of
the Company's flag ship store, the Company has successfully provided many of
the large brands sold in the Gift Market store with Main Street frontage not
available at the Gift Market location. The Company will continue to look for
opportunities to continue to give china and crystal suppliers better
positioning in existing stores as well as in new locations.

Extension of Credit Facility

         On September 4, 2001, the Company and Chase entered into an
agreement pursuant to which the Company, at its option and subject to the
satisfaction of certain conditions, may extend its credit facility with Chase
for an additional six months beyond its current maturity date. If, on June 1,
2002, the current expiration of the facility, the Company has not obtained
alternative financing, Chase will be required to extend the facility provided
the Company is not in violation of any provision within the existing facility
agreement and the Company pays an additional fee and an increased interest
rate through November 1, 2002. In addition, at the time of the extension
request, the Company must be in full compliance with the terms of the credit
facility. The Company will seek to obtain alternative financing prior to the
current June 1, 2002 maturity date. Should such alternative financing not be
obtained, the Company intends to exercise this extension if necessary.

RESULTS OF OPERATIONS

FISCAL 2001 COMPARED TO FISCAL 2000

General

         The Company operated 18 luxury gift and jewelry stores as of May 26,
2001 and May 27, 2000. The Company opened two new stores in Alaska in May
2001, one in Ketchikan and one in Skagway, which gives the Company two stores
operating in Skagway and four in total in Alaska. The Ketchikan store is
operating under a one year lease and the Skagway store is operating under a
six month lease. The Company will make a determination at the end of this
selling season if longer commitments in these areas are warranted. In
addition to the store openings, the Company sold one store on French St.
Martin, and subleased the port store in Barbados to a third party. (See note
18 of the accompanying Notes to Consolidated Financial Statements.)

Net Sales

         Net sales for fiscal 2001 were $56.3 million, an increase of $1.25
million, or approximately 2.3%, from $55.0 million in fiscal 2000. Net sales in
comparable stores increased $5.9 million, or approximately 11.7% in fiscal 2001,
compared to fiscal 2000.

         The Company implemented many new initiatives in the current fiscal year
that led to strong increases in comparable store sales. These results were aided
by an increase in cruise ship traffic, improved inventory flow, and a mild
hurricane season.

         The Company also completed the expansion of its flagship store in
St. Thomas in December 2000 contributing to the $10.7 million of sales
achieved at this location. Such sales represent a 40.3% increase over last
year's sales in this store. The Company expanded the watch selection
available in the store as well as opened boutiques for Baccarat, Lladro and
Waterford. Additionally, the expanded space allows the Company to enhance the
presentation of many of the other premiere brands in the china and crystal
categories.

Gross Profit

         Gross profit as a percentage of net sales was 43.7% in fiscal 2001
compared to 35.1% for fiscal 2000. In both the current and the prior year,
the Company took write-downs in connection with slow-moving merchandise. The
Company recorded a write-down in fiscal 2001 of $1.0 million compared to a
$1.3 million write-down in fiscal 2000. These adjustments were taken to
liquidate older, slow-turning merchandise, which may be sold to a third party
liquidator for immediate cash. Excluding these charges, the gross profit
percentage in fiscal 2001 and fiscal 2000 would have been 45.4% and 37.5%,
respectively. The Company focused on

<Page>

stabilizing margins in fiscal 2001 through controlled discounting and leveraging
marketing tools to drive traffic into stores. In prior years, the Company relied
heavily on clearance sales to generate cash.

Selling, General and Administrative Expenses

         Selling, general and administrative expenses ("SG&A") for fiscal 2001
decreased as a percent of net sales by 1.7% to $32.4 million, or 57.7% of net
sales, in fiscal 2001 from 59.3% of net sales, or $32.7 million, in fiscal 2000.

         SG&A includes a non-cash charge of $.4 million in the current fiscal
year for the impairment of assets in the Barbados port store. In fiscal 2000,
$2.6 million was recorded for impairment of fixed assets and leasehold
improvements in the Company's stores in Alaska, Barbados and St. Martin. This
impairment was offset by a $0.8 million net gain related to the sale of four
stores during fiscal 2000. Excluding the impairment charges, SG&A expense
increased in fiscal 2001 to $32.0 million from $30.9 million in fiscal 2000.

         The Company made significant improvements in overhead expense
reductions in fiscal 2001, however, additional costs associated with a
terminated prospective equity investment, cancelled rights offering and other
strategic initiatives increased legal and professional costs on a non-recurring
basis.

Net Interest Expense

         Net interest expense was $1.0 million in fiscal 2001, a 6.5% reduction
compared to $1.1 million in fiscal 2000. The decrease in net interest expense
reflects lower average borrowings offset by increased interest rates in fiscal
2001 compared to fiscal 2000.

Income Taxes

         The Company's income is subject to taxation in each of the
jurisdictions in which it operates at rates ranging from 9.4% to 42.0% and,
accordingly, the effective tax rate for any given year is a function of the
relative mix of taxable income generated at each of the Company's locations. The
Company's wholly owned subsidiary, L. S. Wholesale, which acts as a purchasing
agent for products sold by the Company's stores and charges fees for acting as
such an agent, has elected to be treated as a "936 Company" under section 936 of
the Internal Revenue Code of 1986, as amended ("IRC"). The tax credit allowed
by this section is being eliminated for tax years beginning after December 31,
2005. The Company is currently reviewing its operating structure to determine if
this change will have a material impact on its business. L.S. Wholesale has also
been granted benefits through the VI Industrial Development Commission ("IDC"),
which allows the Company a reduced tax rate on all income earned outside of the
USVI, at a rate of 9.4% through August 2003. The lower tax rate had the effect
of decreasing the net loss per share by $0.02 in fiscal 2001 and $0.07 in fiscal
2000.

Net Loss

         As a result of the above, there was a net loss for fiscal 2001 of
$7.6 million compared to a net loss of $15.5 million for fiscal 2000.

FISCAL 2000 COMPARED TO FISCAL 1999

General

         The Company operated 18 luxury gift and jewelry stores as of May 27,
2000 compared to 22 Company-operated stores as of May 29, 1999. The Company sold
one store in each of St. Barthelemy and Antigua, and two stores in St. Lucia in
fiscal 2000. During fiscal 1999, the Company closed one store in Ketchikan,
Alaska and one store each in Antigua, St. Kitts and St. Croix, USVI.

<Page>

Net Sales

         Net sales for fiscal 2000 were $55.0 million, a reduction of $21.4
million, or approximately 28.0%, from $76.4 million in fiscal 1999. Net sales in
comparable stores decreased $11.7 million, or approximately 18.2% in fiscal
2000, compared to fiscal 1999.

         The decrease in both total and comparable store sales was attributable
to several factors both internal and external. Internal factors include the
Company's decision to reduce new product purchases in the first half of the
fiscal year in an effort to control the Company's inventory position. As a
result, the Company was able to reduce its aged inventory throughout the
off-season. In addition, constraints were placed on buying due to the Company's
inability to obtain a working capital facility. Finally, the Company's
restructuring efforts in Antigua, St. Lucia, Alaska and Barbados had a negative
impact on store performance due to reduced replenishment of merchandise.

         External factors such as reduced ship calls in the off-season,
Hurricane Lenny and pre-payment requirements by vendors also had a material
impact on the Company's performance in fiscal 2000.

         Total net sales were also reduced due to the sale of the above four
stores in fiscal 2000. These store closings and the resulting lost revenue
contributed approximately $6.7 million to the sales reduction.

Gross Profit

         Gross profit as a percentage of net sales was 35.1% in fiscal 2000
compared to 40.4% for fiscal 1999. Management attributes the decrease in gross
profit as a percentage of net sales in fiscal 2000 to the impact of markdowns
taken for competitive reasons, to stimulate sales in slow-moving categories and
to complete inventory liquidation in the fragrance/accessories categories. In
addition, the Company incurred a $1.8 million write-down in the second quarter
of fiscal 2000 to liquidate older, slow-turn merchandise. Excluding this charge,
the gross profit percentage in fiscal 2000 would have been 38.4%.

Selling, General and Administrative Expenses

         Selling, general and administrative expenses ("SG&A") for fiscal 2000
increased as a percentage of net sales by 7.3% from $39.7 million, or 52.0% of
net sales, in fiscal 1999 to 59.3% of net sales, or $32.7 million, in fiscal
2000.

         SG&A includes a noncash charge of $2.6 million recorded for impairment
of fixed assets and leasehold improvements in the Company's stores in Alaska,
Barbados and St. Martin. This impairment was offset by a $0.8 million net gain
related to the sale of four stores during fiscal 2000. The increase in SG&A as a
percentage of net sales, exclusive of store closing costs, is primarily
attributable to the reduction in net sales for fiscal 2000 compared to fiscal
1999 associated with the restructuring of the Company.

Net Interest Expense

         Net interest expense was $1.1 million in fiscal 2000, compared to $1.4
million in fiscal 1999, a 17.6% reduction. The decrease in net interest expense
reflects lower average borrowings in fiscal 2000 compared to fiscal 1999.

Income Taxes

         The Company's income is subject to taxation in each of the
jurisdictions in which it operates at rates ranging from 9.3% to 42.0% and,
accordingly, the effective tax rate for any given year is a function of the
relative mix of taxable income generated at each of the Company's locations. The
Company's wholly owned subsidiary, L. S. Wholesale, which acts as a purchasing
agent for items sold by the Company's stores, charges fees for acting as such an
agent and has elected to be treated as a "936 Company" under section 936 of the
IRC. In fiscal 2000, the Company was approved by the IDC for renewal of
benefits, retroactive through fiscal 1999, for a 75% benefit, compared to the
old benefit of

<Page>

90%, which the Company enjoyed in the past. L. S. Wholesale benefits from a
lower tax rate on its income earned outside the USVI, and is taxed at a rate of
9.3% through the end of fiscal 2000. The lower tax rate had the effect of
decreasing the net loss per share by $0.07 in fiscal 2000 and $0.02 in fiscal
1999.

Aruba Audit

         On July 29, 1999, the Company entered into a settlement agreement with
the Aruba tax authorities regarding its 1997-1998 local tax returns. The Company
agreed to accelerate the payment of the remaining balance of the profit tax
settlement discussed below ($455,000 of $650,000) and agreed to settle its
1997-1998 local tax returns. The cost to the Company of this settlement was
approximately $580,000, which has been paid to the Aruba taxing authorities.

         In 1998, the Company entered into a settlement with the Aruba tax
authorities regarding its 1988-1996 local tax returns and recorded a tax expense
of $600,000 in fiscal 1999 for the incremental cost of this settlement. Pursuant
to this settlement, the Company had been assessed a profit tax in the amount of
$650,000, payable in ten equal installments of $65,000 per month commencing on
March 1, 1999. Interest of 6% per annum accrued on the outstanding amount
commencing March 1, 1999. The Company also had been assessed a wage tax in the
amount of $550,000, which was paid in six installments commencing June 1999.
Interest of 6% per annum was charged and paid on the outstanding amount starting
on June 1, 1999. This settlement resulted from the Company receiving an
assessment in 1997 from the local government in Aruba that related to the
Company's local income tax returns regarding certain consulting fees paid and
service fees assessed by L.S. Wholesale, Inc.

Net Loss

           As a result of the above, there was a net loss for fiscal 2000 of
$15.5 million compared to a net loss of $11.1 million for fiscal 1999.

LIQUIDITY AND CAPITAL RESOURCES

        Currently, the Company's primary needs for working capital are to
support its inventory requirements, which fluctuate during the year due to
the seasonal nature of the Company's business, and to maintain, refurbish and
remodel its existing stores. In addition, a significant investment in
inventory is required at all times in order to meet the demands of customers
who, as tourists, require immediate delivery of purchased goods. As a general
policy, the Company does not sell merchandise on account. Virtually all sales
are paid by cash, check or major credit card at the time of sale.

         After operating in default under a forbearance agreement with its
historical lenders, the Company refinanced that indebtedness with the
proceeds from the Tiffany Transaction.  As a result of the refinancing, the
Company negotiated a new revolving $3.75 million credit facility with Chase.

      The Company has incurred both operating losses and negative cash flows
from operations amounting to $7.6 million and $5.8 million for fiscal 2001
and $15.5 million and $2.9 million in fiscal 2000, respectively. As of May
26, 2001, the Company has an accumulated deficit of $3.6 million. The Company
has recently undertaken a number of initiatives to improve its financial
condition and ongoing operations. See Note 1 of the accompanying Notes to
Consolidated Financial Statements.

         As of May 26, 2001, the Company had no borrowings outstanding under
the new Chase agreement and $2.5 million outstanding under the Tiffany credit
facility. The credit facility with Chase matures in June 2002, is subject to
extension, at the Company's option, to November 30, 2002 if certain
conditions are satisfied by the Company. This facility bears interest at
LIBOR plus 3% and is collateralized by the inventory and stock of the
Company's subsidiaries. The Tiffany facility is subordinated to the Chase
facility. This facility bears interest at LIBOR plus 3% and matures in April
2006. The Company also agreed to issue to Chase 50,000 warrants effective on
May 1, 2001 and expiring in February 2003. The warrants represent the right
to purchase one share of stock for each warrant at an exercise price of $1
per share.

<Page>

         In addition to the above credit facilities, in November 2000, the
Company completed a transaction with Almod Diamonds Limited ("Almod") relating
to the restructuring of its Barbados operations, which resulted in the Company
receiving $2.0 million of proceeds from a $2.0 million, non-interest bearing
note payable to Almod collateralized by the Company's Barbados inventory. A
balloon payment is due on December 31, 2003. Interest on the note payable has
been imputed at an interest rate of 11.5%, which is a rate commensurate with the
Company's then current borrowings and resulted in $570,000 of original discount,
of which $92,470 has been amortized to interest expense in fiscal 2001.

         Outstanding borrowings against collateralized credit facilities totaled
$4.0 million, net of unamortized discounts, and $10.2 million as of May 26, 2001
and May 27, 2000, respectively. In April 2001, the then outstanding stand-by
letters of credit were replaced with an insurance bond, and accordingly, there
were no outstanding stand-by letters of credit at May 26, 2001. Outstanding
stand-by letters of credit totaled $0 and $2.6 million as of May 26, 2001 and
May 27, 2000 respectively. The weighted average interest rates incurred during
fiscal 2001, 2000 and 1999 were approximately 10.9%, 9.6%, and 8.4%,
respectively.

         Capital expenditures during fiscal 2001, 2000 and 1999 were
approximately $0.9 million, $0.2 million, and $0.8 million, respectively.
Capital expenditures during fiscal 2001 included store fixtures, building and
leasehold improvements, vehicle, equipment, computer hardware and software
upgrades.

         The Company currently leases all 18 of its stores and anticipates
obtaining retail space for new stores through leases. This arrangement allows
the Company to utilize more effectively its cash to design and decorate its
stores with quality furnishings consistent with the prestigious image the
Company seeks to maintain.

SEASONALITY

         The Company's business is seasonal in nature, reflecting travel
patterns to the Caribbean and Alaska. The peak selling season in the Caribbean
runs from late Fall through Spring; the peak selling season in Alaska runs
through Spring and Summer. Accordingly, approximately one-third of the Company's
sales have historically occurred during the third fiscal quarter. Working
capital requirements generally reflect this seasonality as the Company increases
its inventory in anticipation of the peak selling season. Unaudited quarterly
financial information for the Company for fiscal 2001 and 2000 is included in
Note 12 of the accompanying Notes to Consolidated Financial Statements.

INFLATION

         Historically, the Company has generally been able to increase prices to
reflect cost increases resulting from inflation and expects to be able to do so
in the future. While management cannot precisely determine the effect of
inflation on its operations, management does not believe that its operations
have been materially affected by inflation during the three most recent fiscal
years.

EXCHANGE RATES

         The Company receives United States dollars for most of its sales, and
purchases a significant portion of the Company's inventory in United States
dollars. Because of the Company's need to maintain adequate levels of inventory,
the Company must place large orders for merchandise many months in advance of
when it will receive payment for the merchandise from customers. The Company
previously purchased a significant portion of inventory in foreign currency and
engaged in hedging transactions to minimize the effects of fluctuating foreign
exchange rates on the Company's results of operations; however, due to the fact
that the majority of the Company's sales and purchases are now made in United
States dollars, the need for hedging is minimal. As a result, the Company has
ceased its practice of hedging in the foreign exchange market.

<Page>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

           The Company's credit facilities have variable interest rates which
fluctuate with established market rates. The Company does not believe that such
fluctuations will have a material adverse effect on the Company's operations.

<Page>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                            LITTLE SWITZERLAND, INC.
                                AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

                                                                           Page

                                                                           ----
Financial Statements:
Reports of Independent Accountants............................................23

Consolidated Balance Sheets as of May 26, 2001 and May 27, 2000...............25

Consolidated Statements of Operations for each of the three fiscal
years in the period ended May 26, 2001........................................26

Consolidated Statements of Changes in Stockholders' Equity for each
of the three fiscal years in the period ended May 26, 2001 ...................27

Consolidated Statements of Cash Flows for each of the three fiscal
years in the period ended May 26, 2001........................................28

Notes to Consolidated Financial Statements................................... 29


<Page>



                      REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Little Switzerland, Inc.:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity,
and of cash flows present fairly, in all material respects, the financial
position of Little Switzerland, Inc. and its subsidiaries (the "Company") at
May 26, 2001, and the results of their operations and their cash flows for
the fiscal year then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

New York, New York


September 7, 2001

<Page>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Little Switzerland, Inc.:

         We have audited the accompanying consolidated balance sheet of
Little Switzerland, Inc. (a Delaware corporation) and subsidiaries as of May
27, 2000, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the fiscal years ended May
27, 2000 and May 29, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance that 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 financial position of Little
Switzerland, Inc. and subsidiaries as of May 27, 2000 and the results of its
operations and its cash flows for each of the fiscal years ended May 27, 2000
and May 29, 1999, in conformity with accounting principles generally accepted
in the United States.

         The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses and is currently operating without a credit facility which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Boston, Massachusetts

August 4, 2000, (except with respect to the matters discussed in Notes 4 and 13,
as to which the dates are August 29, 2000 and October 16, 2000, respectively)

<Page>

                            LITTLE SWITZERLAND, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets
                    (In Thousands, Except Per Share Amounts)



<Table>
<Caption>

                                                                                   MAY 26,              MAY 27,
                                                                                    2001                 2000
                                                                                --------------     ---------------
<S>                                                                               <C>                   <C>
ASSETS

CURRENT ASSETS:

     Cash and cash equivalents                                                    $  1,467              $    959
     Accounts receivable                                                               806                   355
     Inventory                                                                      35,424                28,172
     Prepaid expenses                                                                  324                   754
                                                                                --------------     ---------------
     Total current assets                                                           38,021                30,240
                                                                                --------------     ---------------

     Property and equipment, at cost                                                23,739                32,240
     Less--Accumulated depreciation                                                 16,970                20,382
                                                                                --------------     ---------------
                                                                                     6,769                11,858
     Other Assets                                                                      543                   381
                                                                                --------------     ---------------
     Total assets                                                                 $ 45,333              $ 42,479
                                                                                ==============     ===============
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Secured demand notes                                                          $     --              $ 10,175
    Accounts payable                                                                11,714                 5,814
    Accrued income taxes                                                             1,678                 1,500
    Other accrued expenses                                                           3,514                 3,435
                                                                                --------------     ---------------
         Total current liabilities                                                  16,906                20,924

    Note payable, net of unamortized discount                                        1,522                    --
    Long-term debt                                                                   2,500                    --
    Deferred income taxes                                                               --                   202
    Other non-current liabilities                                                    1,116                    --
                                                                                --------------     ---------------
         Total liabilities                                                          22,044                21,126
                                                                                --------------     ---------------

Commitments and Contingencies (Note 9)                                                  --                    --


Minority Interest                                                                       --                 1,619
                                                                                --------------     ---------------

Stockholders' Equity:
    Preferred stock, $0.01 par value--Authorized--5,000 shares
         Issued and outstanding--none-                                                  --                    --

    Common stock, $0.01 par value--Authorized--20,000 shares
         Issued and outstanding--16,436 and 8,631 shares at
         May 26, 2001 and May 27, 2000, respectively                                   165                    87
    Paid in Capital                                                                 26,681                15,604
    (Accumulated Deficit) Retained earnings                                         (3,557)                4,043
                                                                                --------------     ---------------
         Total stockholders' equity                                                 23,289                19,734
                                                                                --------------     ---------------

         Total liabilities, minority interest and stockholders' equity            $ 45,333              $ 42,479
                                                                                ==============     ===============
</Table>

              The accompanying notes are an integral part of these
                       consolidated financial statements.
<Page>

                            LITTLE SWITZERLAND, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Operations
                    (In Thousands, Except Per Share Amounts)


<Table>
<Caption>

                                                                            FISCAL YEAR ENDED
                                                           -------------------------------------------------------
                                                             MAY 26,               MAY 27,               MAY 29,
                                                              2001                  2000                  1999
                                                           -------------        ------------       ---------------
<S>                                                         <C>                   <C>                  <C>
Net sales                                                   $ 56,276              $ 55,026             $  76,435
Cost of sales                                                 31,700                35,689                45,560
                                                           -------------        ------------       ---------------
Gross profit                                                  24,576                19,337                30,875
Selling, general and administrative expenses                  32,452                32,657                39,732
Gain on insurance proceeds                                     1,352                    --                   330
                                                           -------------        ------------       ---------------
Operating loss                                                (6,524)              (13,320)               (8,527)

Interest expense, net                                          1,044                 1,116                 1,355
                                                           -------------        ------------       ---------------

Loss before income taxes                                      (7,568)              (14,436)               (9,882)

Provision for income taxes                                        32                 1,020                 1,200
                                                           -------------        ------------       ---------------

    Net loss                                               $  (7,600)            $ (15,456)             $(11,082)
                                                           =============        ============       ===============
BASIC AND DILUTED LOSS PER COMMON SHARE:

    Net loss                                               $   (0.82)            $   (1.79)              $ (1.29)
                                                           =============        ============       ===============

WEIGHTED AVERAGE SHARES OUTSTANDING:

    Basic                                                      9,269                 8,629                 8,624
                                                           =============        ============       ===============
    Diluted                                                    9,269                 8,629                 8,624
                                                           =============        ============       ===============
</Table>


              The accompanying notes are an integral part of these
                        consolidated financial statement.
<Page>

                            LITTLE SWITZERLAND, INC.
                                AND SUBSIDIARIES

           Consolidated Statements of Changes in Stockholders' Equity
                                 (In Thousands)

<Table>
<Caption>

                                                   COMMON STOCK
                                          -----------------------------                     RETAINED
                                               SHARES         AMOUNT     PAID IN CAPITAL    EARNINGS        TOTAL
                                          ----------------  -----------  ---------------  ------------  -------------
<S>                                            <C>            <C>            <C>           <C>            <C>
Balance, May 30, 1998                          8,624          $  87          $ 15,601      $ 30,581       $ 46,269
    Net loss                                      --             --                --       (11,082)       (11,082)
    Shares issued under stock purchase
         plan                                      1             --                --            --             --
                                          ----------------  -----------  ---------------  ------------  -------------
Balance, May 29, 1999                          8,625             87            15,601        19,499         35,187
    Net loss                                      --             --                --       (15,456)       (15,456)
    Shares issued under stock purchase
         plan                                      6             --                 3            --              3
                                          ----------------  -----------  ---------------  ------------  -------------

Balance, May 27, 2000                          8,631             87            15,604         4,043         19,734
    Net loss                                      --             --                --        (7,600)        (7,600)
    Shares issued under stock purchase
     plan                                         67              1                24            --             25
    Warrants issued                               --             --                45            --             45
    New share issuances                        7,410             74             8,665            --          8,739
    Stock based compensation                     328              3               454            --            457
    Imputed interest note-payable                 --             --               570            --            570
    Purchase of subsidiary preferred stock        --             --             1,319            --          1,319
                                          -----------------  ----------- ----------------  -------------  ------------

Balance, May 26, 2001                         16,436          $ 165          $ 26,681      $ (3,557)      $ 23,289
                                          =================  =========== ================  =============  ============
</Table>


        The accompanying notes are an integral part of these consolidated
                              financial statements
<Page>

                            LITTLE SWITZERLAND, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                                 (In Thousands)

<Table>
<Caption>

                                                                                FISCAL YEARS ENDED
                                                                ---------------------------------------------------
                                                                   MAY 26,             MAY 27,           MAY 29,
                                                                    2001                2000              1999
                                                                -------------     ---------------     --------------
<S>                                                             <C>                   <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

    Net loss                                                    $ ( 7,600)            $  (15,456)      $ (11,082)
    Adjustments to reconcile net loss to net cash (used in)
       provided by operating activities-
       Depreciation and amortization                                2,135                  2,949           3,194
       Store closing expense                                           --                     --           1,797
       Impairment of long-lived assets                                409                  2,574              --
       Gain on disposal of certain assets, net                         --                   (783)             --
       Amortization of discount on note payable                        92                     --              --
       Stock based compensation                                       454                     --              --
       Other                                                           45                     --              --
           Changes in assets and liabilities-
         (Increase) decrease in accounts receivable                  (451)                   205           1,439
         (Increase) decrease in inventory                          (7,252)                 7,174          10,983
         Decrease in prepaid expenses and other
             current assets                                           430                    357             833
         (Increase) decrease in other assets                         (162)                   (90)              3
         Increase (decrease) in accounts payable                    5,900                    609          (5,635)
         Increase (decrease) in other accrued expenses                 79                   (206)           (542)
         Increase (decrease) in accrued income taxes                  179                   (215)            938
         Decrease in deferred income taxes                           (202)                    --              --
         Increase in other non-current liabilities                    150                     --              --
                                                                -------------     ---------------     --------------
    Net cash (used in) provided by operating activities            (5,794)                (2,882)          1,928
                                                                -------------     ---------------     --------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures                                                 (906)                  (213)           (798)
Proceeds from sale of certain assets                                4,416                  4,412              --
                                                                -------------     ---------------     --------------
    Net cash provided by (used in) investing activities             3,510                  4,199            (798)
                                                                -------------     ---------------     --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under secured demand notes payable                           --                     --          28,900
Repayment of secured demand notes payable                         (10,175)                (3,100)        (27,625)
Proceeds from long-term borrowings                                  4,500                     --           1,950
Repayments of long-term borrowings                                     --                     --          (3,894)
Proceeds from issuance of common stock                              9,262                      3              --
Transaction costs from issuance of common stock                      (495)                    --              --
Purchase of subsidiary preferred stock                               (300)                    --              --
                                                                -------------     ---------------     --------------
     Net cash provided by (used in) financing activities            2,792                 (3,097)           (669)
                                                                -------------     ---------------     --------------
     Net increase (decrease) in cash and cash equivalents             508                 (1,780)            461

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                          959                  2,739           2,278
                                                                -------------     ---------------     --------------

CASH AND CASH EQUIVALENTS, END OF YEAR                          $   1,467               $    959         $ 2,739
                                                                =============     ===============     ==============

CASH PAID DURING THE YEAR FOR:

     Income taxes                                               $      56               $ 1,235          $   262

     Interest                                                   $   1,028               $ 1,181          $ 1,575

NON-CASH FINANCING ACTIVITIES:

   Paid-in capital related to purchase
     of subsidiary preferred stock                              $   1,319               $    --          $    --

    Paid-in capital related to discount on
    note payable                                                $     570               $    --          $    --

    Common Stock issued in exchange for services                $     258               $    --          $    --

    Options issued as compensation                              $     199               $    --          $    --

    Warrants issued                                             $      44               $    --          $    --

</Table>

              The accompanying notes are an integral part of these
                       consolidated financial statements.
<Page>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  May 26, 2001

         (1) BASIS OF PRESENTATION AND LIQUIDITY

         The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. The Company has incurred both
operating losses and negative cash flows from operations amounting to $7.6
million and $5.8 million for fiscal 2001 and $15.5 million and $2.9 million
in fiscal 2000, respectively. As of May 26, 2001, the Company has an
accumulated deficit of $3.6 million. The Company has recently undertaken a
number of initiatives to improve its financial condition and ongoing
operations. During fiscal 2001, the Company entered into an arrangement with
Tiffany and Company ("Tiffany") and its affiliate, Tiffany & Co.
International ("Tiffany International") (collectively, the "Tiffany
Transaction") (See Note 11), resulting in approximately $8.7 million in
equity and a $2.5 million line of credit scheduled to expire on April 30,
2006. The Company reduced and refinanced its credit facility with The Chase
Manhattan Bank ("Chase") and another lender to $3.75 million and the Company
has obtained a commitment from Chase to extend this facility through November
30, 2002 (See Note 7). Operationally, the Company has been eliminating
redundant and under performing locations and has recently begun to re-build
its existing store base through improved merchandise selection and store
management.

           Management's financing and operating plans for fiscal 2002
include: (1) enhancing sales performance through improving merchandise mix,
selected price increases, reducing point of sale discounts, and improving
product knowledge and sales training for its staff, (2) managing its
operating costs to anticipated revenue levels, eliminating marketing programs
which have not supported sales growth plans and reducing its corporate
overhead costs, (3) selected store expansions and new locations in cruise
line markets where the Company either has a very limited presence, or no
presence at all, and (4) replacing its Chase credit facility with a long-term
facility on more favorable terms. There is no assurance that management's
plans will be successful. Management believes its working capital and
existing credit facilities will be sufficient to fund its operations for the
next fiscal year. If the Company is unable to achieve its plans, it may be
required to seek additional equity or debt financing during fiscal 2002, and
there is no assurance that such capital or financing will be available to the
Company or on terms acceptable to the Company.

         (2) ORGANIZATION

         Little Switzerland, Inc. ("Little Switzerland" or the "Company"), is a
retailer of luxury items. The Company was incorporated in May 1991 as a wholly
owned subsidiary of Town & Country Corporation. On July 17, 1991, approximately
68% of the outstanding common stock, par value $.01 per share, of Little
Switzerland was sold in a public offering. L.S. Wholesale, Inc. (L.S. Wholesale)
and L.S. Holding, Inc. (L.S. Holding) are wholly-owned subsidiaries of Little
Switzerland.

         L.S. Wholesale purchases and distributes inventory to all the Company's
stores. L.S. Holding operates retail stores in the U.S. Virgin Islands and is
the parent company of 10 subsidiaries which are incorporated in various
international and domestic jurisdictions.

         As of May 26, 2001, the six operational subsidiaries of L.S. Holding
were: Montres et Bijoux, S.A.R.L. which conducts operations in the French
Antilles; World Gifts Imports N.V. which conducts operations in the Netherland
Antilles; L.S. Holding (Aruba) N.V. which conducts operations in Aruba; L.S.
Holding (Curacao) N.V. which conducts operations in Curacao; L.S. Holding (USA),
Inc., which conducts operations in Alaska; and World Gift Imports (Barbados)
Limited, which conducts operations in Barbados. Little Switzerland (St. Kitts &
Nevis) Limited, Little Switzerland (Antigua) Limited, Little Switzerland
(Caymans) Limited, and Little Switzerland (BVI) Limited were not in operation at
the end of the Company's latest fiscal year.


<Page>

         As of May 26, 2001, the Company operated 18 distinctively designed
retail stores located on five Caribbean islands and in Alaska. The Company
markets a wide selection of high-quality products, including jewelry,
watches, crystal, china, gifts and accessories. The Company is the exclusive
retailer of certain brand name products on some islands and in some areas of
Alaska. The Company's customers are primarily tourists from the United States.

         (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Presentation

         The accompanying consolidated financial statements include the
operations of the Company and its wholly owned subsidiaries, L.S. Holding and
L.S. Wholesale. All significant intercompany balances and transactions have
been eliminated in consolidation.

         The Company's fiscal year ends on the Saturday immediately preceding
May 31. Fiscal years are designated in the financial statements and notes by the
calendar year in which the fiscal year ends. Fiscal 2001, fiscal 2000 and fiscal
1999 each consisted of 52 weeks and ended on May 26, 2001, May 27, 2000 and May
29, 1999, respectively.

         Use of Estimates

         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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The more
significant assumptions and estimates relate to inventory valuation, useful
lives of property and equipment, valuation allowances on deferred taxes and the
going concern considerations previously discussed.

         Revenue Recognition

         Revenues include sales from all stores operating during the period, net
of returns and excluding any sales or value-added tax. Revenue is recognized
when title and risk of loss have passed to the customer, which for stores, is at
point of sale.

         Advertising

         The Company expenses the costs of advertising as the costs are
incurred. The Company's advertising consists primarily of advertisements with
local and national travel magazines, which are produced on a periodic basis
and are distributed to visiting tourists throughout the Company's fiscal
year. Additionally, the Company incurs advertising expenses in connection
with on-board and promotional "port lecturer" programs directed primarily at
cruise passengers.

         Advertising expense for fiscal 2001, 2000 and 1999 was approximately
$2,807,000, $2,122,000, and $2,919,000, respectively.

         Cash and Cash Equivalents

         The Company considers all highly liquid instruments with maturity of
three months or less, when purchased, to be cash equivalents. The carrying
amount of cash and cash equivalents approximates fair value due to the short
maturities.

<Page>

         Allowance for Doubtful Accounts

         The Company maintains an allowance for doubtful accounts. At May 26,
2001 and May 27, 2000, the allowance for doubtful accounts amounted to $115,000
and $551,000, respectively.

         Inventory

         Inventory is stated at the lower of cost (first-in, first-out) or
market value and consists almost entirely of finished merchandise purchased
for resale.

         Other Assets

         Other assets consist primarily of amounts related to rental security
deposits.

         Long Lived Assets

         The Company accounts for the impairment of long-lived and intangible
assets in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In accordance
with the requirements of SFAS No. 121, the Company periodically assesses whether
events or circumstances have occurred that may indicate the carrying value of
its long-lived assets may not be recoverable. When such events or circumstances
indicate the carrying value of an asset may be impaired, the Company uses an
estimate of the future undiscounted cash flows to be derived from the asset over
the remaining useful life of the asset to assess whether or not the asset is
recoverable. If the future undiscounted net cash flows to be derived over the
life of the asset do not exceed the asset's net book value, the Company
recognizes an impairment loss for the amount by which the net book value of the
asset exceeds its estimated fair value. The Company recognized an impairment
loss of approximately $409,000 and $2,574,000 during fiscal 2001 and 2000,
respectively, related to events and circumstances that indicated the carrying
value of certain long-lived assets may not be recoverable. The impairment losses
have been classified as a component of selling, general and administrative
expense in fiscal 2001 and 2000. No impairment loss was recognized during fiscal
1999.

         Income Taxes

         The Company uses the liability method of accounting for income taxes
as set forth in Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the expected future tax consequences of events
that have been included in the financial statements or tax returns. The amount
of a deferred tax asset or liability is based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Deferred taxes are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.

         Foreign Currency

         The Company's functional currency under SFAS No. 52, Foreign
Currency Translations, for all foreign locations is the U.S. dollar.
Accordingly, all transaction and remeasurement gains and losses are included
in the accompanying consolidated statements of operations. Gains and losses
for all periods presented were not material.

<Page>

         Other Accrued Expenses

         Other accrued expenses are comprised of the following (in thousands):

<Table>
<Caption>

                                                MAY 26,           MAY 27,
                                                 2001              2000
                                            ---------------   ---------------
<S>                                              <C>              <C>
         Payroll and related items               $ 1,802          $ 1,398
         Legal and professional                      754              724
         Customer deposits                           188              149
         Management fees                              --              143
         Other                                       770            1,021
                                          ---------------   ---------------
                                                 $ 3,514          $ 3,435
                                          ===============   ===============
</Table>


         Fair Value of Financial Instruments

         In accordance with the requirements of SFAS No. 107, Disclosures about
Fair Value of Financial Instruments, the Company has determined the estimated
fair value amounts of its financial instruments using appropriate market
information and valuation methodologies. Considerable judgment is required to
develop the estimates of fair value; thus, the estimates are not necessarily
indicative of the amounts that could be realized in a current market exchange.
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and debt. The carrying value of these
assets and liabilities approximate fair value at May 26, 2001 and May 27, 2000
due to the short-term nature of these accounts and the variable interest rates
assigned to the Company's debt.

         Store Pre-Opening and Closing Costs

         Pre-opening expenses related to the opening of new retail stores are
expensed in the period incurred. Store closing costs are estimated and
recognized in the period in which the Company makes the decision that the store
will close. Such costs include an estimate of future lease obligations, loss on
retirement of property and equipment and other related occupancy costs.

          Stock Options

          The Company uses the intrinsic value method for stock-based
compensation in accordance with Accounting Principle Bulletin No. 25, Accounting
for Stock Issued to Employees, and has adopted the disclosure-only provisions of
Statement of Financial Accounting Standard No. 123 ("SFAS 123"), Accounting for
Stock-Based Compensation.

         Comprehensive Income

         Comprehensive loss/income is defined as the change in net assets of
a business enterprise during a period from transactions generated from
non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners. The
comprehensive loss is equal to the net loss for fiscal 2001, 2000 and 1999.

         Segment Information

         The Company has adopted the provisions of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. The Company operates
one industry segment consisting of the sale of luxury items. The Company's
business is managed as one segment, or one strategic unit, because it offers
similar products in similar markets and the factors determining strategic
decisions are comparable for all products and markets.


<Page>

         Foreign Operations

         Net sales from foreign operations (non-U.S. possessions) amounted to
50%, 56%, and 62% of total net sales, and net operating loss from foreign
operations (non-U.S. possessions) amounted to 50%, 47%, and 37% of total net
operating loss in fiscal 2001, 2000, and 1999, respectively. Identifiable assets
of foreign operations amounted to 36%, 58%, and 62% of total assets as of May
26, 2001, May 27, 2000 and May 29, 1999, respectively.

           New Accounting Pronouncements

           In June 1998, 1999 and 2000, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -Deferral of the Effective Date of SFAS 133" and SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - An Amendment of SFAS No. 133". These statements outline the
accounting treatment for all derivative activities, which requires that an
entity recognize all derivative instruments as either assets or liabilities
on its balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part
of a hedge transaction and, if it is, the type of hedge transaction. The
effect of adopting SFAS 133 will not have a significant effect on the
Company's consolidated financial statements.

         In July 2001, the FASB issued SFAS 141 and 142, "Business
Combinations" ("SFAS 141") and "Goodwill and Other Intangible Assets" ("SFAS
142"), respectively. SFAS 141 supersedes Accounting Principles Board Opinion
No. 16 (APB 16), Business Combinations. The most significant changes made by
SFAS 141 are: (1) requiring that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001, (2) establishing
specific criteria for the recognition of intangible assets separately from
goodwill, and (3) requiring unallocated negative goodwill to be written off
immediately as an extraordinary gain (instead of being deferred and
amortized).

         SFAS 142 supersedes APB 17, Intangible Assets. SFAS 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition (i.e. the post-acquisition accounting). The provisions of SFAS 142
will be effective for fiscal years beginning after December 15, 2001. However,
early adoption of SFAS 142 will be permitted for companies with a fiscal year
beginning after March 15, 2001, provided their first quarter financial
statements have not been previously issued. In all cases, SFAS 142 must be
adopted at the beginning of a fiscal year. The most significant changes made by
SFAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer
be amortized, (2) goodwill will be tested for impairment at least annually at
the reporting unit level, (3) intangible assets deemed to have an indefinite
life will be tested for impairment at least annually, and (4) the amortization
period of intangible assets with finite lives will no longer be limited to forty
years.

         The Company does not expect that the adoption of SFAS 141 or SFAS 142
will have a material impact on its financial statements, results of operations
or cash flows.


<Page>

         (4) PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. Major additions and
betterments which extend the service lives of an asset are capitalized.
Repairs and maintenance are charged to expense in the period incurred. Upon
retirement or sale, the costs of the assets disposed and the related
accumulated depreciation are removed from the accounts, and any resulting
gain or loss is included in the determination of net income/loss.
Depreciation is calculated principally using the straight-line method over
the estimated useful lives of the assets. Property and equipment consist of
the following (in thousands):

<Table>
<Caption>

                                  ESTIMATED USEFUL
                                     LIFE RANGE                               MAY 26, 2001           MAY 27, 2000
<S>                             <C>                                             <C>                    <C>
Land and buildings                  20-40 years                                 $  2,666               $ 7,323
Furniture and fixtures               3-10 years                                    8,552                 9,567
Equipment                             3-5 years                                    3,652                 4,997
Construction-in-progress                -                                            102                    --
Leasehold improvements          Life of the lease or useful life,
                                whichever is shorter                               8,767                10,353
                                                                           ------------------    -------------------
                                                                                $ 23,739               $32,240
                                                                           ==================    ===================
</Table>

         (5) RELATED PARTY TRANSACTIONS

         Seymour Holtzman, a Class III director and Chairman of the Board of
the Company, is President, Chief Executive Officer and principal stockholder
of Jewelcor Management, Inc. ("Jewelcor"), a 12.1% stockholder of the
Company. In accordance with the Company's compensation policies for its
outside directors, Mr. Holtzman was paid $24,000 of director's fees and was
awarded options to purchase 130,000 shares of the Company's common stock, in
connection with his service on the Board of Directors during fiscal 2001. The
Company also paid Mr. Holtzman a total of $5,000 plus expenses, in connection
with his attendance at meetings with prospective investors during the last
fiscal year.

         On July 17, 2000, the Company issued 100,000 fully vested options to
purchase Common Stock to Jewelcor at an exercise price of $0.59 per share in
consideration for certain agreed-upon services. The Company recorded a charge to
expense of approximately $61,000 representing the estimated fair value of the
options using the Black Scholes pricing model assuming a risk-free interest rate
of 6.37%, expected dividend yield of 0%, expected life of 10 years, and an
expected volatility of 74%.

         During Fiscal 2001, the Company entered into a consulting agreement
(the "Consulting Agreement") with Jewelcor for services to assist the Company
in developing and implementing a strategic plan and for other related
consulting services as agreed upon between Jewelcor and the Company. As
compensation for these services, Jewelcor received 307,692 shares of the
Company's Common Stock in lieu of a cash payment of $240,000. The amount of
shares issued to Jewelcor was determined by dividing $240,000, the fair value
of the services provided, by the Company's closing stock price on January 15,
2001. The Company recorded a charge to expense of $240,000 in connection with
this transaction. The agreement also provided for Jewelcor to be reimbursed
any out-of-pocket expenses and receive a transaction fee upon the
consummation of a "Transaction" as defined in the agreement. On May 1, 2001,
in connection with the Tiffany Transaction (as described more fully in Note
11), the Company terminated the Consulting Agreement with Jewelcor. Jewelcor
was reimbursed $49,132 of expenses and waived its rights to receive a
transaction fee in connection with the Tiffany Transaction.

         In connection with the consummation of the Tiffany Transaction
the Company retained the investment banking firm of Ryan, Beck & Co., LLC ("Ryan
Beck") to render a fairness opinion to the Board of Directors of the terms of
the transaction, from a financial point of view. The Company paid Ryan Beck a
fee in the amount of $112,500, plus expenses. Peter McMullin, a member of the
Board of Directors of the Company until April 30, 2001, is also an officer of
Ryan Beck. In addition, in the ordinary course of business as a broker-dealer,
Ryan Beck may actively trade equity securities of the Company for its own
account and the account of its customers.


<Page>

         On May 1, 2001, the Company entered into several related loan and
security agreements with Tiffany for an aggregate $2.5 million credit
facility through April 30, 2006. At May 26, 2001, the Company had utilized
$2.5 million of this facility. See Note 7 for further discussion.

         (6) EARNINGS PER SHARE

         In accordance with the requirements of SFAS No. 128, Earnings per
Share, basic earnings per share is computed by dividing net income by the
weighted average number of shares outstanding, and diluted earnings per share
reflects the dilutive effect of stock options and warrants (as calculated
utilizing the treasury stock method). The Company's dilutive earnings per
share calculation is as follows (in thousands):

<Table>
<Caption>

                                                                              FISCAL YEARS ENDED
                                                            ------------------------------------------------------
                                                             MAY 26, 2001        MAY 27, 2000       MAY 29, 1999
<S>                                                               <C>                 <C>                <C>
Weighted average number of shares used in basic earnings
    per share calculation                                         9,269               8,629              8,624

Dilutive effects of options                                          --                  --                 --
                                                            ---------------   -----------------   ----------------
Weighted average number of shares used in diluted earnings
    per share calculation                                         9,269               8,629              8,624
                                                            ===============   =================   ================
Shares under and outside of options plans and warrants
excluded in computation of diluted earnings per share
due to antidilutive effects                                       1,825               1,398                833
                                                            ===============   =================   ================
</Table>

         The Company's calculation of diluted earnings per share excludes the
effect of outstanding options and warrants that are anti-dilutive due to the
Company's net loss.

         (7) CREDIT ARRANGEMENTS

         Historically, the Company had utilized unsecured credit facilities with
the Company's two lead banks to support its inventory and capital requirements,
which fluctuate during the year due to the seasonal nature of the Company's
business, and to maintain and remodel its existing stores. As a result of
negotiations with its two lead banks regarding the Company's noncompliance with
certain financial covenants contained in the original loan agreements with the
banks and the nonpayment of amounts totaling approximately $1.5 million due
under the revolving term loan with one of the Company's banks, the Company and
its subsidiaries entered into a Forbearance Agreement, effective as of April 1,
1999, that effectively froze the Company's line of credit at its then current
level of $17.5 million. This amount consisted of approximately $13.3 million in
outstanding cash borrowings and approximately $4.2 million in contingent
stand-by letters of credit. Pursuant to the Forbearance Agreement, the banks
agreed, through August 31, 1999, not to exercise their rights and remedies under
the existing loan documents with respect to existing defaults and certain
expected future defaults. In exchange, the Company and its subsidiaries granted
a security interest to the banks against substantially all of their personal
property. The Forbearance Agreement also set forth certain criteria that the
Company had to meet regarding the Company's inventory levels. The banks
indicated that they would not provide the Company with any additional borrowings
during the term of the Forbearance Agreement. The forbearance period under the
Forbearance Agreement expired on August 31, 1999 and the Company was in default
under certain covenants contained in such Forbearance Agreement.

         The Company then entered into a standstill agreement, as amended ("the
Standstill Agreement") with its existing lenders effective through December 31,
2000, pursuant to which the Company's lenders agreed that they would not make
any additional borrowings available to the Company and thereby, freeze the
Company's line of credit at its then current level of $8.8 million in
outstanding cash borrowings and approximately $2.6 million in contingent
stand-by letters of credit, subject to certain conditions contained in the
Standstill Agreement.


<Page>

         As a result of the Tiffany Transaction, as more fully described in
Note 11, the Company was able to repay all outstanding debt to existing lenders
on May 1, 2001 under the above agreements and concurrently enter into two new
credit facilities.

         Outstanding borrowings against the aforementioned credit facilities
totaled $0 and $10.2 million as of May 26, 2001 and May 27, 2000, respectively.
Outstanding stand-by letters of credit against these credit facilities totaled
$0 and $2.6 million as of May 26, 2001 and May 27, 2000, respectively. The
weighted average interest rates incurred during fiscal 2001, 2000 and 1999 were
approximately 10.9%, 9.6% and 8.4%, respectively.

         The Company entered into a senior collateralized credit facility
with Chase, which was also a lender under the prior loan agreements, to
borrow up to $3.75 million, through June 1, 2002, at an interest rate of 3%
per annum above LIBOR, subject to extension at the Company's option to
November 30, 2002 if certain conditions are satisfied by the Company.
Interest is payable monthly and full principal and unpaid interest are due on
or before June 1, 2002. The credit facility is collateralized by
substantially all of the Company's assets, including the Company's inventory
(other than its Barbados inventory), the pledge of the stock of the Company's
subsidiaries, and a first priority leasehold mortgage over the building that
houses the Company's headquarters and main warehouse. The Company also issued
to Chase 50,000 warrants (as adjusted for dilution) to purchase one share of
common stock at an exercise price of $1 per share until the expiration date
on February 28, 2003. Such warrants had an approximate fair market value of
$44,000 on the date of issuance. As of May 26, 2001, the Company had not
borrowed any amounts under this facility and no warrants had been exercised.

         On September 4, 2001, the Company and Chase entered into an
agreement pursuant to which the Company, at its option and subject to the
satisfaction of certain conditions, may extend its credit facility with Chase
for an additional six months beyond its current maturity date. If, on June 1,
2002, the current expiration of the facility, the Company has not obtained
alternative financing, Chase will be required to extend the facility provided
the company is not in violation of any provision within the existing facility
agreement and the Company pays an additional fee and an increased interest
rate through November 1, 2002. In addition, at the time of the extension
request, the Company must be in full compliance with the terms of the credit
facility. The Company will seek to obtain alternative financing prior to the
current June 1, 2002 maturity date. Should such alternative financing not be
obtained, the Company intends to exercise this extension, if necessary.

         The Company also maintains a credit facility with Tiffany, which
allows the Company to borrow up to $2.5 million at an interest rate of 3% per
annum above LIBOR. Interest is payable semi-annually on January 31st and July
31st of each calendar year with principal and unpaid interest due on or
before April 30, 2006. The facility is collateralized by a subordinated
interest in the inventory (other than the Barbados inventory) and accounts
receivable of the Company, as well as the pledge of the stock of the
Company's subsidiaries. As of May 26, 2001, the Company had utilized $2.5
million of this facility.

         In addition to the above credit facilities, in November 2000, the
Company completed certain transactions with Almod Diamonds Ltd. ("Almod")
(see Note 18), which resulted in the Company receiving $2.0 million of
proceeds from the issuance of a $2.0 million non-interest bearing note
payable to Almod, collateralized by the Company's Barbados inventory. A
balloon payment is due on December 31, 2003. If the Company is unable to
repay such debt by the due date, Almod will have the right to convert its
preferred shares and/or its Class B Common Shares in the Company's Barbados
subsidiary into common stock at a rate of one for one, or repurchase all or
some Class A Common Shares of the Company's Barbados subsidiary, at a price
of $1 per share. As of May 26, 2001, Almod had not acquired the preferred or
Class B Common Shares in the Company's Barbados subsidiary. Interest on the
note payable has been imputed at an interest rate of 11.5%, which is a rate
commensurate with the Company's then current borrowings, and resulted in
$570,000 of original discount, of which $92,239 has been amortized to expense
in fiscal 2001.

<Page>

         (8) INCOME TAXES

         The domestic (United States Virgin Islands (USVI), Ketchikan, Juneau
and Skagway, Alaska) and foreign components of loss before income taxes are as
follows (in thousands):

<Table>
<Caption>

                                                FISCAL
                            -------------------------------------------------

                                 2001             2000            1999

<S>                           <C>              <C>              <C>
             Domestic         $ (2,618)        $ (5,609)        $(5,141)
             Foreign            (4,950)          (8,827)         (4,741)
                            --------------  ----------------  ---------------
                              $ (7,568)        $(14,436)        $(9,882)
                            ==============  ================  ===============
</Table>

The components of the provision (benefit) for income taxes are as follows (in
thousands):

<Table>
<Caption>

                                              FISCAL
                              ----------------------------------------------
                                  2001            2000             1999
<S>                           <C>               <C>             <C>
             Current-
                 Domestic     $     259         $   729         $     66
                 Foreign              4             291            1,134
                              -------------  ----------------  -------------

                              $     263         $ 1,020         $  1,200
                              -------------  ----------------  -------------

             Deferred-
                 Domestic     $     (15)        $    --         $     --
                 Foreign           (216)             --               --
                              -------------  ----------------  -------------

                              $    (231)        $    --               --
                              -------------  ----------------  -------------
                              $      32         $ 1,020         $  1,200
                              =============  ================  =============
</Table>

         The deferred tax benefit results primarily from differences arising
in the use of valuation allowances and depreciation methods for financial
reporting and tax purposes.

         A reconciliation of the Company's effective tax rate to the USVI
statutory rate of 37.4% is as follows (in thousands):

<Table>
<Caption>

                                                                             FISCAL YEARS ENDED
                                                             -------------------------------------------------------
                                                              MAY 26, 2001        MAY 27, 2000         MAY 29, 1999
<S>                                                          <C>                   <C>                 <C>
Computed tax benefit at statutory rate                       $  (2,830)            $(5,399)            $(3,696)
Increases (reductions) resulting from-
   Differences between foreign provisions recorded and
       provisions at USVI rate                                     (69)                284                 946
   Effect of earnings of subsidiary in USVI subject to
       lower tax rate                                             (216)               (595)               (199)
   Effect of subsidiary net operating losses not benefited       3,142               6,730               4,149
   Effect of domestic non-deductible expenses                        5                  --                  --
                                                             ---------------    -----------------    ---------------

                                                             $      32             $ 1,020             $ 1,200
                                                             ===============    =================    ===============
</Table>
<Page>

         The Company's income is subject to taxation in each of the
jurisdictions in which it operates at rates ranging from 9.4% to 42.0%. The
Company's wholly owned subsidiary, L.S. Wholesale, which acts as a purchasing
agent for products sold by the Company's stores and charges fees for acting as
such an agent, has elected to be treated as a "936 Company" under section 936 of
the Internal Revenue Code of 1986, as amended. The tax credit allowed by this
section is being eliminated for tax years beginning after December 31, 2005. The
Company is currently reviewing its operating structure to determine if this
change will have a material impact on its business. L.S. Wholesale has also been
granted benefits through the VI Industrial Development Commission, which allows
the Company to enjoy a reduced tax rate on all income earned outside the USVI,
at a rate of 9.4% through August 2003. The lower tax rate had the effect of
reducing the loss per share by $0.02, $0.07, and $0.02 in fiscal 2001, 2000 and
1999, respectively.

         During 1997, the Company received an assessment from the local
government in Aruba that related to the Company's local income tax returns
regarding certain consulting fees paid and service fees assessed by L.S.
Wholesale to the Company's operations in Aruba. During 1998, the Company reached
a settlement with the tax authorities regarding its 1988-1996 local tax returns
and recorded the cost of the settlement as incremental tax expense during the
fiscal year ended May 29, 1999. Pursuant to this settlement, the Company was
assessed a profit tax in the amount of $650,000, which was payable in 10 equal
installments of $65,000 per month commencing on March 1, 1999. Interest of 6%
per annum was charged on the outstanding amount starting on March 1, 1999. The
Company also was assessed a wage tax in the amount of $550,000, which was
payable in six installments commencing in June 1999. Interest of 6% per annum
was charged on the outstanding amount starting on June 1, 1999. At year-end May
26, 2001, all assessments and interest for income tax settlement and wage tax
settlement had been paid.

         The Company did not have a deferred tax liability at May 26, 2001.
At May 27, 2000, the Company had a deferred tax liability of $202,000 as a
result of the use of accelerated depreciation methods for tax purposes. The
Company's deferred tax assets consist primarily of net operating loss
carryforwards, obsolesence and other reserves totaling approximately
$16,540,000 and $15,713,000 as of May 26, 2001 and May 27, 2000,
respectively. A full valuation reserve has been recorded against these
deferred tax assets since significant uncertainty exists with respect to the
future realizability of the deferred tax assets in excess of the deferred tax
liabilities, principally the net operating loss carryforwards. For tax
reporting purposes, the Company has net operating loss carryforwards of
approximately $42,129,000 and $40,238,000 as of May 26, 2001 and May 27,
2000, respectively. Utilization of the net operating loss carryforward is
contingent on the Company's ability to generate income in future years.
Additionally, due to a major ownership change during fiscal 2001 there is a
limitation, pursuant to IRC Sec. 382, on the amount of net operating loss
carryforwards that can be used to offset income each year. The IRC Sec. 382
limitation will apply to L.S. Wholesale, Inc., L.S. Holding (USA), Inc., and
L.S. Holding, Inc. These subsidiaries cannot deduct losses incurred before the
ownership change in excess of the IRC Sec. 382 limitation. Net operating loss
carryforwards which cannot be deducted in a particular taxable year due to
the limitation will be carried forward to a succeeding year to the extent
they have not expired. The net operating loss carryforwards will expire in
varying amounts in varying years from 2002 to 2020 if not utilized.

         (9) COMMITMENTS AND CONTINGENCIES


         Lease Commitments

         Certain of the Company's facilities and all of its retail stores are
occupied under operating leases expiring at various dates. Most leases
contain at least one renewal term. The Company's rental commitments under the
non-cancelable portion of these leases at May 26, 2001 are as follows:

<Table>
<Caption>

                                           LEASE COMMITMENT
                      YEAR

<S>                                         <C>
                      Fiscal 2002           $  5,204,477
                      Fiscal 2003              4,408,916
                      Fiscal 2004              3,555,593
                      Fiscal 2005              3,013,715
                      Fiscal 2006              2,145,668
                      Thereafter               2,412,827
                                           ----------------
                                            $ 20,741,196
                                           ================
</Table>
<Page>


         Rental expense included in the accompanying consolidated statements of
operations amounted to approximately $3,904,000, $3,519,000, and $4,301,000 in
fiscal 2001, 2000, and 1999, respectively.

         The Company occupies the building that operates as its headquarters
and warehouse on St. Thomas on land leased from the Virgin Islands Port
Authority under a ten-year ground lease with two five-year renewal terms. The
Company is currently operating in its first five-year option period and has
already exercised its second and final five-year option term which expires in
July 2009. The lease may be terminated by the lessor prior to the expiration
of its term subject to payment to the Company of the fair market value of the
Company's improvements.

         Legal Matters

         CLASS ACTION LAWSUIT

         On May 14, 2001, a memorandum of understanding (the "MOU") was
executed which sets forth an agreement in principle of the terms of
settlement with respect to the class action complaint filed on March 22,
1999, in the United States District Court for the District of Delaware (Civil
Action No. 99-176) against the Company, certain of its former officers and
directors, Destination Retail Holdings Corporation ("DRHC") and Stephen G.E.
Crane. Under the MOU, none of the defendants have admitted any wrongdoing. If
the terms of settlement described in the MOU are approved by the court and
holders of a certain agreed upon number of shares held by the putative class
do not opt out of the proposed settlement, the case will be dismissed. The
settlement amount payable in accordance with the terms of the MOU is
estimated at $1.0 million and will be paid from the proceeds of existing
insurance coverage. However, there can be no assurance that the case will be
settled as contemplated by the MOU.

         The original complaint alleged that the defendants violated federal
securities laws by failing to disclose that DRHC's financing commitment to
purchase the Company's shares expired on April 30, 1998, before the Company's
stockholders were scheduled to vote to approve the proposed merger between the
Company and DRHC at the May 8, 1998 special meeting of stockholders (the
"Financing Disclosure Allegations"). The plaintiffs are seeking monetary
damages, including, without limitation, reasonable expenses in connection with
this action. The plaintiffs amended their complaint on November 10, 1999 and the
Company filed a motion to dismiss the plaintiff's amended complaint on December
7, 1999. On January 28, 2000, the plaintiffs filed their opposition to the
motion to dismiss. In March 2001, the District Court, among other things,
granted the Company's motion to dismiss with respect to certain allegations in
the amended complaint that the defendants violated federal securities laws by
failing to disclose the status of the Company's relationship with a particular
watch vendor; however, the District Court denied the motion to dismiss with
respect to the Financing Disclosure Allegations. In addition, the District Court
dismissed the claims against defendants DRHC and Stephen G.E. Crane.

NXP

           On February 16, 2001, the Company and NXP-Jewels Corporation ("NXP")
entered into a settlement agreement and mutual general release from the
litigation arising between the Company and NXP with respect to their general
obligations under a letter of intent to sell the Company's Barbados operations
to NXP. The Company, as part of the settlement, refunded a $100,000 deposit held
in escrow and made a $5,000 settlement payment.

         The Company is also party to other various pending litigation,
claims, assessments and proceedings in the ordinary course of business. In
the opinion of management of the Company, these suits and claims should not
result in final judgments or settlements which, in the aggregate, would have
a material adverse effect on the Company's financial position, results of
operations or cash flows.

<Page>

         Significant Suppliers

         During fiscal 2001, no supplier accounted for greater than 10% of
the Company's net sales. In fiscal 2000 and 1999, one supplier, the Swatch
Group, accounted for approximately $7.5 million, or 13.5% of net sales, and
$8.0 million or 10.4% of net sales, respectively. No other supplier accounted
for greater than 10% of net sales in fiscal 2000 or 1999.

         (10) PURCHASE OF SUBSIDIARY PREFERRED STOCK

         On August 4, 2000, the Company purchased all of the outstanding
preferred shares in its Barbados operations with a book value of $1.6 million
for $0.3 million. The difference between the purchase price and the book
value of the preferred shares has been recorded against the Paid-in Capital
of the Company. This purchase terminated a management agreement associated
with the shares requiring the Company to pay 2.5% of sales in Barbados to the
holder of the preferred shares.

           (11) TIFFANY INTERNATIONAL EQUITY INVESTMENT

           On May 1, 2001, Tiffany International purchased 7,410,000
newly-issued shares of the Company's common stock for $8.7 million, net of
associated expenses. The Company used the proceeds from this transaction to
pay off existing bank debt and for its working capital needs. Tiffany also
entered into several related loan agreements to provide the Company with a
line of credit of up to $2.5 million through April 30, 2006 (collectively,
the "Tiffany Transaction") (See Note 7). In connection with the closing of
the Tiffany Transaction, the Company also entered into an Investor's Rights
Agreement with Jewelcor Management, Inc. ("Jewelcor"), a principal
stockholder of the Company, which provides, among other things, that Jewelcor
will have the right to subscribe for its pro rata share of certain new
issuances of equity securities by the Company. Concurrently, the Company
granted the same right to Tiffany International.

         Pursuant to the Tiffany Transaction, three members of the Company's
Board of Directors resigned, and two representatives of Tiffany were
appointed to the Board. Pursuant to a Stockholders Agreement, the Company,
Tiffany International and Jewelcor have agreed that the remaining existing
vacancy on the board will be filled by an independent third party.

         (12) QUARTERLY DATA (UNAUDITED)

         The following presents the unaudited quarterly results of operations
for the fiscal years ended May 26, 2001 and May 27, 2000 (in thousands except
per share data):

<Table>
<Caption>

                         FIRST QUARTER         SECOND QUARTER         THIRD QUARTER     FOURTH QUARTER
                        ENDED AUGUST 26      ENDED NOVEMBER 25      ENDED FEBRUARY 24    ENDED MAY 26
<S>                       <C>                      <C>                   <C>               <C>
FISCAL 2001
Net Sales                 $  9,959                 $ 11,356              $ 19,186          $ 15,775
Gross Profit                 4,449                    4,935                 7,465             7,727
Net loss                    (1,985)                    (656)               (2,357)           (2,602)
Net loss per share           (0.23)                   (0.08)                (0.27)            (0.24)

<Caption>

                         FIRST QUARTER         SECOND QUARTER         THIRD QUARTER     FOURTH QUARTER
                        ENDED AUGUST 28      ENDED NOVEMBER 27      ENDED FEBRUARY 26    ENDED MAY 27
<S>                       <C>                      <C>                   <C>               <C>
FISCAL 2000
Net sales                 $ 13,835                 $ 10,075              $ 17,602          $ 13,514
Gross profit                 4,609                    2,543                 7,449             4,736
Net loss                    (3,933)                  (4,009)               (1,550)           (5,964)
Net loss per share           (0.46)                   (0.46)                (0.18)            (0.69)
</Table>
<Page>

         (13) EMPLOYEE BENEFIT PLAN

         Retirement Plan

         The Company maintains a 401(k) Plan under which the Company matches
each employee's contribution by 50% of the first 3% of the employee's
contribution. During fiscal 2001, 2000 and 1999, the Company's matching
totaled approximately $57,000, $41,000, and $23,000, respectively. The
Company's contributions vest based on the employee's years of service, with
full vesting after five years of service.

         (14) STOCKHOLDERS' EQUITY

         Stock Options

         During fiscal 1991, the Company established the 1991 Option Plan
("the 1991 Plan") to cover option awards to key employees and directors who
are also full time employees of the Company. Under the 1991 Plan, the Company
may grant stock options for the purchase of up to 500,000 shares of the
Company's Common Stock at an exercise price equal to the fair market value of
the Common Stock on the date of grant. During 1996, the Company amended the
1991 Plan to increase the aggregate number of shares of Common Stock of the
Company available for grant under the 1991 Plan from 500,000 to 900,000. As
of May 26, 2001, there were 558,500 option shares outstanding and 143,544
option shares available for grant issued under the 1991 Plan. Options granted
under the 1991 Plan vest ratably over a three-to-five year period and must be
exercised within 10 years of the date of grant. Each outstanding unvested
option as of February 4, 1998 automatically vested upon the execution of the
Merger Agreement with DRHC pursuant to the terms of the 1991 Plan. Each
outstanding unvested option as of February 23, 1999 automatically vested upon
execution of the Settlement Agreement ("Settlement Agreement") with Donald L.
Sturm, ValueVest Partners, L.P., Seymour Holtzman, Jewelcor Management, Inc.
and others. Each outstanding unvested option as of May 1, 2001 automatically
vested upon the consummation of the Tiffany Transaction since this
transaction constituted a "change in control" for purposes of the Plan. The
consummation of the Tiffany Transaction did not constitute a "change in
control" under any of the Company's other equity plans. The 1991 Plan expires
on June 5, 2001 after which no further options may be granted.

         During fiscal 1992, the Company established the 1992 Option Plan
(the "1992 Plan") for non-employee directors of the Company. Under the 1992
Plan, the Company may grant stock options for the purchase of up to 150,000
shares of the Company's Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of grant. As of May 26, 2001,
there were 47,000 option shares outstanding and 103,000 option shares
available for grant under the 1992 Plan. Options granted under the 1992 Plan
vest immediately and must be exercised within 10 years of the date of grant.
The 1992 Plan expires on October 13, 2002.

         During fiscal 2000, the Company established the 2000 Stock Option
and Incentive Plan (the "2000 Plan"), which covers option awards to
employees, directors and other key persons. Under the 2000 Plan, the Company
may grant stock options for the purchase of up to 1,700,000 shares of the
Company's Common Stock at an exercise price equal to the fair market value of
the Common Stock on the date of grant. The Plan also calls for an automatic
award of 5,000 options to each person serving as an independent director of
the Company on the last day of the Company's fiscal year. Options granted
under the 2000 Plan vest under terms determined by the Plan Administrator
(generally three to five years) and must be exercised within 10 years of the
date of grant. As of May 26, 2001, there were 694,000 option shares
outstanding and 1,006,000 option shares available for grant under the 2000
Plan. The 2000 Plan expires on July 12, 2010.

         From time to time, the Company also grants stock options not covered
by the 1991, 1992 and 2000 Plans. During fiscal 2000 and 1999, the Company
granted 475,000 and 200,000 options not covered by the 1991, 1992 and 2000
plans. There were no such options granted in fiscal 2001. As of May 26, 2001,
there were 475,000 option shares outstanding outside of the 1991, 1992 and
2000 Plans.
<Page>

         A summary of the status of the Company's stock option plans at May 26,
2001, May 27, 2000 and May 29, 1999, together with changes during the periods
then ended, are presented in the following table:

<Table>
<Caption>

                                            2001                        2000                       1999
                                  ------------------------    -------------------------    --------------------------
                                                 WEIGHTED                      WEIGHTED                    WEIGHTED
                                               AVERAGE PRICE                 AVERAGE PRICE               AVERAGE PRICE
                                     SHARES      PER SHARE        SHARES      PER SHARE      SHARES       PER SHARE
<S>                                 <C>           <C>             <C>           <C>         <C>           <C>
Outstanding at beginning of
     period                         1,397,500     $  2.82         833,000       $ 4.53       712,000       $ 6.46
Grants during period                1,066,000        0.72         641,000         0.60       292,000         2.25
Exercised during period                    --          --              --           --            --           --
Forfeitures/Cancellations
     during period                   (689,000)       4.42         (76,500)        2.65      (171,000)        8.59
                                 -------------                ---------------              -----------
Outstanding at end of period        1,774,500        1.09       1,397,500         2.82       833,000         4.53
                                 =============                ===============              ===========
Options exercisable at end of
     period                         1,265,332        1.07         886,500         4.12       833,000         4.53
                                 =============                ===============              ===========
</Table>

         Statement of Financial Accounting Standards No. 123 (SFAS No. 123)

         SFAS No. 123, Accounting for Stock-Based Compensation, defines a
fair-value-based method of accounting for an employee stock option or similar
equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. The Company has
elected to account for its stock-based compensation plans under APB Opinion No.
25; however, the Company has computed for pro forma disclosure purposes the
value of all options granted during fiscal 2001, 2000 and 1999 using the
Black-Scholes option pricing model as prescribed by SFAS No. 123 and the
following weighted average assumptions were used for grants:

<Table>
<Caption>

                                            2001            2000         1999
<S>                                        <C>           <C>          <C>
         Risk-free interest rate            5.70%           6.33%        5.38%
         Expected dividend yield               0%              0%           0%
         Expected lives                    5 years       10 years     10 years
         Expected volatility               89.43%          77.00%       64.00%
</Table>


         Adjustments are made for options forfeited prior to vesting. As a
result of the Tiffany Transaction, all unvested options under the 1991 Plan
became fully vested and exercisable. The total value of options granted
during fiscal 2001, 2000 and 1999, which were being amortized on a
straight-line basis over the vesting period of the options, were accelerated
into fiscal year 2001. The weighted average fair value of options granted
during fiscal 2001, 2000 and 1999 was $0.59, $0.51, and $1.73, respectively.
If the Company had accounted for these plans in accordance with SFAS No. 123,
the Company's net loss and loss per share would have increased to the
following pro forma amounts:

<Table>
<Caption>

                               YEAR ENDED          YEAR ENDED      YEAR ENDED
                              MAY 26, 2001        MAY 27, 2000    MAY 29, 1999
<S>                          <C>                <C>               <C>
Net loss-
     As Reported             $ (7,600,135)      $ (15,456,233)    $ (11,081,825)
     Pro Forma                 (8,049,438)        (15,522,300)      (11,586,595)

Basic and Diluted EPS-
     As Reported             $      (0.82)      $       (1.79)    $       (1.29)
     Pro Forma                      (0.87)              (1.80)            (1.34)
</Table>
<Page>


         Employee Stock Purchase Plan

         During 1992, the Company approved an Employee Stock Purchase Plan
permitting eligible employees to purchase Common Stock, semiannually on June 30
and December 31, at the lower of 85% of the price at the beginning of the
six-month period or the grant date. Under this plan, 100,000 shares have been
issued as of May 26, 2001.

         Shareholder Rights Agreement

         On July 24, 1991, the Board of Directors adopted a Shareholder Rights
Agreement and declared a dividend distribution of one preferred stock purchase
right for each outstanding share of Common Stock to stockholders of record as of
the close of business on July 25, 1991. Such rights only became exercisable and
transferable apart from the Common Stock upon the occurrence of certain events.
During fiscal 1999, the Board of Directors of the Company determined that the
Company's Shareholder Rights Agreement was no longer in the best interests of
the holders of the Company's Common Stock and, therefore, voted unanimously to
terminate the Shareholder Rights Agreement, effective as of May 20, 1999.

         (15) STORE OPENINGS

         In fiscal 2001, the Company opened one new store in Skagway, Alaska and
one new store Ketchikan, Alaska. Both stores are currently operating under
short-term leases for six months and twelve months, respectively. The Company
will evaluate the performance of these new stores to determine if a long-term
commitment in these locations is warranted.

         (16) STORE CLOSURES

         Sale of Marigot Store

         On June 13, 2000, the Company consummated the sale of the fixed assets
of one its stores located in Marigot on the island of St. Martin pursuant to a
purchase and sale agreement with a third party for an aggregate purchase price
of $365,000. In connection with this transaction, the Company recorded an asset
impairment write-down of $730,000 which was charged to expense in fiscal 2000.

         Closure of Ketchikan, Alaska, St. Croix, Antigua and St. Kitts

         During fiscal 1999, the Company recorded charges associated with the
closure of its stores in Ketchikan, Alaska, and St. Croix, as well as one store
in each of Antigua and St. Kitts. The store in St. Kitts was closed due to
damage inflicted by Hurricane George. The charge related to these closures
amounted to approximately $1.8 million and has been included in selling, general
and administrative expenses in the accompanying consolidated statements of
operations. Approximately $1.1 million of the charge related to the impairment
of fixed assets and leasehold improvements at the closed stores.

         Sale of St. Barthelemy Store

         On August 31, 1999, the Company consummated the sale of all of the
fixed assets and inventory of its store located on the island of St. Barthelemy
pursuant to a purchase and sale agreement with a third party for an aggregate
amount equal to $1.3 million. The Company used approximately $400,000 of the
proceeds to pay down its then existing debt to its existing lenders under its
credit facilities and recorded a gain of $537,000 on this transaction which was
reflected as a reduction in selling, general and administrative expense in
fiscal 2000.


<Page>

         Sale of Antigua Store

         On November 12, 1999, the Company consummated the sale of all of the
fixed assets and inventory, of which $0.8 million was inventory, of its store
located on the island of Antigua for an aggregate purchase price of $2.0
million. In addition, the Company was released from an Antigua related
contingent stand-by letter of credit in the amount of $330,000. The Company used
a portion of the proceeds to pay down its then existing debt to its existing
lenders under its then existing credit facilities. The Company recorded a gain
of $495,000 on this transaction in fiscal 2000, which is reflected as a
reduction in selling, general and administrative expense.

         Sale of St. Lucia Fragrance Store

         On December 1, 1999, the Company consummated the sale of all of its
fragrance inventory and fixtures for the fragrance store located on the island
of St. Lucia for an aggregate purchase price of $150,000. In addition, the
Company reduced by $180,000 amounts outstanding under a St. Lucia related
contingent stand-by letter of credit. The Company used the proceeds from the
sale to pay down its debt to its then existing lenders under its then existing
credit facilities. The Company recorded a loss of $41,000 on this transaction in
fiscal 2000, which is reflected in selling, general and administrative expense.

         Sale of Two St. Lucia Stores

         On December 28, 1999, the Company consummated the sale of all of the
assets, of which $0.6 million was inventory, of its two stores located on the
island of St. Lucia for an aggregate purchase price of approximately $1.0
million. In addition, the Company was released from the remaining $770,000
outstanding under St. Lucia related contingent stand-by letters of credit.
The Company used the $1.0 million proceeds to pay down its debt to its then
existing lenders under its then existing credit facilities. The Company
recorded a loss of $208,000 on this transaction in fiscal 2000, which is
reflected in selling, general and administrative expense.

         Management Agreement for Barbados Store

         As more fully described in Note 18, on November 7, 2000, the Company
entered into a management agreement with a third party to manage the operations
of one of the Company's stores in Barbados.

         (17) GAIN ON INSURANCE SETTLEMENT

         On October 16, 2000, the Company settled its business interruption
insurance claim related to Hurricane Lenny which hit certain Caribbean
islands in which the Company operates causing structural damage and store
closings in those locations. The settlement totaled $2.2 million. After
applying a deductible of $0.3 million, the Company received net proceeds of
$1.9 million and recorded a gain on insurance settlement of approximately
$1.4 million in fiscal 2001.

         In September 1998, Hurricane George inflicted minor damage to several
of the Company's stores and caused significant damage to its St. Kitts store and
to various other islands' infrastructures, including hotels and other tourist
facilities, where the Company did business. In connection with the final
settlement of claims related to Hurricane George, the Company received
approximately $1.0 million in property and business interruption proceeds. The
Company recorded a net gain of approximately $0.3 million in fiscal 1999, after
write-offs related to damaged assets of approximately $0.7 million, including
furniture and fixtures, inventory and other assets related to the stores
affected by Hurricane George.


<Page>

         (18) ALMOD TRANSACTIONS

         During fiscal 2001, the Company engaged in negotiations with Almod
regarding various transactions, including a proposed 45% equity investment in
the Company, the sale of the Company's Barbados subsidiary and the
sale/leaseback of the Company's store in Philipsburgh, St. Maarten.

         Sale / Leaseback: On July 28, 2000, the Company sold its facility in
Philipsburgh, St. Maarten, to Almod for $4.5 million and simultaneously
entered into a leaseback arrangement for five years with one five year
renewal option at market rates.

         Barbados: Due to various issues encountered during the negotiations
with Almod regarding the potential sale of the Company's operations in
Barbados, the parties agreed in lieu of the sale of the Company's Barbados
subsidiary to Almod, the Company would restructure the capital of this
subsidiary. The final arrangement resulted in the Company continuing to own
its Barbados subsidiary with Diamonds International Ltd. ("DI"), a subsidiary
of Almod, offered a minority interest in the Barbados subsidiary pending
government approval of the proposed changes in the Company's bylaws. Such
government approval was not obtained until after the Company's fiscal year
end and, consequently, there was no minority interest in the Barbados
subsidiary as of May 26, 2001. The Company's subsidiary has agreed to pay
profit share in the amount of $1.5 million by December 31, 2005, and/or
enable the store located in the Port Terminal in Barbados (the "Port store"),
currently operated by DI, to share in its net operating tax loss
carry-forwards ("NOL's"). If at such date, the subsidiary has not paid this
amount of profit sharing to DI, or DI has not received an equivalent tax
benefit in excess of $0.7 million, DI's remedies include converting their
shares for a controlling interest of this subsidiary.

         As part of the overall Barbados transaction, the Company's Barbados
subsidiary and DI entered into a Management Agreement, which provides for DI
to manage the Port store, one of the subsidiary's stores in Barbados, and
retain all profits associated with such store as a management fee. The
Company does not include any results from the operation of the Port store in
its consolidated financial statements, as of the execution of the management
agreement. The profits generated from the Port store will be entitled to
share in the subsidiary's NOL's and such usage can be applied towards the
profit sharing obligation of the subsidiary as described in the preceding
paragraph.

         The Company sold to DI a portion of the intercompany debt owed by
the Company's Barbados subsidiary to L.S. Wholesale. As more fully described
in Note 7, the Company received $2.0 million and sold, assigned and
transferred its receivable from its Barbados subsidiary to Almod, due
December 31, 2003, which is collateralized by the inventory of the Barbados
subsidiary.

         Equity Investment: On December 21, 2000, the Company announced it
had terminated further discussions with Almod relating to the proposed 45%
equity investment in the Company's stock as the parties were unable to reach
an agreement on certain material terms, including terms relating to corporate
control. The parties subsequently entered into a termination agreement and
related release.

<Page>

         (19) SUBSEQUENT EVENTS

         On June 12, 2001, the Company completed a transaction with Columbian
Emeralds, Inc. ("CEI") to sublet CEI's Key West, Florida store and acquire
the furniture and fixtures therein, and also assumed the lease of CEI's
former Perfect Time store adjacent to the Company's flagship store on Main
Street in St. Thomas, USVI. The Company paid Columbian Emeralds $350,000 in
connection with the foregoing transaction. The Key West store is a 4,100 sq.
ft. location, which will operate as a clearance center until mid-November
when it is planned that the store will re-open with some of Little
Switzerland's finest timepieces as well as jewelry from renowned European and
American designers.

         On July 31, 2001, the Company made the decision not to renew its lease
at its Gift Market store in St. Thomas. With the recent expansion of the
Company's flag ship store on Main Street in St. Thomas, the Company has
successfully provided many of the large brands sold in the Gift Market store
with Main Street frontage not available at the Gift Market location. The Company
will continue to look for opportunities to continue to give china and crystal
suppliers better positioning in existing stores as well as in new locations.

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

         In connection with the equity investment of Tiffany International and
various loan documents executed in connection therewith, effective May 29,
2001, the Company dismissed its then current independent auditors, Arthur
Andersen LLP and appointed PricewaterhouseCoopers LLP as its independent
accountants.

         The reports of Arthur Andersen LLP on the financial statements of
the Company for the fiscal years ended May 27, 2000 and May 29, 1999 did not
contain an adverse opinion or disclaimer of opinion. Furthermore, such
reports were not qualified or modified as to audit scope or accounting
principles, and there were no disagreements with Arthur Andersen on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure. Arthur Andersen's reports for the fiscal
years ended May 27, 2000 and May 29, 1999 contained an explanatory paragraph
regarding the Company's ability to continue as a going concern.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Set forth below is a list of the directors and executive officers of
the Company at May 26, 2001. The Board of Directors currently consists of four
members, and is divided into three classes, with two directors in Class I and
one director in each of Classes II and III. Directors serve for three-year
terms, with one class of directors being elected by the Company's stockholders
at each annual meeting.

<Table>
<Caption>

             NAME:                                     AGE:   POSITION(S) WITH COMPANY:
             -----                                     ----   -------------------------

<S>                                                     <C>   <C>
Robert L. Baumgardner ............................      54    President, Chief Executive Officer and
                                                                   Class I Director (term expires 2001 -
                                                                   next annual meeting)

Seymour Holtzman .................................      65    Class III Director and Chairman of the Board
                                                                   (term expires 2003)


James E. Quinn ...................................      49    Class I Director (term expires 2001 - next
                                                                   annual meeting)

Patrick B. Dorsey ................................      50    Class II Director (term expires 2002)

Patrick J. Hopper ................................      39    Chief Financial Officer, Executive Vice President and Treasurer

Michael Pepper ...................................      54    Senior Vice President of Retail Operations

Patrick J. Heron II...............................      35    Vice President and General Merchandise Manager
</Table>
<Page>


         Robert L. Baumgardner was appointed President and Chief Executive
Officer and elected as a Class I Director effective as of August 17, 1999. From
September 1998 to August 1999, Mr. Baumgardner was Senior Vice President of Zale
Corporation's Bailey Banks and Biddle Division in Dallas, Texas. From May 1994
to September 1998, Mr. Baumgardner held senior management positions with Mayor's
of Coral Gables, Florida. Prior to that Mr. Baumgardner held senior management
positions with Tiffany.

         Seymour Holtzman has been a Class III Director since December 1999.
Mr. Holtzman is Chairman and Chief Executive Officer of Jewelcor Management
Inc.; C.D. Peacock Inc.; and S.A. Peck & Company; Chairman of the Board of
Directors of Designs, Inc. and Musicmaker.com, and is also a member of the
Board of Directors and Compensation Committee of Ambanc Holding Company, Inc.
From 1973 to 1988, Mr. Holtzman served as President and Chief Executive
Officer of Jewelcor Incorporated. From 1986 to 1988, Mr. Holtzman served as
Chairman and Chief Executive Officer of Gruen Marketing Corporation.

         James E. Quinn was appointed as a Class I Director on May 1, 2001. Mr.
Quinn has served as Vice Chairman of Tiffany since 1998 and has been a
director of Tiffany since 1995. Mr. Quinn is also a member of the Board of
Directors of BNY Hamilton Funds, Inc. and Mutual of America Capital
Management.

         Patrick B. Dorsey was appointed as a Class II Director on May 1, 2001.
Mr. Dorsey has served as Senior Vice President - General Counsel and Secretary
of Tiffany since July 1985.

         Patrick J. Hopper was appointed Vice President-Finance in June 1999 and
subsequently was appointed Chief Financial Officer, Executive Vice President and
Treasurer in July 1999. From January 1998 to January 1999, Mr. Hopper served
Tesco PLC as Director of Central European Projects. From April 1996 to January
1998, Mr. Hopper served Tesco PLC as Chief Financial Officer of Tesco PLC for
the Czech and Slovak Republic. From January 1994 to April 1996, Mr. Hopper
served as Director of Finance and Administration of K-Mart Corporation in the
Czech and Slovak Republic.

         Michael Pepper was appointed Senior Vice President of Retail Operations
in February 2000. From June 1994 to February 2000, Mr. Pepper was Director of
Store Operations for Cardow Jewelers of St. Thomas, USVI.

         Patrick J. Heron II was appointed Vice President and General
Merchandise Manager in January 2000. From September 1999 to January 2000, Mr.
Heron served the Company as its watch buyer. From 1996 to September 1999, Mr.
Heron served Tourneau as a merchandise manager.


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules thereunder require the Company's directors and
officers, and persons who own more than 10% of the outstanding common stock of
the Company to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission"). Personnel of the Company
generally prepare these reports on the basis of information obtained from each
director and officer, and greater than ten percent stockholders are required by
the Commission to furnish the Company with copies of all reports filed. To the
best knowledge of the Company, all reports required by Section 16(a) of the
Exchange Act to be filed by its directors, officers and 10% or greater
stockholders during Fiscal 2001 were filed on time, except that Form 4's were
not timely filed for the May and July 2000 grants of stock options to Mr.
Holtzman; the January 2001 grants of stock options to Mr. Baumgardner and Mr.
Hopper; and the February 2001 grants of stock options to Mr. McMullin (former
director), Mr. Watson (former director), Mr. Nobile (former director), and Mr.
Holtzman. Form 4's for these grants have been filed with the Commission. In
addition, a Form 4 was not timely filed for the shares issued to Jewelcor
Management, Inc. in January 2001, and Form 5's were not timely filed for the
December 1999 grants of stock options to Mr. Baumgardner and Mr. Hopper and May
2000 grant of stock options to Mr. Holtzman. Form 4's and 5's for these
issuances, as applicable, have been filed with the Commission.


<Page>

ITEM 11. EXECUTIVE COMPENSATION.

         The following table sets forth information concerning the total
compensation of the Company's Chief Executive Officer and the three persons who
were serving as executive officers at the end of Fiscal 2001 and earned in
excess of $100,000 during Fiscal 2001. These four persons are hereinafter
referred to collectively as the "Named Executive Officers."


                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>

                                                                                    LONG TERM COMPENSATION
                                                                           -----------------------------------
                                           ANNUAL COMPENSATION                       AWARDS             PAYOUT
                                       ----------------------------------  -----------------------     -------
                                                               OTHER       RESTRICTED
                                                               ANNUAL        STOCK      SECURITIES      LTIP      ALL OTHER
NAME AND                        FISCAL  SALARY        BONUS    COMPEN-       AWARDS     UNDERLYING     PAYOUTS     COMPEN-
PRINCIPAL POSITIONS             YEAR      ($)          ($)     SATION         ($)       OPTIONS          ($)       SATION
------------------------        ----   -----------    -----    ----------  ----------   ----------     -------    ---------
<S>                             <C>    <C>          <C>       <C>            <C>        <C>              <C>      <C>
Robert L. Baumgardner           2001   284,615      100,000   181,250 (a)       --      250,000          --           --
   Chief Executive              2000   153,077 (b)     --      93,750 (c)       --      400,000          --       25,008 (d)
   Officer                      1999       --          --         --            --         --            --           --

Patrick J. Hopper               2001   192,308       60,000    50,000 (e)       --      250,000          --       14,372 (f)
   CFO, Executive Vice          2000   144,231 (g)     --         --            --      100,000          --       30,000 (f)
   President and Treasurer      1999       --          --         --            --         --            --           --

Michael Pepper                  2001   125,000       20,000    20,000 (e)     43,249     25,000          --           --
   Senior Vice President of     2000    33,654 (h)                                       50,000
   Store Operations             1999       --          --         --            --         --            --           --

Patrick J. Heron  II            2001   125,000       20,000    20,000 (e)       --       34,000          --           --
   Vice-President and General   2000    84,135 (h)                                       16,000
   Merchandise Manager          1999       --          --         --            --         --            --           --
</Table>


----------

(a)   Represents $150,000 retention payment and $31,250 of the $125,000
      additional compensation that the Company agreed to pay Mr. Baumgardner
      upon the inception of his employment with the Company.

(b)   Represents compensation paid in Fiscal 2000 based on an annual base salary
      of $200,000. Mr. Baumgardner's annual base salary was subsequently raised
      to $300,000.

(c)   Represents a portion of the $125,000 in additional compensation that was
      paid in Fiscal 2000 that the Company agreed to pay Mr. Baumgardner upon
      the inception of his employment with the Company.

(d)   Represents housing expenses paid by the Company in the relevant fiscal
      year.

(e)   Represents a retention payment made by the Company in Fiscal 2001.


(f)   Represents moving expenses paid by the Company in the relevant fiscal
      year.

(g)   Represents compensation paid in Fiscal 2000 based on an annual base salary
      of $150,000. Mr. Hopper's annual base salary was subsequently raised to
      $200,000.

(h)   Represents compensation paid in Fiscal 2000 based on an annual base salary
      of $125,000.


<Page>

OPTIONS

      The following tables set forth information concerning grants of stock
options to, and exercises of stock options by, the Named Executive Officers
during Fiscal 2001, and the number and value of unexercised options held by each
of them at May 26, 2001.


                        OPTION GRANTS IN LAST FISCAL YEAR

<Table>
<Caption>

                                                                                                POTENTIAL REALIZABLE VALUE
                                                                                                AT ASSUMED ANNUAL RATES
                                                                                                OF STOCK PRICE APPRECI-
                                                INDIVIDUAL GRANTS                               ATION FOR OPTION TERM
                               ----------------------------------------------------------       ----------------------
                                           % OF TOTAL
                                             OPTIONS
                               NUMBER OF     GRANTED
                               SECURITIES       TO
                               UNDERLYING   EMPLOYEES
                                OPTIONS      IN FISCAL      EXERCISE         EXPIRATION
        NAME                    GRANTED        YEAR         PRICE ($)(a)         DATE             5%($)          10%($)
---------------------------    -----------  -----------     ------------     ------------        -------       --------

<S>                            <C>             <C>            <C>              <C>              <C>             <C>
Robert L. Baumgardner.......   100,000  (b)    15.1%          0.59             7/16/10          32,528          80,119
                               150,000  (c)    22.6%          0.78             1/15/11          64,505         158,880

Patrick J. Hopper...........   100,000  (b)    15.1%          0.59             7/16/10          32,528          80,119
                               150,000  (c)    22.6%          0.78             1/15/11          64,505         158,880

Michael Pepper..............    25,000  (b)     3.8%          0.59             7/16/10           8,132          20,030

Patrick J. Heron II.........    34,000  (b)     5.1%          0.59             7/16/10          11,060          27,240
</Table>


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

      (a)   Fair market value of a share of Common Stock on the date of grant.

      (b)   Options vest as follows: 33.3% vest on the date of grant, with an
            additional 33.3% of the total grant vesting on each anniversary of
            the date of grant.

      (c)   As a result of the Tiffany Transaction these option grants
            immediately vested as of May 1, 2001.


                 Aggregated Option Exercises in Last Fiscal Year
                        and Fiscal Year-End Option Values

<Table>
<Caption>

                                                           Number of Securities           Value of Unexercised In-
                          Shares                          Underlying Unexercised             the-Money Options
                        Acquired on       Value         Options at Fiscal Year-End           at Fiscal Year-End
Name                   Exercise (#)   Realized ($)    Exercisable    Unexercisable      Exercisable     Unexercisable
----                   ------------   ------------    -----------    -------------      -----------     -------------

<S>                        <C>             <C>          <C>              <C>              <C>             <C>
Robert L. Baumgardner       --              --          476,667          173,333          $ 385,600       $ 161,400

Patrick J. Hopper           --              --          316,667           33,333            219,500          27,000

Michael Pepper              --              --           36,667           38,333             22,100          19,650

Patrick J. Heron II         --              --           38,667           11,333             31,800           9,180
</Table>
<Page>


COMPENSATION OF DIRECTORS

         Directors who are officers or employees of the Company receive no
compensation for service as directors. Directors who are not officers or
employees of the Company receive such compensation for their services as the
Board of Directors may from time to time determine. Non-employee directors each
receive an annual retainer of $5,000, plus a fee of $2,500 for each Board of
Directors meeting attended ($500 if such meeting is held via telephone
conference) and $1,000 for each committee meeting attended ($500 if such meeting
is held via telephone conference) if such meeting does not take place in
conjunction with a regularly scheduled Board of Directors meeting. All directors
are reimbursed for expenses incurred in connection with attendance at meetings.

         In order to align stockholder and director interests, in 1992 the Board
of Directors established the 1992 Non-Employee Directors' Nonqualified Stock
Option Plan (the "1992 Option Plan"). Pursuant to the 1992 Option Plan, and
effective through July 17, 2000, each eligible non-employee director
automatically received an option to purchase 3,000 shares of Common Stock on the
last day of the Company's fiscal year. All options granted pursuant to the 1992
Option Plan vest and are immediately exercisable upon grant. All options granted
under the 1992 Option Plan have an exercise price equal to 100% of the fair
market value of a share of Common Stock on the grant date. On July 17, 2000, the
Board of Directors voted to amend the 1992 Option Plan to allow the Company to
grant stock options to non-employee directors outside of the 1992 Option Plan.

         During fiscal 2000, the Company established the 2000 Stock Option
and Incentive Plan (the "2000 Option Plan") which calls for an automatic
grant of 5,000 options to purchase Common Stock to all non-employee directors
on the last day of the Company's fiscal year. This provision supersedes, as
of July 17, 2000, the automatic grant of options to directors provided for
under the 1992 Option Plan and the 1992 Option Plan was amended accordingly.
The exercise price of all options granted under the 2000 Option Plan is equal
to the fair market value of a share of Common Stock on the date of the grant
and must be exercised within ten years of the date of the grant. Effective
May 26, 2001, then eligible directors each received an option to purchase
5,000 shares of the Company's Common Stock at an exercise price of $1.40, the
fair market value of the Common Stock on May 25, 2001, the trading day
immediately preceding May 26, 2001.

CONTRACTS WITH NAMED EXECUTIVE OFFICERS


         The following is a description of the employment contracts and
arrangements with the Named Executive Officers.

         Mr. Baumgardner entered into an employment agreement with the Company
effective as of August 17, 1999 and amended as of January 15, 2001 (the
"Baumgardner Agreement"). Under the terms of the Baumgardner Agreement, Mr.
Baumgardner will serve as the President and Chief Executive Officer of the
Company for a two-year term. Mr. Baumgardner receives a base salary of $300,000
over each twelve-month period employed. Upon achievement of certain performance
criteria, Mr. Baumgardner will be entitled to receive a bonus in an amount up to
75% of his base salary in each year. In addition, Mr. Baumgardner received
additional compensation upon the inception of his employment in an aggregate
amount equal to $125,000, payable in twelve monthly installments commencing on
September 1, 1999. Mr. Baumgardner's employment may be terminated immediately by
the Company for "cause" as defined in the Baumgardner Agreement. If Mr.
Baumgardner's employment is terminated by the Company without cause, he is
entitled to receive a lump sum payment equal to twelve months of base salary,
plus any accrued but unpaid annual bonus which he has earned. On January 15,
2001, the Company and Mr. Baumgardner executed an amendment to his employment
agreement relating to a change of control of the Company. Pursuant to the
amended Baumgardner Agreement, if there is a Change of Control, as such term
defined in the Baumgardner Agreement, Mr. Baumgardner is entitled to receive a
lump

<Page>

sum payment equal to twelve months of base salary and any accrued but unpaid
annual bonus which he has earned. The Tiffany Transaction did not trigger
this provision of the contract. Mr. Baumgardner is also subject to certain
non-competition provisions during the term of his employment. The Company and
Mr. Baumgardner are currently discussing an extension of the Baumgardner
Agreement and terms thereof.

         Mr. Hopper entered into an employment agreement with the Company
effective as of June 7, 1999 and amended as of January 15, 2001 (the "Hopper
Agreement"). Under the terms of the Hopper Agreement, Mr. Hopper served the
Company as Vice President of Finance until July 2, 1999 and as Chief Financial
Officer and Treasurer thereafter. The Hopper Agreement has a term of one year,
automatically renewable for periods of one year, unless either party elects not
to extend the term. Mr. Hopper receives an annual base salary of $200,000. Upon
achievement of certain performance criteria, Mr. Hopper is entitled to receive a
bonus in an amount of up to 37.5% of his base salary in each year. Mr. Hopper's
employment may be terminated immediately by the Company for cause as defined in
the Hopper Agreement. On January 15, 2001, the Company and Mr. Hopper executed
an amendment to his employment agreement relating to a change of control of the
Company. Pursuant to the amended Hopper Agreement, if there is a Change of
Control of the Company, as such term is defined in the Hopper Agreement, then
Mr. Hopper is entitled to receive a lump sum payment equal to twelve months of
base salary and any accrued but unpaid annual bonus which he has earned. The
Tiffany Transaction did not trigger this provision of the contract.

There are currently no employment agreements in effect between the Company and
Michael Pepper or Patrick Heron.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

           See "Certain Relationships and Related Transactions" below.


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth information as of August 1, 2001 with
respect to beneficial ownership of Common Stock by (a) each stockholder who,
to the Company's knowledge, is the beneficial owner of more than 5% of the
outstanding Common Stock, (b) each director of the Company, (c) each Named
Executive Officer, and (d) all directors and executive officers of the
Company as a group. The percentages in the last column are based on
16,435,635 shares of Common Stock outstanding on August 1, 2001. In each
case, except as otherwise indicated in the footnotes to the table, the shares
shown in the second column are owned directly by the individual or members of
the group named in the first column and such individual or group members have
sole voting and dispositive power with respect to the shares shown. For
purposes of this table, beneficial ownership is determined in accordance with
federal securities laws and regulations. Persons shown in the table disclaim
beneficial ownership of all securities not held by such persons directly and
inclusion in the table of shares not owned directly by the named director or
executive officer does not constitute an admission that such shares are
beneficially owned by the director or officer for purposes of Section 16 of
the Exchange Act or any other purpose.
<Page>

<Table>
<Caption>

                                                         Number of
                                                         Shares of           Percentage of
                                                          Common              Outstanding
                                                          Stock                 Common
                  Name                                    Owned              Stock Owned
<S>                                                  <C>                         <C>
Tiffany & Co. International                          7,410,000 (a)(b)            45.1%
Jewelcor Management, Inc.                            1,982,692 (a)(c)            12.1%
Robert L. Baumgardner                                  476,667 (e)(f)             2.9%
Seymour Holtzman                                     1,982,692 (e)(f)(g)         12.1%
James E. Quinn                                           5,000 (e)(f)              *
Patrick B. Dorsey                                        5,000 (e)(f)              *
Patrick J. Hopper                                      316,667 (e)(f)             1.9%
Michael Pepper                                          58,202 (d)(e)(f)           *
Patrick J. Heron II                                     38,667 (e)(f)              *
All current directors and officers as a group        2,869,894 (g)(h)            17.5%
</Table>


(a)   Addresses are as follows: Tiffany & Co. International, 727 Fifth
      Avenue, New York, NY 10022; and Jewelcor Management, Inc., 100 N.
      Wilkes-Barre Blvd., Wilkes-Barre, Pennsylvania 18702.

(b)   The information regarding the beneficial ownership of Common Stock by
      Tiffany & Co. International, was obtained from its statement on
      Schedule 13D, filed with the Commission on May 10, 2001. Such statement
      discloses that Tiffany & Co. International, and its parent company,
      Tiffany and Company. possess shared dispositive and voting power over
      7,410,000 shares of Common Stock.

(c)   The information regarding the beneficial ownership of Common Stock by
      Jewelcor Management, Inc. was obtained from its statement on Amendment No.
      10 to Schedule 13D, filed with the Commission on June 18, 2001. Such
      statement discloses as follows: Jewelcor Management, Inc. possesses sole
      voting and dispositive power over 1,788,692 shares of Common Stock;
      Seymour Holtzman possesses sole voting and dispositive power over 133,000
      shares of Common Stock; Seymour Holtzman and Steven Holtzman share voting
      and dispositive power over 48,000 shares of Common Stock; Trust f/b/o
      Allison Holtzman Garcia possesses sole voting and dispositive power over
      10,000 shares of Common Stock for which Jewelcor Management, Inc. and
      Seymour Holtzman disclaim beneficial ownership; and Custodial Account
      f/b/o Chelsea Holtzman possesses sole voting and dispositive power over
      3,000 shares of Common Stock for which Jewelcor Management, Inc. and
      Seymour Holtzman disclaim beneficial ownership.

(d)   Includes 6,035 shares of Common Stock for which Michael Pepper possesses
      sole voting and dispositive power and 15,500 shares of Common Stock for
      which Michael Pepper and Brenda Pepper share voting and dispositive power.

(e)   Includes shares of Common Stock which the directors and named officers
      have the right to acquire through the exercise of stock options within 60
      days of August 31, 2001 as follows: Robert L. Baumgardner, 476,667;
      Seymour Holtzman, 233,000 of which 133,000 were issued to Seymour Holtzman
      and 100,000 were issued to Jewelcor Management, Inc. and deemed to be
      beneficially owned by Seymour Holtzman; James E. Quinn, 5,000; Patrick B.
      Dorsey, 5,000; Patrick J. Hopper, 316,667; Michael Pepper, 36,667; and
      Patrick J. Heron II, 38,667. Does not include shares of Common Stock which
      the directors and officers did not have the right to acquire through the
      exercise of options within 60 days of August 31, 2001 as follows: Robert
      L. Baumgardner, 173,333; Patrick J. Hopper, 33,333; Michael Pepper,
      38,333; and Patrick J. Heron II, 11,333.

(f)   Address is c/o Little Switzerland, Inc., 161-B Crown Bay, St. Thomas,
      U.S.V.I. 00802.

(g)   The shares of Common Stock deemed to be beneficially owned by Seymour
      Holtzman include the shares beneficially owned by Jewelcor Management,
      Inc. See footnote (c) above.
<Page>

(h)   Includes or excludes, as the case may be, shares of Common Stock as
      indicated in the preceding footnotes.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


         Seymour Holtzman, a Class III director and Chairman of the Board of the
Company, is President, Chief Executive Officer and principal stockholder of
Jewelcor Management, Inc. ("Jewelcor"), a 12.1% stockholder of the Company. In
accordance with the Company's compensation policies for its outside directors,
Mr. Holtzman was paid director's fees of $24,000 and was awarded 130,000 options
to purchase the Company's common stock, in connection with his service on the
Board of Directors during fiscal 2001. The Company also paid Mr. Holtzman a
total of $5,000 plus expenses in connection with his attendance at meetings with
prospective investors during the last fiscal year.

         On July 17, 2000, the Company issued 100,000 fully vested options to
purchase Common Stock to Jewelcor, at an exercise price of $0.59 per share in
consideration of certain agreed upon services. The Company recorded
approximately $49,000 of selling, general and administrative expense,
representing the estimated fair value of the options, in connection with this
transaction.

         During fiscal 2001, the Company entered into a consulting agreement
(the "Consulting Agreement") with Jewelcor for services for its assistance in
developing and implementing a strategic plan for the Company and for other
related consulting services as agreed upon between Jewelcor and the Company.
As compensation for these services, Jewelcor received 307,692 shares of the
Company's Common Stock in lieu of a cash payment of $240,000. The amount of
shares issued to Jewelcor was determined by dividing $240,000 by the
Company's closing stock price on January 15, 2001. The Consulting Agreement
also provides that the Company will reimburse Jewelcor for actual and direct
out-of-pocket expenses and receive a transaction fee upon the consummation of
a "Transaction" as defined in the agreement. On May 1, 2001, in connection
with the Tiffany Transaction (as described more fully in Note 11 of the
accompanying Notes to Consolidated Financial Statements), the Company
terminated the Consulting Agreement with Jewelcor. Jewelcor was reimbursed
$49,132 of expenses in connection with the Tiffany Transaction and waived its
rights to any transaction fee in respect of the Tiffany Transaction.

         On May 1, 2001, the Company entered into several related loan and
security agreements with Tiffany and Company ("Tiffany"), the parent company
of Tiffany & Co. International ("Tiffany International"), a 45% stockholder
of the Company, for a $2.5 million credit facility through April 20, 2006.
At May 26, 2001, the Company had utilized $2.5 million of this facility. See
Item 7 Management's Discussion and Analysis,
"Liquidity and Capital Resources" for further discussion.

         In connection with the consummation of the transaction with Tiffany,
the Company retained the investment banking firm of Ryan, Beck & Co., LLC ("Ryan
Beck") to render a fairness opinion to the Board of Directors of the terms of
the transaction, from a financial point of view. The Company paid Ryan Beck a
fee in the amount of $112,500, plus expenses. Peter McMullin, a member of the
Board of Directors of the Company until April 30, 2001, is also an officer of
Ryan Beck. In addition, in the ordinary course of business as a broker-dealer,
Ryan Beck may actively trade equity securities of the Company for its own
account and the account of its customers. The Company believes the fee paid was
equivalent to similar fees charged by unrelated parties for equivalent services.
<Page>


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K


(a)   DOCUMENTS FILED AS A PART OF THIS REPORT.

      (1)   Financial Statements

            The financial statements filed as part of this report are listed on
            the Index to Consolidated Financial Statements.

      (2)   Financial Statement Schedules

            All schedules for which provision is made in the applicable
            accounting regulations of the Securities and Exchange Commission are
            not required under the related instructions or are not material and,
            therefore have been omitted.

(b)   REPORTS ON FORM 8-K.

            The Company did not file any Current Reports on Form 8-K during the
            three month period ended May 26, 2001.

(c)   EXHIBITS.

            The index to exhibits appears on the page immediately following the
            signature pages of this report.
<Page>


                                    SIGNATURE

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of the 6th day of
September, 2001.

                                     LITTLE SWITZERLAND, INC.


                                     By: /s/ Robert L. Baumgardner
                                         --------------------------------------
                                         Robert L. Baumgardner
                                         Chief Executive Officer and Director


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below as of September 6, 2001 by the following
persons on behalf of the Registrant and in the capacities indicated.

Signatures                             Title


/s/ Robert L. Baumgardner              Chief Executive Officer
------------------------------         and Director (Principal Executive
Robert L. Baumgardner                  Officer)



/s/ Seymour Holtzman                   Director
------------------------------
Seymour Holtzman


/s/ Patrick B. Dorsey                  Director
------------------------------
Patrick B. Dorsey


/s/ James E. Quinn                     Director
------------------------------
James E. Quinn


/s/ Patrick J. Hopper                  Chief Financial Officer,
------------------------------         Executive Vice President and
Patrick J. Hopper                      Treasurer (Principal Financial
                                       and Accounting Officer)
<Page>


                                INDEX OF EXHIBITS

Exhibit

Number                               Exhibit

(3)   Articles of Incorporation and By-Laws

3.1   The Amended and Restated Certificate of Incorporation of the Company. (1)

3.2   The Second Amended and Restated By-Laws of the Company. (2)

(10)  Material Contracts

10.1  The Little Switzerland, Inc. 1991 Stock Option Plan. (1)

10.2  The Little Switzerland, Inc. 1992 Employee Stock Purchase Plan. (3)

10.3  The Little Switzerland, Inc. 1992 Non-Employee Directors' Nonqualified
      Stock Option Plan. (4)

10.4  Stock Purchase Agreement, dated as of May 1, 2001, between Tiffany & Co.
      International and the Company. (5)

10.5  Stockholder Agreement, dated as of May 1, 2001, between Tiffany & Co.
      International, Jewelcor Management, Inc., Seymour Holtzman and the
      Company. (5)

10.6  Registration Rights Agreement, dated as of May 1, 2001, between Tiffany &
      Co. International and the Company. (5)

10.7  Investor's Rights Agreement, dated as of May 1, 2001, between Jewelcor
      Management, Inc. and the Company. (5)

10.8  Loan Agreement, dated as of May 1, 2001, among L.S. Wholesale, Inc., the
      Company and The Chase Manhattan Bank. (6)

10.9  Loan Agreement, dated as of May 1, 2001, among L.S. Holding (USA), Inc.,
      the Company and The Chase Manhattan Bank. (6)

10.10 Loan Agreement, dated as of May 1, 2001, among L.S. Holding, Inc., the
      Company, and The Chase Manhattan Bank. (6)

10.11 Security Agreement, dated as of May 1, 2001, among L.S. Wholesale, Inc.,
      the Company and The Chase Manhattan Bank. (6)

10.12 Security Agreement, dated as of May 1, 2001, among L.S. Holding (USA),
      Inc., the Company and The Chase Manhattan Bank. (6)

10.13 Security Agreement, dated as of May 1, 2001, among L.S. Holding, Inc., the
      Company and The Chase Manhattan Bank. (6)

10.14 Stock Pledge Agreement, dated as of May 1, 2001, from L.S. Wholesale, Inc.
      and the Company in favor of The Chase Manhattan Bank. (6)

10.15 Stock Pledge Agreement, dated as of May 1, 2001, from L.S. Holding (USA),
      Inc. and the Company in favor of The Chase Manhattan Bank. (6)

10.16 Stock Pledge Agreement, dated as of May 1, 2001, from L.S. Holding, Inc.
      and the Company in favor of The Chase Manhattan Bank. (6)

10.17 Loan Agreement, dated as of May 1, 2001, among L.S. Wholesale, Inc., the
      Company, and Tiffany and Company. (6)


<Page>

10.18 Loan Agreement, dated as of May 1, 2001, among L.S. Holding (USA), Inc.,
      the Company, L.S. Wholesale, Inc., and Tiffany and Company. (6)

10.19 Loan Agreement, dated as of May 1, 2001, among L.S. Holding, Inc., the
      Company, L.S. Wholesale, Inc. and Tiffany and Company. (6)

10.20 Security, Pledge and Guaranty Agreement, dated as of May 1, 2001, among
      L.S. Wholesale, Inc., the Company and Tiffany and Company. (6)

10.21 Security, Pledge and Guaranty Agreement, dated as of May 1, 2001, among
      L.S. Holding (USA), Inc., the Company, L.S. Wholesale, Inc. and Tiffany
      and Company. (6)

10.22 Security, Pledge and Guaranty Agreement, dated as of May 1, 2001, among
      L.S. Holding, Inc., the Company, L.S. Wholesale, Inc. and Tiffany and
      Company. (6)

10.23 Employment Agreement, dated as of August 17, 1999, between Robert L.
      Baumgardner and the Company (the "Baumgardner Agreement"). (7)

10.24 Employment Agreement, dated as of August 17, 1999, between Patrick J.
      Hopper and the Company (the "Hopper Agreement"). (7)

10.25 Amendment No. 1 to the Baumgardner Agreement, dated as of January 15,
      2001. (8)

10.26 Amendment No. 1 to the Hopper Agreement, dated as of January 15, 2001. (8)

10.27 The Little Switzerland, Inc., 2000 Stock Option Plan. (8)

10.28 Employment Agreement, dated as of September 1, 1999, between Patrick Heron
      II and the Company. (8)

(21)  Subsidiaries of Registrant: A list of subsidiaries of the Company is
      incorporated herein by reference to Exhibit 21 of the Annual Report on
      Form 10-K/A for the year ended May 31, 1997.

(23.1) Consent of PricewaterhousCoopers LLP.

(23.2) Consent of Arthur Andersen LLP.

----------
(1) Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1, Registration No. 33-40907, filed with the Commission on
July 10, 1992 and hereby incorporated by reference thereto.

(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q, filed
with the Commission on April 11, 2000 and hereby incorporated by reference
thereto.

(3) Filed as an exhibit to the Company's Annual Report on Form 10-K, filed with
the Commission on May 29, 1992 and hereby incorporated by reference thereto.

(4) Filed as an exhibit to the Company's Annual Report on 10-K, filed with the
Commission on May 26, 1993 and hereby incorporated by reference thereto.

(5) Filed as an exhibit to Tiffany & Co.'s Schedule 13D, filed with the
Commission on May 10, 2001 and hereby incorporated by reference thereto.

(6) Filed as an exhibit to the Company's Current Report on Form 8-K, filed with
the Commission on May 30, 2001 and hereby incorporated by reference thereto.

(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended May 29, 1999, filed with the Commission on September 17, 1999
and hereby incorporated by reference thereto.

(8) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q, filed
with the Commission on April 10, 2001 and hereby incorporated by reference
thereto.

</TEXT>
</DOCUMENT>
