<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
                             ---------------------
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
 
                          COMMISSION FILE NO. 0-23234
 
                            L.A. T SPORTSWEAR, INC.
 
                             A Georgia Corporation
                  (IRS Employer Identification No. 58-1724902)
                               1200 Airport Drive
                           Ball Ground, Georgia 30107
                                 (770) 479-1877
 
                Securities Registered Pursuant to Section 12(b)
                    of the Securities Exchange Act of 1934:
 
                                      NONE
 
                Securities Registered Pursuant to Section 12(g)
                    of the Securities Exchange Act of 1934:
 
                        COMMON STOCK, WITHOUT PAR VALUE
 
     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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]
 
     The aggregate market value of the Common Stock of the registrant held by
nonaffiliates of the registrant (1,235,002 shares) on March 18, 1997 was
$540,313. For the purposes of this response, officers, directors and holders of
5% or more of the registrant's common stock are considered the affiliates of the
registrant at that date.
 
     The number of shares outstanding of the registrant's Common Stock, without
par value, as of March 18, 1997: 4,200,001 shares.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held in 1997 are incorporated by reference into
Part III of this Report, with the exception of information regarding executive
officers required under Item 10 of Part III, which information is included in
Part I, Item 1.
 
================================================================================
<PAGE>   2
 
                                     PART I
 
ITEM 1.  BUSINESS
 
     L.A. T Sportswear, Inc. (the "Company") is a national distributor and
manufacturer of quality imprintable and decorable knitted sportswear. Through
its distribution operations (which are carried out under the name Full Line
Distributors), the Company is a national distributor of undecorated garments for
the imprinted sportswear industry, carrying one of the broadest product lines in
the industry, including basic T-shirts and sweatshirts, golf shirts, baseball
and golf caps, athletic jackets, athletic jerseys and shorts, bags and aprons.
The Company carries the products and brands of nationally recognized
manufacturers, including Fruit of the Loom(R), Hanes(R), Russell(R) and Jonathan
Corey(R), as well as its own line of manufactured apparel. Through its
manufacturing operations (which are carried out under the name L.A. T
Sportswear), the Company designs, manufactures and markets decorable sportswear,
primarily for the infant and toddler, youth and fashion adult markets. The
Company's products, which include basic T-shirts and sweatshirts, one-piece
rompers, dresses and fashion coordinates, are marketed under the following brand
names: Rabbit Skins(R) (infants and toddler wear); L.A. T For Kids(R) (youth
wear, ages five to ten); and L.A. T Sportswear(R) (adult fashion wear).
 
     As a national sportswear distributor, the Company targets the small
independent imprinter and decorator and seeks to provide that customer with one
of the broadest product offerings in the industry, carried in-depth at multiple
locations to ensure that the customer's order is filled and received on a "just
in time" basis. The Company's strategy as a manufacturer is to focus on market
and product niches, such as infant and toddler sportswear and fashion adult
sportswear; to provide a high level of customer order support through the
maintenance of substantial product inventories and flexible production
scheduling; and to design innovative products for both the adult and children's
market segment.
 
     Prior to 1994, the Company's operations were conducted in two commonly
controlled corporations, the Connection Group, Inc., which conducted the
manufacturing operations, and SPZ, Inc., which conducted the distribution
operations.
 
     The Connection Group, Inc. was founded in 1978 as a broker of overstocked
and discontinued T-Shirts and other screen printable garments and later became
an independent manufacturers' sales representative and a baseball and golf cap
distributor. Subsequently, the Company purchased the cut and sew operations of
its contract manufacturer and commenced its own manufacturing operations. The
T-shirt brokerage, cap distribution and manufacturers' representative operations
were spun-off from the Company in 1990. SPZ, Inc. was started in 1987 with the
merger of two small independent distribution locations in Texas and Southern
California, each of which carried a limited line of imprintable golf and sport
shirts. The Company now has distribution centers in Atlanta, Cleveland,
Fullerton, Hartford, Houston, Miami and St. Louis metropolitan areas.
Concurrently with the Company's initial public offering in January 1994, The
Connection Group, Inc. was merged into SPZ, Inc., and the name of the surviving
entity was changed to L.A. T Sportswear, Inc.
 
     The Company's executive offices are located at 1200 Airport Drive, Ball
Ground, Georgia 30107 and its telephone number is (770) 479-1877.
 
OPERATIONS
 
     The Company is a national wholesaler of decorable sportswear and
accessories. The imprinted sportswear industry is highly fragmented and includes
a wide variety of businesses such as screenprinters, embroiderers, advertising
specialty companies, crafters and sporting goods and uniform companies. The
majority of the Company's distribution customers are small, independent
companies that lack the capitalization and space requirements to warehouse their
product needs, instead relying on wholesalers such as the Company to supply
their products. The Company believes that for these customers, breadth of
product line, immediate availability of product and superior customer service
are as important as price. For these reasons, the Company's distribution
operations are geared to breadth of product line, depth of inventory and prompt
order filling, as well as competitive pricing. While management believes that
most of its competitors carry only basic items such as
<PAGE>   3
 
T-shirts and sweatshirts, the Company carries these items as well as a wide
variety of specialty products from bags and aprons to golf shirts in 20 colors
and sizes ranging from small to triple-extra large.
 
     In addition to its distribution operations, the Company also designs,
manufactures and markets its own lines of imprintable and decorable sportswear
for the infant and toddler, youth and fashion adult markets and produces printed
garments for sale to mass merchants and specialty retailers and private label
garments for selected distributors, screenprinters and retailers. In its
manufacturing operations, the Company seeks market niches in the imprinted
sportswear industry where it has a competitive advantage by virtue of its
ability to manufacture on a shorter product run basis than fully integrated
mills, and where innovative product design or fabric introductions can
differentiate it from its competitors.
 
  Products
 
     The Company's distribution philosophy is to provide its customers the
broadest selection of imprintable sportswear in the industry, carried in depth
in inventory, and available to the customer within the most responsive time. To
accomplish this goal, the Company avoids duplicating the product offerings of
multiple manufacturers, and instead, generally carries the garment of only one
or two manufacturers in any given product. By not carrying the same product of
multiple manufacturers, the Company is able to carry deeper inventories and a
broader selection of products as a whole.
 
     At December 28, 1996, the Company's inventory included approximately 300
styles of products from 13 garment and accessories manufacturers. This inventory
included approximately 6,900 individual items (SKUs) including all color and
size variations. The Company's primary suppliers are Fruit of the Loom(R),
Hanes(R) and Russell(R) (T-shirts and sweatshirts), Print-Ons(R) and Jonathan
Corey(R) (golf shirts and sports shirts), Auburn Sportswear(R) (athletic
jackets), Yupoong(R) (baseball and golf caps), Augusta(R)Sportswear (athletic
jerseys, shorts, aprons and bags), Rabbit Skins(R) (toddler and infant wear),
Fieldcrest/Cannon(TM) (golf and beach towels) and L.A. T For Kids(R) and L.A. T
Sportswear(R) (adult and youth sportswear). Product offerings are reviewed
annually in connection with the preparation of customer catalogs, new and
expanded lines are routinely added and slow moving or discontinued products are
deleted.
 
     The Company generally enters into non-exclusive oral distribution
agreements with the vendors of the products it distributes which are cancelable
by either party upon notice. Management believes that the current relationship
with its vendors is satisfactory.
 
  Distribution and Warehousing
 
     As of March 14, 1997, the Company operated seven distribution centers
located in the metropolitan areas of Atlanta, Cleveland, Hartford, Houston, Los
Angeles, Miami and St. Louis. Each distribution center is leased, ranges from
approximately 41,000 to 62,000 square feet and carries the Company's complete
product line. Each facility is supervised by a location manager and includes a
support staff, with overflow and backup customer service capability by a central
group of customer service representatives at the Atlanta location.
 
     A customer order entered by a customer service representative on the
centralized inventory control computer system automatically generates a picking
ticket in the warehouse. Each customer order is then hand picked, checked and
packed, and the shipment staged in the warehouse for customer pick-up or
shipment by UPS or other carrier. In the event the order-entering distribution
center is out of stock on all or any portion of a customer's order, the order
may be completed for same day shipment from any of the Company's other
distribution centers.
 
CUSTOMERS AND CUSTOMER SERVICE
 
     The Company's customers are predominantly small independent imprinters,
embroiderers, advertising specialty companies, crafters and sporting goods and
uniform companies which purchase their requirements on an as needed basis for
immediate delivery. At December 28, 1996, the Company had an active customer
list of over 30,000 customers (customers who had placed an order within the
preceding year). In 1996, the largest customer accounted for less than 3% of the
Company's $95 million in sales and the Company's ten largest customers accounted
for less than 11% of sales. By contrast, approximately 76% of sales were to
customers who
 
                                        2
<PAGE>   4
 
purchased less than $100,000 worth of merchandise during the year. All credit
decisions are handled by the Company's centralized credit staff at its Atlanta
facility. For 1996, the Company experienced credit losses of less than 1% of
sales.
 
     The Company has a centralized customer service department located in
Atlanta. Customer service lines are answered Monday through Friday from 8:00
a.m. to 6:00 p.m., local time. The distribution operations offer same day
shipping on all orders placed before 4:00 p.m. and 24-hour shipping on all other
orders.
 
     Customer service representatives are required to be familiar with the
entire product line and able to answer customer questions concerning the
Company's product offerings. The Company utilizes a comprehensive training
program for new customer service representatives. Each service representative
spends time training in the warehouse, pulling customer orders and learning the
product lines. Trainees are provided with a training manual which details each
style with complete line sketches of each product highlighting all features and
detailing all colors and sizes, dimensions and fabric content. The manual also
outlines telephone and order entry procedures, both computerized and manual, and
provides tests to ensure that service representatives are trained to the
operations' standards.
 
  Marketing and Advertising
 
     The Company primarily markets its products through its catalog, trade
shows, major trade magazines and direct mail flyers. The Company produces and
distributes approximately 300,000 catalogs annually and exhibits at several
trade shows. The advertisements and flyers are designed to educate the customer
about the Company's business by highlighting its multiple locations, extended
operating hours, excellent service and product availability.
 
     The Company exhibited at nine shows in 1996. The participation in these
trade shows provides L.A. T with excellent opportunities to display its
collection of imprintable apparel and solicit new customers.
 
  Product Development
 
     The Company's imprintable knitted sportswear products (blanks) are focused
in the areas of infant and toddler, youth and fashion adult sportswear. Under
its registered label Rabbit Skins(R), the Company produces a full line of
activewear for infants and toddlers, including basic T-shirts and sweatshirts,
one-piece rompers, dresses and fashion coordinates. The Company's 1997 Rabbit
Skins(R) line (exclusive of printed products) consists of approximately 52
styles and over 680 SKUs including all color and size variations. Garments in
this line are manufactured using a variety of fabrics including 100% cotton and
50% cotton/50% polyester.
 
     Rabbit Skins(R) infant and toddler wear was the first product line
developed by the Company and the Company believes it is a major manufacturer in
this category of imprintable garments. For 1996, sales of Rabbit Skins(R)
products accounted for 11.8% of the Company's net sales.
 
     The Company also produces a line of imprintable youth garments under the
label L.A. T For Kids(R) (ages five to ten years) with product offerings such as
basic T-shirts, dresses and fashion coordinates, including leggings and shorts.
For 1997, the youth line consists of approximately 15 styles and over 140 SKUs
including all color and size variations.
 
     The Company designs and manufactures a line of adult activewear under the
label L.A. T Sportswear(R). Offerings in this line consist of shorts, fashion
T-shirts and tops, and cover-ups. The adult line consists of approximately 27
styles and over 450 SKUs. The L.A. T Sportswear(R) line tends to be more upscale
and fashion oriented, avoiding the commodity-type garment offerings. Although
all L.A. T Sportswear(R) garments are sold as separates, the Company makes
available many products in the line as top/bottom coordinates.
 
     Product development and new product design are the primary responsibility
of the Company's merchandising department, with new product ideas and proposals
subject to review by the Company's marketing personnel and executive officers at
regularly scheduled meetings. The Company considers itself an innovator in new
product style development.
 
                                        3
<PAGE>   5
 
     The Company had historically designed, manufactured and marketed
screenprinted garments for sale to mass merchants, resort area shops, college
book stores, theme and water parks, specialty stores and department stores.
Printed products included both garments bearing the licensed names, logos and
mascots of major colleges and universities, as well as unlicensed art work
developed by the Company's creative design staff or the custom art work of its
customers. The Company paid a royalty on licensed product sales ranging from
6.5% to 9.0%. In 1996, sales of printed products constituted 4.1% of net sales.
The Company was a sub-licensee of Hanes(R) for the printing and sale of fashion
merchandise for the 1996 Atlanta Summer Olympic Games. The Company paid
royalties on sales of such merchandise ranging from 10.0% to 20.0%, depending on
the type of sale. In August 1996, the Company discontinued its screen print
operations as part of its efforts to streamline operations.
 
  Sales and Marketing
 
     The Company utilizes both independent commissioned sales representatives
and its own sales staff to sell its blank products to distributors in the
imprintable sportswear industry, to larger screenprinters, craft chain stores
and to retailers who buy direct and perform their own screenprinting. The
Company's national sales manager coordinates the activities of both its
independent sale representatives, as well as its own sales staff. In 1996, 5.1%
of the Company sales were to craft stores and other retailers such as Wal-Mart,
Michaels Stores, Garden Ridge Pottery, Hobby Lobby, and Fabri-Centers. In
January 1995, the Company began carrying all of its manufactured products at all
of its distribution locations.
 
  Manufacturing Operations
 
     The Company's product lines are manufactured at three facilities in
Georgia. Management believes that the manufacturing of its products domestically
permits it to have greater control over production, enhances the quality of the
finished product and facilitates greater responsiveness to its customers' needs.
Management also believes that the Company's ability to accommodate orders in
varying quantities while controlling production costs and maintaining consistent
quality provides it with a competitive advantage.
 
     For approximately 90% of the fabric used in its garments, the Company
purchases yarn which is knitted, dyed and finished (curing and color fixation)
on a contract basis. The remainder of fabric used in its garments (primarily
fleece goods) is purchased in a fully finished state from several outside
suppliers. All incoming fabric is received and inspected at the centralized
cutting facility in Ball Ground, Georgia. The fabric storage operations are
likewise located in this facility, which also houses production control,
inventory management and purchasing personnel.
 
     Cut and sew operations involve several stages. Patterns are created and
cutting templates are produced by a fully computerized Lectra Systems(R) marking
and grading system, which allows the Company to produce more accurate patterns
and grading between sizes. Using computerized equipment to ensure consistency of
fit, the initial patterns are adjusted to produce patterns for each size to be
manufactured in a particular style. The computerized equipment creates markers
in order to efficiently produce a specified number of garments in designated
sizes. The markers are placed over layers of fabric and the pattern pieces are
cut, checked and prepared for sewing manually by cutting teams. These pieces are
then sewn together to form the completed product.
 
     The Company's sewing operations are currently located at two facilities,
one in Ball Ground, Georgia and one in Roberta, Georgia. As part of its effort
to streamline operations, the Company closed its Fyffe, Alabama sewing facility
in the Spring of 1996. Sewing operators in all facilities are compensated on a
piece work incentive basis. The sewing operators are cross-trained on a variety
of garments and operations, which tends to maximize the flexibility of the
plants, permitting shorter sewing cycles and allowing quick change in the
production of other garments, as sales demands dictate.
 
     The finished garments are counted and packed at the individual sewing
plants and then shipped to the centralized warehouse and shipping facilities in
Ball Ground, Georgia. All inventory of finished goods in full cases is barcoded
for inventory tracking. Inventory, production, labor and other cost items are
maintained for each individual plant on the Company's centralized management
information and inventory tracking computer located at the corporate
headquarters facility. In the past, the Company's commitment to customer service
has required it
 
                                        4
<PAGE>   6
 
to maintain substantial inventories of finished goods. The Company's current
focus, consistent with this commitment to customer service, is to maximize the
responsiveness and flexibility of its cutting and sewing operations enabling it
to reduce finished goods inventory levels.
 
     All of the Company's manufacturing facilities are currently operated on a
single shift basis. Management believes that the physical capacity of its own
facilities is currently adequate to meet the Company's manufacturing needs for
the foreseeable future.
 
     The Company continually reviews the feasibility of effecting additional
cost savings and margin increases by further integration of the manufacturing
process. Accordingly, the Company may, in the future, determine that development
of fabric knitting, dyeing or finishing capacity for some or all of its fabric
needs would be advantageous and may acquire facilities for those purposes.
 
  Raw Materials and Supplies
 
     The primary raw materials used in the Company's manufacturing operations
are cotton and synthetic yarns which are purchased on a contractual basis
(usually 12 months in advance) from a small number of suppliers. The Company
also contracts for the conversion of its yarn to finished fabric, primarily
through a single knitting source and two contract finishing houses.
Approximately 10% of the Company's total fabric needs (primarily fleece
material) is purchased from a small number of outside sources. The Company
currently utilizes limited supply sources on the theory that the loyalty and
commitment generated by the long standing business relationship between supplier
and customer outweighs the risk inherent in dependency on limited sources of
supply. At the same time, the Company believes that alternative sources of
supply, both for raw materials and conversion services, are readily available at
competitive prices and its reliance on limited supply sources causes no
significant risk to the business.
 
  Backlog
 
     As of February 28, 1997 and 1996, the Company had a backlog of orders of
approximately $1,901,470 and $3,008,445, respectively, for products to be
delivered during the respective fiscal years.
 
  Competition
 
     Competition in the screenprint garment distribution business is intense and
is based primarily on product line quality, availability and prompt delivery of
products, price, level of customer support and the ability to offer a wide
selection of products. Some of the Company's competitors have substantially
greater financial resources and larger staffs. Principal competitors include
national distributors such as Broder Brothers, Staton Wholesale, California
Shirt Sales and South Carolina Tees, as well as regional distributors such as
San Mar, Alpha Shirts and Stardust.
 
     In some cases, the Company also competes with manufacturers that sell
directly to screenprinters, sometimes at prices below those charged by the
Company for similar products. Most manufacturers, however, limit their direct
sales only to large resellers because of the costs associated with dealing with
a large number of small volume customers.
 
     The imprinted sportswear segment of the apparel industry is highly
fragmented and includes several companies that have substantially greater
financial resources and manufacturing capabilities than the Company. The Company
believes that the primary competition for the manufacturing operations' products
comes from two brands in the infant and toddler market (Oneita and Active Edge)
and ten to fifteen companies in the youth and adult fashion markets. Competition
from imported products is generally not a significant factor in the imprinted
knitwear industry, since labor is a lesser component of the total cost of the
finished goods than in more complicated garments. The Company competes in this
aspect of its business primarily based on product design, quality and
responsiveness to customer service needs. In addition, price is a significant
competitive factor in the imprintable garment industry.
 
                                        5
<PAGE>   7
 
EMPLOYEES
 
     At December 28, 1996, the Company employed approximately 430 full time
employees, of which 40 were salaried, 246 were paid on an hourly basis and 144
were paid on an incentive piece work basis. None of the Company's employees is
covered by a collective bargaining agreement and the Company believes that its
employee relations are satisfactory.
 
EXECUTIVE OFFICERS
 
     The executive officers of the Company are as follows:
 
<TABLE>
<CAPTION>
NAME                                        POSITION WITH COMPANY
----                                        ---------------------
<S>                                  <C>
Isador E. Mitzner..................  Chairman of the Board and Chief
                                       Executive Officer
J. David Keller....................  President and Secretary
Robert C. Aldworth.................  Executive Vice President and Chief
                                       Operating Officer
</TABLE>
 
     ISADOR E. MITZNER, age 45, founded the Company and its predecessors, and
has served as its Chairman and Chief Executive Officer since its inception in
1978.
 
     J. DAVID KELLER, age 49, joined the Company in March 1981 and has served as
President of the L.A. T Sportswear operations since 1987. Mr. Keller has served
as a director of the Company since 1986, as President since October 1993, and as
Secretary of the Company since March 1994. For three years prior to joining the
Company, Mr. Keller worked for Hanes Activewear as a sales representative in the
Southeast United States and the Caribbean.
 
     ROBERT C. ALDWORTH, age 44, joined the Company in January 1996 as Executive
Vice President and Chief Operating Officer. From January to November 1995, Mr.
Aldworth served as Executive Vice President and Chief Financial Officer of
Harry's Farmers Market, Inc., a manufacturer, distributor and retailer of
specialty perishable food products. From 1991 to 1995, Mr. Aldworth served as
Vice President and Chief Financial Officer of GenRad, Inc., a supplier of
integrated test and diagnostic systems.
 
TRADEMARKS
 
     The Company believes its trademarks have significant value and are
important to its marketing efforts. The Company has registered the trademarks
Rabbit Skins(R), L.A. T For Kids(R) and L.A. T Sportswear(R) with the United
States Patent and Trademark office. The Company's policy is to pursue
registration of its marks whenever possible and to oppose vigorously any
infringement of its marks.
 
     The Company sells products under various trademarks and trade names used in
this Annual Report that are the property of owners other than the Company. The
following is a list of such trademarks and tradenames that are used in this
Annual Report: Fruit of the Loom(R); Hanes(R); Russell(R); Jonathan Corey(R);
Print Ons(R); Auburn Sportswear(R); Yupoong(R); Augusta(R); and
Fieldcrest/Cannon.
 
                                        6
<PAGE>   8
 
ITEM 2.  PROPERTIES
 
     The following table presents information as to the real properties and
facilities of the Company as of March 15, 1997:
 
<TABLE>
<CAPTION>
FACILITY AND LOCATION            PRIMARY UTILIZATION     SQUARE FOOTAGE    NATURE OF OWNERSHIP
---------------------            --------------------    --------------    -------------------
<S>                              <C>                     <C>               <C>
Ball Ground, Georgia...........  Administration,             68,000        Owned
                                 Sewing, and
                                 Centralized
                                 distribution
Ball Ground, Georgia...........  Production planning,        46,000        Owned
                                 Centralized cutting
                                 and Raw materials
                                 warehousing
Roberta, Georgia...............  Sewing                      22,000        Leased through
                                                                           January 1998
Atlanta, Georgia...............  Administration and          56,000        Leased through
                                 Distribution                              December 1999
Cleveland, Ohio................  Distribution                49,700        Leased through
                                                                           April 2000
Fullerton, California..........  Distribution                43,200        Leased through
                                                                           April 2000
Hartford, Connecticut..........  Distribution                48,000        Leased through
                                                                           January 1998
Houston, Texas.................  Distribution                61,600        Leased through
                                                                           December 1998
Miami, Florida.................  Distribution                41,000        Leased through
                                                                           December 1999
St. Louis, Missouri............  Distribution                44,200        Leased through
                                                                           March 2000
</TABLE>
 
ITEM 3.  LEGAL PROCEEDINGS
 
     Except as set forth below, there are no material legal proceedings to which
the Company is a party or to which its properties are subject.
 
     On March 14, 1994, a class action lawsuit was filed by Edward J. Slate,
individually and on behalf of all others similarly situated, in the United
States District Court for the Northern District of Georgia against the Company,
Messrs. Isador Mitzner, David Keller, Jeffrey Lebedin, Nathan Koenigsberg, David
Shelton and The Robinson-Humphrey Company, Inc. The defendants are the Company,
three of its directors (and one former director), one of its then officers and
the managing underwriter of the Company's initial public offering. The plaintiff
purported to represent a class consisting of all persons who purchased common
stock of the Company between January 25, 1994 (the date of the Company's initial
public offering) and March 7, 1994. The suit alleged that the Company's
registration statement and the prospectus for such offering contained a material
omission thereby making those documents materially false and misleading. The
plaintiffs sought an unspecified amount of damages. The Company, together with
all other defendants, filed a Motion to Dismiss the action, which motion was
denied by an Order dated March 29, 1995. In that Order, the court also granted
the plaintiff's Motion for Certification as a Class Action. The Company and all
other defendants filed Motions for Reconsideration, or in the Alternative, for
Decertification of the Class Action. On May 30, 1995, the Court granted the
Motions for Reconsideration.
 
     On May 23, 1995, another lawsuit seeking to proceed as a class action was
filed by Omega Partners, L.P., individually and on behalf of all others
similarly situated, in the same court as the Slate Complaint and against the
same defendants. Omega Partners sought to represent a class consisting of all
persons who purchased common stock of the Company between January 25, 1994 and
March 7, 1994, and also sought to represent a subclass of
 
                                        7
<PAGE>   9
 
persons who purchased common stock of the Company from defendant
Robinson-Humphrey or any affiliate of Robinson-Humphrey as part of the initial
public distribution of shares issued in the offering. The Omega complaint is
identical in all other respects to the Slate complaint.
 
     On August 19, 1996, the Court denied Slate's Motion for Class
Certification. On August 30, 1996, prior to filing any motion for class
certification, Omega Partners voluntarily agreed to dismiss its action against
the Company. On November 22, 1996, the Court denied Slate's Motion for
Reconsideration of its prior order denying class certification. On March 24,
1997, the Company settled the Slate lawsuit.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of security holders of the Company
during the fourth quarter ended December 28, 1996.
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's Common Stock currently trades on the OTC Bulletin Board under
the symbol LATS. From January 25, 1994 through February 20, 1997, the Common
Stock traded on the Nasdaq National Market. The following table sets forth, by
fiscal quarter, the high and low sales prices of the Common Stock reported by
The Nasdaq Stock Market during the most recent two years.
 
<TABLE>
<CAPTION>
                                                              HIGH SALE    LOW SALE
                                                              ---------    --------
<S>                                                           <C>          <C>
FISCAL YEAR ENDED DECEMBER 30, 1995
First Quarter ended April 1, 1995...........................   6 3/4       5 3/4
Second Quarter ended July 1, 1995...........................   7 1/4       3 1/2
Third Quarter ended September 30, 1995......................   4 1/2       2 3/4
Fourth Quarter ended December 30, 1995......................   3 3/8           2
FISCAL YEAR ENDED DECEMBER 28, 1996
First Quarter ended March 30, 1996..........................   2 3/4       2 1/4
Second Quarter ended June 29, 1996..........................   2 3/4       1 7/8
Third Quarter ended September 28, 1996......................   2 3/8         7/8
Fourth Quarter ended December 28, 1996......................   1 1/4         1/2
</TABLE>
 
     As of March 18, 1997, the number of shareholders of record of the Company's
Common Stock was approximately 50 and the number of beneficial holders of the
Company's Common Stock was approximately 1,000. The Company has not declared or
paid any cash dividends on its Common Stock. The policy of the Board of
Directors of the Company is to retain earnings for the expansion and development
of the Company's business. Future dividend policy and the payment of dividends,
if any, will be determined by the Board of Directors in light of circumstances
then existing, including the Company's earnings, financial condition, bank and
other contractual restrictions and other factors deemed relevant by the Board.
 
                                        8
<PAGE>   10
 
ITEM 6.  SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                                            FISCAL YEAR(1)
                                         -----------------------------------------------------
                                          1996        1995        1994      1993(2)     1992
                                         -------    --------    --------    -------    -------
<S>                                      <C>        <C>         <C>         <C>        <C>
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATE)
OPERATIONS STATEMENT DATA:
Net sales..............................  $94,834    $124,897    $100,356    $78,704    $65,949
Cost of goods sold.....................   79,136     104,941      81,279     61,931     51,271
                                         -------    --------    --------    -------    -------
Gross profit...........................   15,698      19,956      19,077     16,773     14,678
Operating expenses.....................   16,147      21,006      13,015     11,156      9,574
Restructuring charge(3)................       --       1,700          --         --         --
                                         -------    --------    --------    -------    -------
Operating profit (loss)................     (449)     (2,750)      6,062      5,617      5,104
Other income (expense):
  Interest expense.....................   (2,047)     (2,364)       (962)    (1,328)    (1,184)
     Other income (expense)............        4        (266)        (15)        37         48
                                         -------    --------    --------    -------    -------
Income (loss) before income tax and
  extraordinary item...................   (2,492)     (5,380)      5,085      4,326      3,968
  (Provision) benefit for income
     taxes(4)..........................     (172)      1,787      (2,089)      (152)       (86)
                                         -------    --------    --------    -------    -------
  Net income (loss) before
     extraordinary item................   (2,664)     (3,593)      2,996      4,174      3,882
  Extraordinary loss on prepayment of
     line of credit, net of income tax
     benefit of $40 (1994)(5)..........       --          --         (60)        --         --
  Net income (loss)....................  $(2,664)   $ (3,593)   $  2,936    $ 4,174    $ 3,882
                                         =======    ========    ========    =======    =======
  Net loss per share...................  $ (0.63)   $  (0.86)
                                         =======    ========
  Weighted average shares
     outstanding.......................    4,200       4,200
                                         =======    ========
  Distributions declared(6)............  $          $           $  5,550    $ 1,650    $ 1,940
                                         =======    ========    ========    =======    =======
PRO FORMA DATA:
Income before income taxes and
  extraordinary item, as reported......                         $  5,085    $ 4,326    $ 3,968
Pro forma provision for income
  taxes(4).............................                           (2,089)    (1,657)    (1,520)
                                                                --------    -------    -------
Pro forma income before extraordinary
  item.................................                            2,996      2,669      2,448
Extraordinary loss on prepayment of
  line of credit, net of income tax
  benefit of $40 (1994)(5).............                              (60)        --         --
                                                                --------    -------    -------
Pro forma net income...................                         $  2,936    $ 2,669    $ 2,448
                                                                --------    -------    -------
Pro forma net income per share:(7)
  Income before extraordinary item.....                         $   0.72    $  0.74    $  0.67
  Extraordinary loss on prepayment of
     line of credit, net of income tax
     benefit...........................                            (0.01)        --         --
                                                                --------    -------    -------
Pro forma net income...................                         $   0.71    $  0.74    $  0.67
                                                                ========    =======    =======
Pro forma weighted average shares
  outstanding(7).......................                            4,150      3,629      3,629
                                                                ========    =======    =======
</TABLE>
 
                                        9
<PAGE>   11
 
<TABLE>
<CAPTION>
                                                            FISCAL YEAR(1)
                                         -----------------------------------------------------
                                          1996        1995        1994      1993(2)     1992
                                         -------    --------    --------    -------    -------
<S>                                      <C>        <C>         <C>         <C>        <C>
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATE)
BALANCE SHEET DATA (AT END OF YEAR):
Working capital........................  $25,688    $  9,011    $ 30,624    $ 6,325    $ 3,553
Property, plant and equipment, net.....    4,315       5,841       5,008      4,413      4,343
Total assets...........................   36,519      57,032      44,567     26,713     28,376
Short-term borrowings(8)...............       22      30,328         372      9,759     11,486
Long-term debt, net of current
  portion..............................   18,929         821      18,391      1,531      1,821
     Stockholders' equity..............   10,981      13,645      17,238      9,396      6,230
</TABLE>
 
---------------
 
(1) The Company's fiscal year historically ended on December 31. During 1993,
    the Company changed its year-end to the Saturday closest to December 31.
    Fiscal years 1996, 1995, 1994, 1993 and 1992 refer to the years ended
    December 28, 1996, December 30, 1995, December 31, 1994, January 1, 1994 and
    December 31, 1992, respectively.
(2) In the second quarter of 1993, the Company recognized $642,000 in
    compensation expense as the result of a share purchase option granted to an
    officer of the Company by the major stockholder. This one-time noncash
    charge reduced operating profit, pro forma net income, and pro forma net
    income per share for the year ended January 1, 1994 by $642,000, $396,000,
    and $.11, respectively.
(3) In December 1995, the Company decided to streamline operations by closing
    certain of its facilities and discontinuing certain product lines during
    1996. The Company closed two distribution facilities in January 1996 and
    closed one of its sewing operations in April 1996. Additionally, the Company
    discontinued its screen printed operations in mid-1996. The Company recorded
    a charge in the fourth quarter of 1995 of approximately $1,700,000 related
    to this restructuring.
(4) As a result of its election to be treated as an S Corporation for income tax
    purposes, the Company was not subject to federal and most state income
    taxes. Accordingly, the provisions for income taxes through January 1994
    include income only for those jurisdictions that do not recognize S
    Corporation status. The Company terminated its S Corporation status during
    January 1994. The pro forma provision for income taxes (computed under the
    provisions of Statement of Financial Accounting Standards No. 109) reflects
    provisions that would have been recorded had the Company been a C
    Corporation for income tax purposes.
(5) In July 1994, the Company completed a new line of credit agreement and, as a
    result, repaid borrowings under all of its previous lines of credit and
    terminated such agreements. The Company incurred termination costs under one
    of its previous credit agreements of $100,000 ($60,000 after tax).
(6) Prior to the Company's initial public offering in January 1994,
    distributions (in the form of dividends) were principally to assist the
    stockholders with their income tax obligations arising from the Company's S
    Corporation status. However, from the proceeds of the offering, the Company
    distributed to its S Corporation stockholders previously undistributed S
    Corporation earnings of $5,550,000. The Company does not anticipate paying
    any cash dividends in the foreseeable future.
(7) Pro forma net income per share is computed by dividing pro forma net income
    by pro forma weighted average shares outstanding. Pro forma weighted average
    shares outstanding include the actual weighted average shares outstanding
    plus the number of shares sold by the Company in its initial public offering
    (at the price of $10.00 per share) necessary to fund the $5,550,000
    distribution to stockholders declared in January 1994.
(8) As of December 30, 1995, the Company was not in compliance with certain
    financial covenants contained in the line of credit agreement and term loan
    facility existing at the time. As a result of this noncompliance, the lender
    had the right to declare the entire amount of such indebtedness due and
    immediately payable. Consequently, approximately $29.5 million of borrowings
    under the line of credit that otherwise would have been classified as
    long-term was classified as current in the December 1995 balance sheet. On
    April 29, 1996, the Company entered into a new line of credit facility which
    was amended November 12, 1996 and March 21, 1997.
 
                                       10
<PAGE>   12
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.
 
     The Private Securities Litigation Reform Act of 1995 provides a safe harbor
to encourage companies to provide prospective information so long as it is
identified as forward-looking and accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed. Forward-looking statements are related
to the plans and objectives of management for the future operations, economic
performance, of projections of revenues, income, earnings per share, capital
expenditures, dividends, capital structure, or other financial items. In the
following discussion and elsewhere in this report, statements containing words
such as "expect," "anticipate," "believe," "goal," "objective," or similar words
are intended to identify forward-looking statements. The Company undertakes no
obligation to update such forward-looking statements, and it wishes to identify
important factors that could cause actual results to differ materially from
those projected in the forward-looking statements contained in the following
discussion and elsewhere in this report. The risks and uncertainties that may
affect the operations, performance, development, and results of the Company's
business include but are not limited to the following: (1) heightened
competition, particularly intensified price competition; (2) general economic
and business conditions which are less favorable than expected; (3)
unanticipated changes in industry trends; and (4) other risks detailed herein
and from time to time in the Company's other reports.
 
GENERAL
 
     The Company expanded its business in fiscal 1993, 1994 and 1995 by (i)
increasing its manufacturing capabilities and production flexibility, (ii)
opening new distribution locations, (iii) introducing new product offerings and
(iv) expanding its distribution channels to include screenprinters, craft
stores, mass merchants and other retailers and by carrying the entire
manufactured product line at all distribution locations. During 1996, the
Company streamlined operations by closing certain of its facilities and
discontinuing certain product lines. The Company closed two distribution
facilities in January 1996 and closed one of its sewing operations in April
1996. Additionally, the Company discontinued its screen printed operations in
mid-1996. The Company recorded a charge in the fourth quarter of 1995 of $1.7
million related to this restructuring.
 
     Prior to 1993, the Company's fiscal year ended on December 31. Beginning
with the fiscal year ended January 1, 1994, the Company changed its year-end to
the Saturday closest to December 31. For interim reporting purposes, the
Company's first, second and third quarters end on the Saturday closest to March
31, June 30 and September 30, respectively. Fiscal years 1996, 1995 and 1994
refer to the years ended December 28, 1996, December 30, 1995 and December 31,
1994, respectively.
 
                                       11
<PAGE>   13
 
RESULTS OF OPERATIONS
 
     The following table sets forth, for the years indicated, the components of
the Company's statements of operations expressed as a percentage of net sales.
 
<TABLE>
<CAPTION>
                                                                    FISCAL YEAR
                                                              -----------------------
                                                              1996     1995     1994
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Net sales...................................................  100.0%   100.0%   100.0%
Cost of goods sold..........................................   83.4     84.0     81.0
                                                              -----    -----    -----
Gross profit................................................   16.6     16.0     19.0
Operating expenses..........................................   17.0     16.8     13.0
Restructuring charge........................................     --      1.4       --
                                                              -----    -----    -----
Operating (loss) profit.....................................   (0.4)    (2.2)     6.0
Other expense:
  Interest expense..........................................   (2.2)    (1.9)    (0.9)
  Other, net................................................     --     (0.2)    (0.1)
                                                              -----    -----    -----
(Loss) income before income taxes and extraordinary item....   (2.6)    (4.3)     5.0
Benefit (provision) for income taxes........................    (.2)     1.4     (2.0)
                                                              -----    -----    -----
(Loss) income before extraordinary item.....................   (2.8)    (2.9)     3.0
Extraordinary loss on prepayment of line of credit..........     --       --     (0.1)
                                                              -----    -----    -----
Net (loss) income...........................................   (2.8)%   (2.9)%    2.9%
                                                              -----    -----    -----
</TABLE>
 
  Comparison of 1996 to 1995
 
     The Company's net sales decreased approximately $30.1 million, or 24.1%, to
$94.8 million in 1996 from $124.9 million in 1995. The decrease in net sales was
primarily attributable to sluggishness in the industry combined with the closing
of two distribution centers at the end of 1995 and the closing of the screen
print operations during the third quarter of 1996.
 
     The Company's gross profit decreased approximately $4.3 million, or 21.3%,
to $15.7 million for 1996 from $20.0 million in 1995. The decline is primarily
related to the decline in net sales. As a percentage of net sales, gross profit
margin increased to 16.6% in 1996 from 16.0% in 1995.
 
     Operating expenses, excluding restructuring charges, decreased
approximately $4.9 million, or 23.1%, to $16.1 million in 1996 from $21.0
million in 1995. The decrease in operating expenses is due primarily to the
Company's restructuring plan implemented during the 1995 fourth quarter, in
which two distribution centers and the screen print operation were closed, and
to additional operational streamlining. The benefits of the restructuring were
partially offset by initial costs of operational and administrative
improvements. As a percentage of net sales, operating expenses, excluding
restructuring charges, increased to 17.0% in 1996 from 16.8% in 1995.
 
     The Company's operating loss, excluding restructuring charges, decreased
approximately $601,000 to $(449,000) in 1996 from $(1.1) million in 1995. The
overall operating loss, including 1995 restructuring charges of $1.7 million,
decreased approximately $2.4 million to $(449,000) in 1996 from $(2.8) million
in 1995.
 
     Interest expense decreased approximately $317,000, or 13.4%, to $2.1
million in 1996 from $2.4 million in 1995. The decrease was primarily due to
lower borrowing needs under the Company's line of credit, due to improved
working capital management, resulting in reduced inventory and accounts
receivable levels.
 
     Loss before income taxes, excluding the 1995 restructuring charge of $1.7
million, decreased approximately $1,118,000 to $(2.5) million in 1996 from
$(3.7) million in 1995. Overall loss before income taxes, including the 1995
restructuring charge, decreased approximately $2.9 million to $(2.5) million in
1996 from $(5.4) million in 1995. Loss before income taxes and restructuring
charges as a percentage of net sales decreased to (2.6)% in 1996 from (2.9)% in
1995. Overall loss before income taxes including 1995 restructuring charges as a
percentage of net sales decreased to (2.6)% in 1996 from (4.3)% in 1995.
 
                                       12
<PAGE>   14
 
     Net loss decreased approximately $929,000 to a loss of $(2.7) million in
1996 from $(3.6) million in 1995. Net loss as a percentage of net sales
decreased to (2.8)% in 1996 from (2.9)% in 1995. The net loss in 1995 included
an income tax benefit of approximately $1.4 million. No income tax benefit was
recorded for 1996.
 
  Comparison of 1995 to 1994
 
     The Company's net sales increased $24.5 million, or 24.5%, to $124.9
million in 1995 from $100.4 million in 1994. The increase in net sales was
primarily attributable to the opening of three new distribution facilities in
the first quarter of fiscal 1995 and increased sales of Olympic related
products.
 
     The Company's gross profit increased $879,000, or 4.6%, to $20.0 million
for 1995 from $19.1 million in 1994 as a result of increased sales. Gross profit
margin decreased to 16.0% in 1995 from 19.0% in 1994, primarily due to increased
levels of price competition. The Company expects margin pressure to continue
through 1997.
 
     Operating expenses increased $8.0 million, or 61.4%, to $21.0 million in
1995 from $13.0 million in 1994. The increase was due to additional costs
associated with opening and operating new distribution facilities, expanding
existing distribution facilities, entry into additional markets and an overall
increase in the reserve for bad debts. As a percentage of net sales, operating
expenses increased to 16.8% in 1995 from 13.0% in 1994.
 
     The Company has recorded a restructuring charge of $1.7 million in 1995 as
a result of its decision in the fourth quarter of 1995 to discontinue certain
product lines and to close two distribution facilities, one sewing facility and
its screen printed operations during 1996. See "-- General."
 
     Operating (loss) profit decreased $8.8 million, or 145.4%, to a $2.7
million operating loss in 1995 from operating profit of $6.1 million in 1994 as
a result of the factors discussed above. Operating profit margin decreased to
(2.2)% in 1995 from 6.0% in 1994.
 
     Other expense increased approximately $1.6 million or 169.2%, to $2.6
million in 1995 from $1.0 million in 1994. The increase, principally related to
interest expense, was primarily due to higher borrowings under the Company's
line of credit to finance increases in inventories and accounts receivable.
 
     Income (loss) before income taxes and extraordinary item decreased $10.5
million, to a net loss of $5.4 million in 1995 from net income of $5.1 million
in 1994. Income (loss) before income taxes and extraordinary item as a
percentage of net sales decreased to (4.3)% in 1995 from 5.0% in 1994.
 
     Net income (loss) decreased $6.5 million, to $(3.6) million or $(.86) per
share in 1995 from pro forma net income of $2.9 million or $.71 per share in
1994. Net income (loss) as a percentage of net sales decreased to (2.9)% in 1995
from pro forma net income as a percentage of net sales of 2.9% in 1994. Pro
forma net income for 1994 includes a provision for income taxes that would have
been recorded had the Company been a C Corporation for the entire period.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Net cash provided by (used in) operating activities was $10.5 million and
$(8.3) million in 1996 and 1995, respectively. In operating activities,
inventories decreased by $12.2 million and accounts receivable decreased by $4.3
million in 1996. Cash generated by operating activities was primarily used to
repay borrowings under the Company's credit facilities.
 
     On April 29, 1996, the Company entered into a new credit facility (the "new
facility") and repaid all borrowings under the previous line of credit and term
loan facility. The new facility was subsequently amended on November 12, 1996
and March 21, 1997 to modify certain covenants, waive existing defaults and
revise the maximum borrowing amount and interest rate. The new facility, as
amended, (i) provides for maximum borrowings of $25 million, which declines to
$20 million after August 31, 1997 (subject to certain collateral restrictions
based on eligible receivables, inventories and fixed assets), (ii) expires in
the second quarter of 1999, (iii) bears interest at a rate of prime plus 1.25%,
(iv) is secured by principally all the Company's assets, (v) requires the
payment of certain fees, and (vi) contains covenants which, among other things,
require
 
                                       13
<PAGE>   15
 
compliance with certain financial tests and restrict certain corporate
activities. As of March 21, 1997, the Company had borrowings totalling $18.9
million outstanding under the new facility and availability to borrow $2.0
million.
 
     The Company has incurred operating losses in each of the last two fiscal
years. The Company restructured its operations in 1996 and 1995 and in addition,
the Company has entered into new borrowing arrangements. Management has
developed an operating plan with the goal of improving operations in 1997 and
improving results in subsequent years.
 
     The Company's ability to fund its working capital and capital expenditure
requirements, make interest payments and meet its other cash requirements
depends, among other things, on internally generated funds and the continued
availability of and compliance with the terms of its credit facility. Management
further believes that internally generated funds and funds available from the
Company's line of credit will be sufficient to meet the Company's capital
requirements and operating needs in fiscal 1997. However, if there is a
significant reduction of internally generated funds or the Company is unable to
meet the operating projections used in amending the credit facility, the Company
may require additional funds from outside financing sources. In such event,
there can be no assurance that the Company will be able to obtain such funding
as and when required or on acceptable terms.
 
QUARTERLY RESULTS OF OPERATIONS
 
     The Company experiences a moderate amount of seasonality in its business,
with its highest sales and operating profit levels generally occurring in the
second and third quarters. In addition, gross profit margins for the fourth
quarter are typically lower due to a scheduled December plant shutdown at all
manufacturing operations facilities. The following table sets forth unaudited
data regarding the Company's operations for the most recent eight fiscal
quarters.
 
<TABLE>
<CAPTION>
                                                                   QUARTER
                                                   ----------------------------------------
                                                    FIRST     SECOND      THIRD     FOURTH
                                                   -------    -------    -------    -------
                                                                (IN THOUSANDS)
<S>                                                <C>        <C>        <C>        <C>
1996
Net sales........................................  $23,344    $30,222    $22,857    $18,411
Gross profit.....................................    3,983      6,009      3,263      2,443
Operating (loss) profit..........................      (73)     1,439       (596)    (1,219)
(Loss) income before income taxes................     (678)       848     (1,054)    (1,608)
Net (loss) income................................     (426)       526       (983)    (1,781)
1995
Net sales........................................  $25,232    $37,942    $33,680    $28,043
Gross profit.....................................    5,369      6,547      5,266      2,774
Operating profit (loss)..........................      961      1,605        491     (5,807)(1)
Income (loss) before income taxes................      542      1,068       (270)    (6,720)(1)
Net income (loss)................................      314        635       (167)    (4,375)(1)
</TABLE>
 
---------------
 
(1) In December 1995, the Company decided to streamline operations by closing
    certain of its facilities and discontinuing certain product lines during
    1996. The Company closed two distribution facilities in January 1996 and
    closed one of its sewing operations in April 1996. Additionally, the Company
    discontinued its screen printed operations in mid-1996. The Company recorded
    a charge in the fourth quarter of 1995 of approximately $1.7 million related
    to this restructuring.
 
EFFECTS OF INFLATION
 
     The Company does not believe inflation has materially impacted earnings
during the past three years. Substantial increases in costs could have a
significant impact on the Company and the industry. If operating expenses
increase, management believes it can recover increased costs by increasing
prices but there is no assurance of such.
 
                                       14
<PAGE>   16
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The following financial statements are filed with this report:
 
          Independent Auditors' Report
 
          Balance Sheets as of December 28, 1996 and December 30, 1995
 
          Statements of Operations for the years ended December 28, 1996,
     December 30, 1995 and December 31, 1994
 
          Statements of Stockholders' Equity for the years ended December 28,
     1996, December 30, 1995 and December 31, 1994.
 
          Statements of Cash Flows for the years ended December 28, 1996,
     December 30, 1995 and December 31, 1994
 
          Notes to Financial Statements
 
                                       15
<PAGE>   17
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Stockholders
L.A. T Sportswear, Inc.:
 
     We have audited the accompanying balance sheets of L.A. T Sportswear, Inc.
(the "Company") as of December 28, 1996 and December 30, 1995 and the related
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 28, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 28, 1996 and
December 30, 1995 and the results of its operations and its cash flows for each
of the three years in the period ended December 28, 1996 in conformity with
generally accepted accounting principles.
 
                                          DELOITTE & TOUCHE LLP
 
Atlanta, Georgia
March 7, 1997
(March 21, 1997 as to Note 7 and
March 24, 1997 as to Note 12)
 
                                       16
<PAGE>   18
 
                            L.A. T SPORTSWEAR, INC.
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                              DECEMBER 28,    DECEMBER 30,
                                                                  1996            1995
                                                              ------------    ------------
                                                                     (IN THOUSANDS)
<S>                                                           <C>             <C>
                                          ASSETS
CURRENT ASSETS:
  Cash......................................................    $   938         $ 2,784
  Accounts receivable, net of allowance for doubtful
     accounts of $1,585 and $2,200..........................      7,599          11,948
  Inventories...............................................     20,561          32,754
  Income tax receivable.....................................      1,923             599
  Other current assets......................................        774           2,914
                                                                -------         -------
          Total current assets..............................     31,795          50,999
PROPERTY, PLANT AND EQUIPMENT -- Net........................      4,315           5,841
OTHER ASSETS................................................        409             192
                                                                -------         -------
                                                                $36,519         $57,032
                                                                =======         =======
 
                           LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................    $ 4,088         $ 6,980
  Accounts payable -- related parties.......................      1,049           1,374
  Restructuring reserve.....................................        125           1,700
  Accrued expenses..........................................        823           1,606
  Current portion of long-term debt.........................         22          30,328
                                                                -------         -------
          Total current liabilities.........................      6,107          41,988
LONG-TERM DEBT..............................................     18,929             821
DEFERRED INCOME TAXES.......................................        502             578
COMMITMENTS AND CONTINGENCIES (Notes 8 and 12)
STOCKHOLDERS' EQUITY:
  Preferred stock, 5,000,000 shares authorized; no shares
     issued
  Common stock, no par value; 25,000,000 shares authorized;
     4,200,001 shares issued and outstanding................     10,825          10,825
  Paid-in capital...........................................      3,304           3,304
  Accumulated deficit.......................................     (3,148)           (484)
                                                                -------         -------
          Total stockholders' equity........................     10,981          13,645
                                                                -------         -------
                                                                $36,519         $57,032
                                                                =======         =======
</TABLE>
 
                                       17
<PAGE>   19
 
                            L.A. T SPORTSWEAR, INC.
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                       FISCAL YEAR
                                                              -----------------------------
                                                               1996       1995       1994
                                                              -------   --------   --------
                                                                (IN THOUSANDS, EXCEPT PER
                                                                       SHARE DATA)
<S>                                                           <C>       <C>        <C>
NET SALES...................................................  $94,834   $124,897   $100,356
COST OF GOODS SOLD..........................................   79,136    104,941     81,279
                                                              -------   --------   --------
          Gross profit......................................   15,698     19,956     19,077
OPERATING EXPENSES..........................................   16,147     21,006     13,015
RESTRUCTURING CHARGE........................................               1,700
                                                              -------   --------   --------
OPERATING (LOSS) PROFIT.....................................     (449)    (2,750)     6,062
OTHER (EXPENSES) INCOME:
  Interest expense..........................................   (2,047)    (2,364)      (962)
  Other, net................................................        4       (266)       (15)
                                                              -------   --------   --------
          Total other expenses..............................   (2,043)    (2,630)      (977)
                                                              -------   --------   --------
(LOSS) INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM....   (2,492)    (5,380)     5,085
(PROVISION) BENEFIT FOR INCOME TAXES........................     (172)     1,787     (2,089)
                                                              -------   --------   --------
NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEM.................   (2,664)    (3,593)     2,996
EXTRAORDINARY LOSS ON PREPAYMENT OF LINE OF CREDIT -- Net of
  income tax benefit of $40 (1994)..........................                            (60)
                                                              -------   --------   --------
NET (LOSS) INCOME...........................................  $(2,664)  $ (3,593)  $  2,936
                                                              =======   ========   ========
NET LOSS PER SHARE..........................................  $  (.63)  $   (.86)
                                                              =======   ========
WEIGHTED AVERAGE SHARES OUTSTANDING.........................    4,200      4,200
                                                              =======   ========
</TABLE>
 
                                       18
<PAGE>   20
 
                            L.A. T SPORTSWEAR, INC.
 
                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                                           RETAINED
                                                              COMMON STOCK                 EARNINGS
                                                            ----------------   PAID-IN   (ACCUMULATED
                                                            SHARES    VALUE    CAPITAL     DEFICIT)
                                                            ------   -------   -------   ------------
                                                                         (IN THOUSANDS)
<S>                                                         <C>      <C>       <C>       <C>
BALANCE -- January 1, 1994................................  3,000    $   369   $1,142      $ 7,885
  Distributions declared..................................                                  (5,550)
  Transfer of retained earnings to paid-in capital upon
     termination of S Corporation status..................                      2,162       (2,162)
  Sale of common stock, net of expenses...................  1,200     10,456
  Net income..............................................                                   2,936
                                                            -----    -------   ------      -------
BALANCE -- December 31, 1994..............................  4,200     10,825    3,304        3,109
  Net loss................................................                                  (3,593)
                                                            -----    -------   ------      -------
BALANCE -- December 30, 1995..............................  4,200     10,825    3,304         (484)
  Net loss................................................                                  (2,664)
                                                            -----    -------   ------      -------
BALANCE -- December 28, 1996..............................  4,200    $10,825   $3,304      $(3,148)
                                                            =====    =======   ======      =======
</TABLE>
 
                       See notes to financial statements.
 
                                       19
<PAGE>   21
 
                            L.A. T SPORTSWEAR, INC.
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                       FISCAL YEAR
                                                              -----------------------------
                                                                1996      1995       1994
                                                              --------   -------   --------
                                                                     (IN THOUSANDS)
<S>                                                           <C>        <C>       <C>
OPERATING ACTIVITIES:
  Net (loss) income.........................................  $ (2,664)  $(3,593)  $  2,936
  Adjustments to reconcile net (loss) income to net cash
     provided by (used in) operating activities:
     Depreciation and amortization..........................       750       751        622
     Provision for doubtful accounts........................       688     2,294        282
     Loss on sale or write-off of fixed assets..............       949        89         98
     Changes in assets and liabilities providing (using)
       cash:
       Accounts receivable..................................     3,661    (3,451)    (6,809)
       Inventories..........................................    12,193    (5,588)   (10,527)
       Other................................................       523    (2,283)        54
       Accounts payable.....................................    (3,217)    1,251      2,156
       Accrued expenses.....................................      (783)      507         20
       Restructuring reserve................................    (1,575)    1,700
                                                              --------   -------   --------
          Net cash provided by (used in) operating
            activities......................................    10,525    (8,323)   (11,168)
INVESTING ACTIVITIES:
  Purchase of property, plant, and equipment................      (193)   (1,673)    (1,338)
  Proceeds from sale of assets..............................        20                   23
                                                              --------   -------   --------
          Net cash used in investing activities.............      (173)   (1,673)    (1,315)
FINANCING ACTIVITIES:
  Borrowings under (repayments of) line of credit, net......   (10,426)              (9,024)
  Repayments of long-term borrowings........................    (1,772)     (669)    (1,468)
  Net proceeds from sale of common stock....................                         10,456
  Proceeds from long-term borrowings........................              13,054     17,965
  Distributions paid........................................                         (5,550)
                                                              --------   -------   --------
          Net cash (used in) provided by financing
            activities......................................   (12,198)   12,385     12,379
                                                              --------   -------   --------
NET CHANGE IN CASH..........................................    (1,846)    2,389       (104)
CASH:
  Beginning of year.........................................     2,784       395        499
                                                              --------   -------   --------
  End of year...............................................  $    938   $ 2,784   $    395
                                                              ========   =======   ========
SUPPLEMENTAL INFORMATION:
  Cash paid during the year for:
     Interest...............................................  $  2,058   $ 2,219   $    979
                                                              ========   =======   ========
     Income taxes...........................................  $     32   $ 1,382   $  1,774
                                                              ========   =======   ========
</TABLE>
 
                       See notes to financial statements.
 
                                       20
<PAGE>   22
 
                            L.A. T SPORTSWEAR, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
1.  ORGANIZATION AND BASIS OF PRESENTATION
 
     L.A. T Sportswear, Inc. (the "Company") manufactures imprintable and
decorable sportswear and distributes undecorated garments for the imprinted
garment industry. The Company also purchases merchandise from several national
sportswear manufacturers for distribution through seven distribution facilities
(at December 28, 1996) located across the United States. The Company's customers
consist principally of local retailers in the imprintable and decorable
sportswear industry.
 
     The Company was formed upon the merger of two entities under common control
(The Connection Group, Inc. and SPZ, Inc.) on January 24, 1994. In connection
with the merger, the Company increased its authorized common shares to
25,000,000 and effected a stock split.
 
     The merger has been accounted for by combining the historical accounts of
the merged entities in a manner similar to a pooling of interests. Accordingly,
the accompanying financial statements reflect the combined financial position,
results of operations, and cash flows of the merged entities as if they had been
combined for all periods presented. All material intercompany transactions and
accounts have been eliminated. Furthermore, all share and per share data has
been retroactively adjusted to reflect the stock split.
 
     On January 25, 1994, the Company completed an initial public offering of
1,200,000 shares of its common stock. The Company received $10.4 million in net
proceeds (after offering costs) from this offering.
 
     The merged entities were S Corporations for income tax purposes; as a
result of the initial public offering, the Company became a C Corporation.
Immediately prior to its initial public offering, the Company declared dividends
to its stockholders of previously undistributed S Corporation earnings of
$5,550,000.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Fiscal Year.  Prior to 1993, the Company's year ended on December 31.
Beginning with the fiscal year ended January 1, 1994, the Company changed its
year-end to the Saturday closest to December 31. Fiscal years 1996, 1995, and
1994 refer to the years ended December 28, 1996, December 30, 1995, and December
31, 1994, 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.
 
     Inventories.  Inventories are stated at the lower of cost (first-in
first-out method) or market.
 
     Property, Plant and Equipment.  Property, plant and equipment are stated at
cost and are depreciated principally using the straight-line method over the
estimated asset lives. Buildings and improvements are depreciated over 40 years,
while machinery and equipment and furniture and fixtures are depreciated over
periods ranging principally from five to ten years.
 
     Income Taxes.  Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. The provision for income taxes is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax assets
and liabilities.
 
     As a result of its elections to be treated as an S Corporation for income
tax purposes through January 1994, the Company was not subject to federal and
most state income taxes. Accordingly, the provisions for income
 
                                       21
<PAGE>   23
 
                            L.A. T SPORTSWEAR, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
taxes through January 1994 include income taxes only for those jurisdictions
that do not recognize S Corporation status.
 
     Net (Loss) Income Per Share.  Net loss per share is calculated by dividing
net loss by the weighted average shares outstanding. Stock options outstanding
have not been considered as common stock equivalents in 1996 or 1995 as they are
antidilutive.
 
     Fair Value of Financial Instruments.  The carrying value of the Company's
financial instruments approximate fair values.
 
     Reclassifications.  Certain prior year balances have been reclassified to
conform with current year presentation.
 
3.  RESTRUCTURING CHARGE
 
     During December 1995, the Company adopted a plan to streamline operations
by closing certain of its facilities and discontinuing certain product lines
during 1996. The Company closed two distribution facilities in January 1996 and
closed one of its sewing operations in April 1996. Additionally, the Company
discontinued its screen printed operations in the third quarter of 1996. The
Company recorded a charge in the fourth quarter of 1995 of $1,700,000 related to
this restructuring.
 
     The Company has incurred losses in each of the last two fiscal years 1996
and 1995. As discussed above, the Company has restructured its operations in
1996 and 1995 and in addition, as discussed in Note 7, the Company entered into
new borrowing arrangements in 1996 which have been recently amended. Management
has developed an operating plan which is designed to improve operations for 1997
and subsequent years. In addition, management believes the funds available under
its current line of credit are adequate to sustain operations through December
31, 1997.
 
4.  INVENTORIES
 
<TABLE>
<CAPTION>
                                                              DECEMBER 28,   DECEMBER 30,
                                                                  1996           1995
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Raw materials...............................................    $   771        $ 1,099
Work-in-process.............................................        307          1,170
Finished goods..............................................     19,483         30,485
                                                                -------        -------
                                                                $20,561        $32,754
                                                                =======        =======
</TABLE>
 
5.  OTHER CURRENT ASSETS
 
<TABLE>
<CAPTION>
                                                              DECEMBER 28,   DECEMBER 30,
                                                                  1996           1995
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Prepaid expenses and other..................................      $272          $  447
Deferred income taxes.......................................       502           2,467
                                                                  ----          ------
                                                                  $774          $2,914
                                                                  ====          ======
</TABLE>
 
                                       22
<PAGE>   24
 
                            L.A. T SPORTSWEAR, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
6.  PROPERTY, PLANT AND EQUIPMENT
 
<TABLE>
<CAPTION>
                                                              DECEMBER 28,   DECEMBER 30,
                                                                  1996           1995
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Land........................................................     $  140         $  146
Buildings and improvements..................................      2,579          2,918
Machinery and equipment.....................................      3,587          4,520
Furniture and fixtures......................................      1,082          1,112
                                                                 ------         ------
                                                                  7,388          8,696
Less accumulated depreciation...............................      3,073          2,855
                                                                 ------         ------
                                                                 $4,315         $5,841
                                                                 ======         ======
</TABLE>
 
7.  LONG-TERM DEBT
 
     A summary of long-term debt is as follows:
 
<TABLE>
<CAPTION>
                                                             DECEMBER 28,    DECEMBER 30,
                                                                 1996            1995
                                                             ------------    ------------
                                                                    (IN THOUSANDS)
<S>                                                          <C>             <C>
Borrowings under:
  Line of credit...........................................    $18,254         $28,680
  Term loan facility.......................................                      1,596
Notes payable bearing interest at the prime rate plus 1% to
  1.5%.....................................................        697             719
Notes payable bearing interest at fixed rates..............                        154
                                                               -------         -------
                                                                18,951          31,149
Less amounts due within one year...........................         22          30,328
                                                               -------         -------
                                                               $18,929         $   821
                                                               =======         =======
</TABLE>
 
     As of December 30, 1995, the Company was not in compliance with certain
financial covenants contained within its then in effect line of credit agreement
and term loan facility. As a result of this noncompliance, the bank had the
right to declare the entire amount of such indebtedness due and immediately
payable. Consequently, all amounts outstanding under the line of credit and term
facility were classified as current in the December 30, 1995 balance sheet.
 
     On April 29, 1996, the Company entered into a new line of credit facility
("new facility"). All borrowings under the previous line of credit and term loan
facility were then repaid. This new facility was subsequently amended on
November 12, 1996 and March 21, 1997 to modify certain covenants, waive existing
defaults, and revise the maximum borrowing amount and interest rate. The new
facility as amended (i) provides for maximum borrowings of $25 million which
declines to $20 million after August 31, 1997 (subject to certain collateral
restrictions based on eligible receivables, inventories and fixed assets), (ii)
expires in the second quarter of 1999, (iii) bears interest at prime plus 1.25%,
and (iv) is secured by principally all the Company's assets. As of March 21,
1997, the Company has borrowings totaling $18.9 million outstanding under this
new facility and availability to borrow $2 million.
 
     The notes payable are collateralized by substantially all of the Company's
property, plant and equipment.
 
                                       23
<PAGE>   25
 
                            L.A. T SPORTSWEAR, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     Maturities of long-term debt at December 28, 1996 are as follows (in
thousands):
 
<TABLE>
<CAPTION>
FISCAL
------
<S>                                                           <C>
1997........................................................  $    22
1998........................................................       25
1999........................................................   18,281
2000........................................................       30
2001........................................................       33
Thereafter..................................................      560
                                                              -------
                                                              $18,951
                                                              =======
</TABLE>
 
8.  LEASE OBLIGATIONS
 
     The Company leases a plant facility and certain of its distribution
facilities under operating leases. The Company can, at its option, renew most of
these leases at the then fair rental value. Future minimum rental payments under
such operating leases at December 28, 1996 are as follows (in thousands):
 
<TABLE>
<CAPTION>
FISCAL
------
<S>                                                           <C>
1997........................................................  $1,236
1998........................................................   1,073
1999........................................................     890
2000........................................................     166
2001........................................................       1
                                                              ------
                                                              $3,366
                                                              ======
</TABLE>
 
     Rent expense was $1,377,000, $1,847,000, and $784,000 for fiscal years
1996, 1995, and 1994, respectively.
 
9.  INCOME TAXES
 
     The provision (benefit) for income taxes includes the following (in
thousands):
 
<TABLE>
<CAPTION>
                                                                     FISCAL YEAR
                                                              --------------------------
                                                               1996      1995      1994
                                                              -------   -------   ------
<S>                                                           <C>       <C>       <C>
Current:
  Federal...................................................  $(1,306)  $   338   $1,435
  State.....................................................     (411)       70      489
                                                              -------   -------   ------
                                                               (1,717)      408    1,924
Deferred:
  Federal...................................................    1,478    (1,819)     123
  State.....................................................      411      (376)      42
                                                              -------   -------   ------
                                                                1,889    (2,195)     165
                                                              -------   -------   ------
          Total provision (benefit).........................  $   172   $(1,787)  $2,089
                                                              =======   =======   ======
</TABLE>
 
                                       24
<PAGE>   26
 
                            L.A. T SPORTSWEAR, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     The provision (benefit) for income taxes differs from amounts computed by
applying the federal statutory rate to income before income taxes as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                                     FISCAL YEAR
                                                              -------------------------
                                                               1996     1995      1994
                                                              ------   -------   ------
<S>                                                           <C>      <C>       <C>
Tax (benefit) expense at federal statutory rate.............  $ (847)  $(1,829)  $1,728
State taxes, net of federal benefit.........................    (141)     (244)     346
Change in valuation allowance...............................   1,309       343      110
Tax benefit attributed to S Corporation shareholders........                        142
Deferred tax asset established upon termination of S
  Corporation status........................................                       (272)
Other.......................................................    (149)      (57)      35
                                                              ------   -------   ------
          Total provision (benefit).........................  $  172   $(1,787)  $2,089
                                                              ======   =======   ======
</TABLE>
 
     The tax effects of temporary differences at December 28, 1996 and December
30, 1995 are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                 ASSETS (LIABILITIES)
                                                              ---------------------------
                                                              DECEMBER 28,   DECEMBER 30,
                                                                  1996           1995
                                                              ------------   ------------
<S>                                                           <C>            <C>
Accounts receivable.........................................    $   732         $  885
Restructuring reserve.......................................         52            789
Inventory...................................................        638            958
Other.......................................................        239            125
Valuation allowance.........................................     (1,159)          (290)
                                                                -------         ------
          Current deferred tax asset........................    $   502         $2,467
                                                                =======         ======
Depreciation................................................    $  (502)        $ (578)
Deferred compensation.......................................        175            163
Valuation allowance.........................................       (603)          (163)
Federal and state net operating loss carryforwards..........        317
AMT credit..................................................        108
Other.......................................................          3
                                                                -------         ------
          Long-term deferred tax liability..................    $  (502)        $ (578)
                                                                =======         ======
</TABLE>
 
     At December 28, 1996, the Company has a net operating loss carryforward
available to offset future federal taxable income of $203,000 (which expires in
2011) and an AMT credit carryforward available to offset future federal taxes of
$108,000. State net operating loss carryforwards total $3.4 million and begin to
expire in 2001.
 
10.  RELATED PARTY TRANSACTIONS
 
     The Company purchases certain merchandise for its distribution business
from businesses affiliated with a former director and stockholder of the
Company. These purchases aggregated $8,315,000, $18,311,000, and $13,631,000
during fiscal years 1996, 1995, and 1994, respectively. Included in accounts
payable at December 28, 1996 and December 30, 1995 are amounts due to these
businesses of $1,049,000 and $1,374,000, respectively.
 
     Prior to 1991, the Company's operations included the results of (i)
Showcase Caps and Visors, Inc. ("Showcase"), a cap distribution company, (ii)
T-Shirt Brokerage Services, Inc. ("Brokerage"), a broker of T-shirts and other
apparel, and (iii) Ball Ground Reps, Inc. ("Ball Ground"), a commission sales
representative
 
                                       25
<PAGE>   27
 
                            L.A. T SPORTSWEAR, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
for various apparel manufacturers. These operations were sold to certain
stockholders during 1990. The Company continues to sell to one of these related
entities as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                  FISCAL YEAR
                                                              --------------------
                                                              1996    1995    1994
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Sales to Brokerage..........................................  $23     $37     $263
                                                              ===     ===     ====
</TABLE>
 
     Ball Ground received commissions of approximately $156,000, $255,000, and
$328,000 on the Company's purchases of certain merchandise for its distribution
business during fiscal years 1996, 1995, and 1994, respectively. These
commissions generally average 4% of dollar purchases.
 
     In early 1992, the Company's chairman granted an option to an officer of
the Company to purchase 97,500 shares of the Company's common stock owned by the
chairman for $1.21 per share. The officer resigned in early 1995. During March
1995 and April 1996, the chairman purchased option rights covering 33,000 and
45,000 shares under this option agreement for approximately $150,000 and
$54,800, respectively. As a result, 19,500 shares remain outstanding under this
option agreement. The remaining option is currently exercisable and expires on
March 1, 2002.
 
11.  EMPLOYEE INCENTIVE PLAN AND OUTSIDE DIRECTORS INCENTIVE PLAN
 
     The Company has established the L.A. T Sportswear, Inc. 1993 Employee
Incentive Plan (the "Incentive Plan"). Awards under this plan may be represented
by (i) incentive or nonqualified stock options, (ii) stock appreciation rights,
(iii) restricted stock, or (iv) performance awards of stock, cash or a
combination of stock and cash. Stock options granted under the Incentive Plan
are nontransferable, have an exercise price of not less than 100% of the fair
market value of the stock on the date of the grant, and may have a term of no
longer than ten years. The Company has reserved 475,000 shares of common stock
for issuance under the Incentive Plan.
 
     During 1994, the Company approved an Outside Directors Incentive Plan and
reserved 40,000 shares for plan issuances. As of December 28, 1996, 12,000
options were granted under this plan.
 
     Activity for stock options under the Incentive Plan and Outside Directors
Incentive Plan is as follows:
 
<TABLE>
<CAPTION>
                                          1996                 1995                 1994
                                   ------------------   ------------------   ------------------
                                             WEIGHTED             WEIGHTED             WEIGHTED
                                             AVERAGE              AVERAGE              AVERAGE
                                             EXERCISE             EXERCISE             EXERCISE
                                   SHARES     PRICE     SHARES     PRICE     SHARES     PRICE
                                   -------   --------   -------   --------   -------   --------
<S>                                <C>       <C>        <C>       <C>        <C>       <C>
Options outstanding, beginning
  of year........................   95,800    $10.00    170,750    $10.00
Grants...........................  343,000      1.76                         184,750    $10.00
Forfeitures......................  (55,850)    10.00    (74,950)    10.00    (14,000)    10.00
                                   -------              -------              -------
Options outstanding, end of
  year...........................  382,950      2.62     95,800     10.00    170,750     10.00
                                   =======              =======              =======
Options exercisable, end of
  year...........................   22,450     10.00     46,800     10.00         --
                                   =======              =======              =======
</TABLE>
 
     The options issued under the Incentive Plan and the Outside Directors
Incentive Plan have a vesting period of three to five years. The Company applies
Accounting Principle Board Opinion 25 and related interpretations in accounting
for these plans. Accordingly, no compensation costs have been recognized for
these plans.
 
     Had compensation cost for the Company's plans been determined based on the
fair value at the grant dates for awards under that plan consistent with the
method of FASB Statement 123, "Accounting for Stock-Based
 
                                       26
<PAGE>   28
 
                            L.A. T SPORTSWEAR, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
Compensation," the Company's net loss and net loss per share for the year ended
December 28, 1996 would have increased to the pro forma amounts indicated below:
 
<TABLE>
<S>                                                           <C>
Net loss (in thousands):
  As reported...............................................  $(2,664)
                                                              =======
  Pro forma.................................................  $(2,797)
                                                              =======
Net loss per share:
  As reported...............................................  $ (0.63)
                                                              =======
  Pro forma.................................................  $ (0.67)
                                                              =======
</TABLE>
 
     The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model using the assumption of (i) a
weighted average risk-free interest rate of 5.9%, (ii) expected lives of five to
ten years, (iii) expected volatility of approximately 48%, and (iv) no expected
dividends. The weighted average fair value of options granted in 1996 at their
grant date was $1.14 per option.
 
     The following table summarizes information about stock options outstanding
at December 28, 1996:
 
<TABLE>
<CAPTION>
                                                                       AVERAGE
                       EXERCISE                           OPTIONS     REMAINING     OPTIONS
                        PRICE                           OUTSTANDING     LIFE      EXERCISABLE
------------------------------------------------------  -----------   ---------   -----------
<S>                                                     <C>           <C>         <C>
$10.000...............................................     39,950       7.08        22,450
  2.375...............................................    200,000       8.84            --
  1.563...............................................     25,000       9.50            --
  0.750...............................................    118,000       9.67            --
                                                          -------                   ------
                                                          382,950                   22,450
                                                          =======                   ======
</TABLE>
 
12.  LITIGATION
 
     The Company, including certain of its officers and directors, were
defendants in two purported class action suits concerning certain alleged
omissions in its January 1994 public offering documents. One of these suits was
dismissed in August 1996 and the remaining suit was settled (with deminimus
effect to the Company) on March 24, 1997.
 
                                       27
<PAGE>   29
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
     There has been no occurrence requiring a response to this item.
 
                                    PART III
 
     Except as to information with respect to executive officers which is
contained in a separate heading under Item 1 to this Form 10-K, the information
required by Part III of Form 10-K is, pursuant to General Instruction G(3) of
Form 10-K, incorporated by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A for the Company's Annual
Meeting of Stockholders to be held in 1997 (the "Proxy Statement"). The Company
will, within 120 days of the end of its fiscal year, file with the Securities
and Exchange Commission a definitive proxy statement pursuant to Regulation 14A.
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information concerning directors and executive officers of the
Registrant is set forth in the Proxy Statement under the headings "Election of
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934," which information is incorporated herein by reference. The name, age and
position of each executive officer of the Company is set forth under the heading
"Executive Officers" in Item 1 of this Report.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management," which information is
incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information concerning certain relationships and related transactions
is set forth in the Proxy Statement under the headings "Certain Transactions"
and "Compensation Committee Interlocks and Insider Participation," which
information is incorporated herein by reference.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a)(1) Financial Statements and Auditors' Report
 
     The following financial statements and auditors' report are included in
Item 8 of this Report:
 
          Report of Independent Auditors
 
          Balance Sheets as of December 28, 1996 and December 30, 1995
 
          Statements of Operations for fiscal years ended December 28, 1996,
     December 30, 1995 and December 31, 1994
 
          Statements of Cash Flows for fiscal years ended December 28, 1996,
     December 30, 1995 and December 31, 1994
 
          Statements of Stockholders' Equity for fiscal years ended December 28,
     1996, December 30, 1995 and December 31, 1994
 
                                       28
<PAGE>   30
 
          Notes to Financial Statements
 
     (2) Financial Statement Schedule
 
     All financial statement schedules of the Registrant have been omitted as
the required information is inapplicable or the information is presented in the
financial statements or related notes.
 
     (3) Exhibits
 
     The exhibits listed below are filed with or incorporated by reference into
this Report. The exhibits which are denominated with an asterisk (*) were
previously filed as part of, and are hereby incorporated by reference from
either (i) the Company's Registration Statement on Form S-1, Registration Number
33-60452, declared effective by the Securities and Exchange Commission on
January 25, 1994 (the "S-1"); (ii) the Company's Quarterly Report on Form 10-Q
for the quarter ended October 1, 1994 (the "10/1/94 10-Q"); (iii) the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the
"1994 10-K"); (iv) the Company's Quarterly Report on Form 10-Q for the quarter
ended April 1, 1995 (the "4/1/95 10-Q"); or (v) the Company's Quarterly Report
on Form 10-Q for the quarter ended March 30, 1996 (the "3/30/96 10-Q"). Unless
otherwise indicated, the exhibit number corresponds to the exhibit number in the
referenced document.
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                            DESCRIPTION OF EXHIBIT
--------                           ----------------------
<S>        <C>  <C>
*2         --   Form of Agreement and Plan of Merger of The Connection
                Group, Inc. and SPZ, Inc., which includes Form of Amended
                and Restated Articles of Incorporation of L.A. T Sportswear,
                Inc. (S-1)
*3(i)      --   Form of Amended and Restated Articles of Incorporation of
                L.A. T Sportswear, Inc. (included in Exhibit 2) (S-1)
*3(ii)     --   Form of Amended and Restated Bylaws of L.A. T Sportswear,
                Inc. (S-1)
*4         --   Specimen Certificate of Common Stock (S-1)
*10.1      --   1993 Employee Incentive Plan (S-1)
*10.10     --   Business Installment Note payable by The Connection Group,
                Inc. to Bank of Canton dated October 21, 1992 (S-1)
*10.15     --   Lease Agreement dated February 1, 1993 between The
                Connection Group, Inc. and The Development Authority of
                Crawford County (S-1)
*10.16     --   Lease Agreement dated October 22, 1993 between SPZ, Inc. and
                Security Capital Industrial Trust (S-1)
*10.28     --   Lease Agreement dated August 26, 1994 between Sunbeam
                Properties, Inc. and the Registrant (10/1/94 10-Q)
*10.30     --   Outside Directors Incentive Plan (1994 10-K)
*10.32     --   Lease Agreement dated October 17, 1994 between the
                Registrant and John W. Rooker (1994 10-K)
*10.33     --   Lease Agreement dated December 26, 1994 between the
                Registrant and Alfred J. Fleischer (1994 10-K)
*10.34     --   Lease Agreement dated January 12, 1995 between the
                Registrant and Manchester Progress Development Corporation
                (1994 10-K)
*10.35     --   Lease Agreement dated January 23, 1995 between the
                Registrant and TCW Realty Fund VA Holding Company, a
                California corporation and TCW Realty Fund VB, a California
                Limited Partnership, as Tenants in Common (1994 10-K)
*10.36     --   Lease Agreement, dated April 11, 1995, between the Company
                and The Joseph Naiman Insurance Trust, as amended by First
                Amendment to Lease dated April 11, 1995 (4/1/95 10-Q)
*10.39     --   Employment Agreement dated January 25, 1996 between the
                Company and Robert C. Aldworth (3/30/96 10-Q)
*10.40     --   Loan and Security Agreement, dated April 29, 1996, by and
                among the Company, Mellon Bank, N.A., as Agent, and Mellon
                Bank, N.A., as Lender (3/30/96 10-Q)
 10.40.1   --   First Amendment to Loan and Security Agreement, dated
                November 11, 1996, by and between the Company and Mellon
                Bank, N.A.
</TABLE>
 
                                       29
<PAGE>   31
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                            DESCRIPTION OF EXHIBIT
--------                           ----------------------
<S>        <C>  <C>
 10.40.2   --   Second Amendment to Loan and Security Agreement, dated March
                21, 1997, by and between the Company and Mellon Bank, N.A.
 23.1      --   Consent of Deloitte & Touche, LLP
 27        --   Financial Data Schedule (for SEC use only)
</TABLE>
 
     (b) Reports on Form 8-K.
 
     No reports on Form 8-K were filed during the fourth quarter ended December
28, 1996.
 
                                       30
<PAGE>   32
 
                                   SIGNATURES
 
     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.
 
<TABLE>
<S>                                                       <C>
                                                                         L.A. T SPORTSWEAR, INC.
 
Dated: March 19, 1997                                                   By: /s/ ISADOR E. MITZNER
                                                            -------------------------------------------------
                                                                            Isador E. Mitzner
                                                                        Chairman of the Board and
                                                                         Chief Executive Officer
                                                                      (principal executive officer)
 
Dated: March 19, 1997                                                  By: /s/ ROBERT C. ALDWORTH
                                                            -------------------------------------------------
                                                                           Robert C. Aldworth
                                                                         Chief Operating Officer
                                                           (acting principal financial and accounting officer)
</TABLE>
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
 
<TABLE>
<S>                                                       <C>
March 19, 1997                                                          By: /s/ ISADOR E. MITZNER
                                                            -------------------------------------------------
                                                                           Isador E. Mitzner,
                                                            Chairman of the Board and Chief Executive Officer
 
March 19, 1997                                                           By: /s/ J. DAVID KELLER
                                                            -------------------------------------------------
                                                                            J. David Keller,
                                                                    President, Secretary and Director
 
March 19, 1997                                                        By: /s/ KENNETH L. BERNHARDT
                                                            -------------------------------------------------
                                                                          Kenneth L. Bernhardt,
                                                                                Director
 
March 19, 1997                                                          By: /s/ IRWIN LOWENSTEIN
                                                            -------------------------------------------------
                                                                            Irwin Lowenstein,
                                                                                Director
 
March 19, 1997                                                         By: /s/ A. GORDON TUNSTALL
                                                            -------------------------------------------------
                                                                           A. Gordon Tunstall,
                                                                                Director
</TABLE>
<PAGE>   33
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT                                                                      SEQUENTIAL
NUMBER                                 DESCRIPTION                           PAGE NUMBER
-------                                -----------                           -----------
<S>       <C>  <C>                                                           <C>
10.40.1    --  First Amendment to Loan and Security Agreement dated as of
               November 11, 1996 by and between the Registrant and Mellon
               Bank, N.A...................................................
10.40.2    --  Second Amendment to Loan and Security Agreement dated as of
               March 21, 1997 by and between the Registrant and Mellon
               Bank, N.A...................................................
23.1       --  Consent of Deloitte & Touche LLP............................
27         --  Financial Data Schedule (for SEC use only)
</TABLE>