SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)

      [X]   Annual report under Section 13 or 15(d) of the  Securities  Exchange
            Act of 1934 For the fiscal year ended February 27, 2000

      [ ]   Transition  report  under  Section 13 or 15(d) of the Securities
            Exchange Act of 1934 For the transition period from ______ to ______

                          Commission File Number 1-8509

                           Nantucket Industries, Inc.
                 (Name of Small Business Issuer in Its Charter)

            Delaware                                    58-0962699
 (State or Other Jurisdiction of                     (I.R.S. Employer
  Incorporation or Organization)                    Identification No.)

       73 Fifth Avenue, Suite 6A
           New York, New York                             10003
(Address of Principal Executive Offices)                (Zip Code)

                                 (917) 853-0475
                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                                          Name of Each Exchange
  Title of Each Class                                      on Which Registered
  -------------------                                     ---------------------

         NONE                                                      NONE

         Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $0.10 Par Value

      Check  whether the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the Exchange  Act during the  preceding 12 months (or for
such shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  contained in this form,  and if no  disclosure  will be
contained,  to the  best of the  Company'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]

                          $57,594 (as of June 27, 2000)
                (Aggregate market value of the voting stock held
                        by non-affiliates of the Issuer)

                         3,238,796 (as of June 27, 2000)
 (Number of shares outstanding of each of the Issuer's classes of common stock,


<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE
                                   into Part I

     Annual Report On Form 10-K for the Fiscal Year Ended February 27, 1999


                                       2
<PAGE>

ITEM 1. BUSINESS

Proposed Reorganization

      Nantucket Industries,  Inc. (the "Company") is currently insolvent. It has
had no business and carried on no business  activities  since  October  1999. On
March 3, 2000,  the Company filed a Voluntary  Petition  under Chapter 11 of the
United  States  Bankruptcy  Code in the U.S.  Bankruptcy  Court for the Southern
District of New York. (Case Name: Nantucket Industries,  Inc., Case Number: 00-B
10867).  The Company intends to file a Plan of  Reorganization  and a Disclosure
Statement in July, 2000.

      The goal of the projected  reorganization will be for the Company and each
of its  subsidiaries  to be merged with, or to acquire the assets or the capital
stock of, existing businesses,  or to effect similar business  combinations.  No
assurance  can be given that this goal will be  achieved.  Management  will have
sole  discretion  to  determine  which  businesses,  if any,  may be  merged  or
acquired,  as well as the  terms  of any  merger  or  acquisition.  The  Plan of
Reorganization  and the Disclosure  Statement,  which Management intends to file
with the Bankruptcy Court, will propose that the Company acquire,  in a "reverse
acquisition",  Accutone Inc., a Delaware Corporation  ("Accutone") controlled by
John H. Treglia,  the Company's current president.  In a "reverse  acquisition",
the shareholders of the company which is acquired (in this case,  Accutone) will
end up owning the  preponderance of the issued and outstanding  capital stock of
the company which was the acquirer (in this case, Nantucket  Industries,  Inc.).
Before it can be put into effect, the proposed Plan of Reorganization  will have
to be approved by the Company's  creditors,  confirmed by the Bankruptcy  Court,
and not  objected  to after  the fact by the  court  appointed  Trustee  for the
Creditors.  Management  is  completely  unable to predict or to even  venture an
opinion as to whether all such  required  approvals  and  confirmations  will be
forthcoming.  As a result, no prediction can be made with respect to whether the
reverse  acquisition  of  Accutone by the  Company  will ever take place.  If it
should occur,  such  acquisition   would not be considered to be an arm's length
transaction. While any transaction between the Company and any of its affiliates
could  present  management  with a conflict of interest,  it is the intention of
management that if such  transaction  should occur, the terms thereof will be no
less  beneficial  to the Company than if such  transactions  were effected on an
arms  length  basis.  If the  Plan of  Reorganization  is not  confirmed  by the
Bankruptcy  Court,  or if  it  is  confirmed  but  management  is  not  able  to
successfully complete a merger or acquisition, the Company will cease to exist.

      The proposed  reorganization  of the Company and its  subsidiaries and the
acquisition  of or merger  with a new  business  can be  expected to require the
issuance  of a  substantial  amount  of new  shares  of  common  stock  or other
securities. Any such stock issuances will significantly reduce the proportionate
ownership and voting power of each other shareholder.

History

      Until the end of October 1999, when the Company  discontinued all business
activities,   it  produced  and  distributed   popular  priced  branded  fashion
undergarments for sale,  throughout the United States, to mass merchandisers and
national  chains.  The Company  produced and sold its men's  underwear  products
primarily  under licensed  labels  including  "Brittania" and "Arrow" and, until
March 31, 1998, the Company also produced  women's  innerwear,  under the GUESS?
label,  for sale to department and specialty  stores.  Prior to the cessation of
all business  activities,  all of the Company's  products were  manufactured  by
offshore  production  contractors  located  in  Mexico,


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<PAGE>

the  Far  East  and the  Caribbean  Basin.  Packaging  and  distribution  of the
Company's  product  lines  was based in its  leased  facility  in  Cartersville,
Georgia.  The Company  conducted all of its business  activities  directly,  and
indirectly  through its four subsidiary  corporations,  Nantucket  Hosiery Mills
Inc.,  a  Delaware  corporation  ("NHMI"),  Nantucket  Mills  Inc.,  a  Delaware
corporation,   Nantucket  Hosiery  Mills  Corp.  a  North  Carolina  corporation
("NHMC"),  and Nantucket  Management Corp., a New York corporation.  In February
2000, in order to position itself most beneficially for the projected Chapter 11
reorganization,  the Company reinstated two of its four  subsidiaries,  NHMI and
NHMC.  For a  discussion  in  more  detail  of  the  Company's  former  business
operations and the factors leading to the termination of the Company's business,
reference  is made to Item 1 of Part I of the  Company's  annual  report on Form
10-K for the fiscal year ended February 27, 1999.

Termination of Operations

      The Company experienced significant losses from operations in recent years
which resulted in severe cash flow deficits that negatively impacted the ability
of the Company to continue its business as formerly  structured.  During  fiscal
2000,  the effect of sharply  decreasing  revenues over the previous four years,
continuing  losses from  operations,  interest  payment  defaults on outstanding
debt, the lack of a long-term credit facility,  and the  concentration of almost
all sales among only three  customers  forced the Company to discontinue  all of
its business and  operations.  Prior to the periods  covered by this report,  in
fiscal 1995 and 1996, the Company had funded its  operations by refinancing  its
debt and increasing its capital through (i) the sale of $1 million of non-voting
convertible preferred stock to management; (ii) the sale of treasury stock which
increased  equity by $2.9  million;  and (iii) the  completion of a $3.5 million
private placement (see the discussion, below, under the subcaption,  "Continuing
Default  on  Outstanding  Debentures").  The  Company  had  also  implemented  a
restructuring  strategy  aimed  at  improving  operating  results,  through  the
reduction  of costs,  the  streamlining  of  operations,  and the closing of the
Company's  Puerto  Rico  plant.  These  efforts  failed to bring  the  Company's
operations  to a profitable  level.  Some of the major  factors and  occurrences
which led to the Company's  insolvency and the termination of its operations are
described  below.  For a  discussion  in more  detail  of  each  of the  matters
discussed  below,  reference is made to the Company's annual report on Form 10-K
for the  fiscal  year  ended  February  27,  1999  and to  Item 7  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations",
included in this Report.

Discontinuance of GUESS? Product Line

      From  December  7, 1992 until the first  quarter of the fiscal  year ended
February  27, 1999,  the Company  held the  exclusive  United  States  rights to
produce and sell  undergarments  bearing the "GUESS?"  trademark and  variations
thereof.  The license  was subject to  termination  prior to its  expiration  if
certain minimum sales goals were not met, with the payment of minimum  royalties
required in the amounts of  $560,000,  $700,000  and  $840,000  for the contract
years ended May 31, 1997, 1998 and 1999  respectively.  Minimum sales goals were
never achieved


                                       4
<PAGE>

under this license.  During the term of this  license,  the Company did not have
the capital resources  necessary to develop and support the GUESS?  product line
at the levels required in the licensing agreement.  Therefore, the Company, with
the support of the licensor,  GUESS?  Inc.,  initiated a strategy to discontinue
the GUESS?  product line, which was finally and completely  discontinued  during
the first quarter of fiscal year 1999.

Termination of "Arrow" License

      Pursuant to an agreement,  dated October 5, 1992,  with Cluett,  Peabody &
Co.,  Inc.,  the Company held the  exclusive  United  States  rights (the "Arrow
License") to produce and sell mens' and boys' fashion  underwear,  T-shirts,  V-
neck shirts,  tank tops,  briefs and boxer shorts bearing the "ARROW"  trademark
during the period commencing January 1, 1993 and expiring, as extended, December
31, 1999. The terms of the Arrow License required that the Company pay a minimum
royalty of $162,500 for each annual period through December 31, 1996, increasing
to $250,000 for each annual  period from  January 1, 1997  through  December 31,
1999. The Company began shipping  product under this trademark  during the first
quarter of fiscal 1994. Net sales under this license were $4.4 million in fiscal
1999,  $4.8 million in fiscal 1998 and $5.7 million in fiscal 1997.  Because the
Company  was unable to meet the minimum  sales  volume  requirements  called for
under the Arrow License,  as of March 12, 1999, the Company reached an agreement
with the licensor to terminate the Arrow License.

Failure to Meet Minimum Sales Requirements Under "Botany 500" License

      On December 21, 1992, the Company  obtained from the McGregor  Corporation
the  exclusive  United  States  rights (the "Botany 500 License") to produce and
sell mens' and boys'  fashion  knit  underwear  briefs  bearing the "BOTANY 500"
trademark during the period commencing on January 1, 1993 and expiring, pursuant
to an extension,  December 31, 2001.  Under the terms of the license  agreement,
the McGregor Corporation had the right to terminate the Botany 500 License prior
to its  expiration if certain  minimum  sales goals were not met.  Minimum sales
levels required under the Botany 500 License for calendar 1996 were $750,000 and
$1 million for each calendar year thereafter. The Company was never able to meet
the minimum sales requirements under the Botany 500 License with net sales under
the  license  for fiscal  1997  (which  included  most of  calendar  1996) being
$652,000 and $225,000 for fiscal 1998 (which  included  most of calendar  1997).
After  fiscal  1998,  the  Company  ceased all  operations  under the Botany 500
License.

Termination of Levi Strauss/Brittania Operations

      Commencing in September  1988, the Company held a license (the  "Brittania
License")  from  Brittania  Sportswear  Ltd.  ("Brittania").  Levi Strauss & Co.
("Levi  Strauss")  was the parent  company  of  Brittania.  Under the  Brittania
License, the Company had the right to manufacture


                                       5
<PAGE>

and market men's  underwear and other  products  under the trademark  "Brittania
from Levi Strauss & Co".  Sales under the  Brittania  License  aggregated  $14.9
million in fiscal 1997 and $4.5  million in fiscal 1998,  accounting  for 49% of
the Company's  fiscal 1997 sales,  and 21% of the  Company's  fiscal 1998 sales.
During the fiscal year ended  February 27, 1999, the Company made no sales under
the Brittania  License.  As of January 1, 1997,  the Brittania  License had been
renewed  for a  five-year  term,  including  automatic  renewals of two years if
certain minimum sales levels were achieved. However, on January 22, 1997, Levi's
announced  its intention to sell  Brittania.  As a result of the action taken by
Levi  Strauss,  K-Mart,  the largest  retailer of the Brittania  brand,  and the
Company's  largest  customer  (accounting  for  sales of  Brittania  product  of
approximately  $11  million in fiscal  year 1997,  and $3 million in fiscal year
1998),  advised the Company that it would no longer  continue its  commitment to
carry the Brittania  trademark.  In response,  the Company filed a multi-million
lawsuit  against  Levi  Strauss  and  Brittania  in March  1997,  alleging  that
Brittania had breached various  obligations under its license agreement with the
Company,  including  without  limitation  it's  covenant  of good faith and fair
dealing.  This litigation was settled in June 1998,  with the Company  realizing
approximately $725,000 from such settlement.

Loss of Revolving Credit Line

      The Company had a fifteen  million dollar  revolving  credit facility with
Congress  Financial Corp.  ("Congress").  This facility  provided for: (i) loans
based upon eligible accounts receivable and inventory;  (ii) a $3,000,000 letter
of credit  facility;  and (iii)  purchase  money  term loans of up to 75% of the
orderly liquidation value of newly acquired and eligible  equipment.  Borrowings
bore  interest at 2-3/4% above prime.  The  Company's  agreement  with  Congress
required,  among other things, that the Company maintain minimum working capital
and net worth levels.  Borrowings under the agreement were  collateralized  by a
lien on substantially all of the assets of the Company.  As at February 27, 1999
the  Company  was not in  compliance  with the net  worth  and  working  capital
covenants  and the  facility  could no longer be utilized.  It was  subsequently
terminated  on  October  15,  1999.  Because  of its poor  financial  status and
outlook, the Company was not able to replace the Congress credit facility.

Continuing Default on Outstanding Debentures

      On August 15, 1996, the Company completed a $3.5 million private placement
with NAN Investors, L.P., an investment partnership ("NAN Investors").  Terms of
this transaction included the issuance of 250,000 shares of the Company's common
stock and two  convertible  subordinated  debentures in the aggregate  principal
amount of $2,760,000  (the "NAN  Debenture") The NAN Debentures bore interest at
an annual rate of 12.5%,  payable  semi-annually,  with the principal amount due
and payable on August 15, 2001.  Although the NAN  Debentures  were  convertible
into the Company's common stock, NAN Investors  eventually waived all conversion
rights.


                                       6
<PAGE>

      Beginning in August 1997, the Company was in default on interest  payments
due  under the NAN  Debentures.  The NAN  Debentures  were  secured  by a second
mortgage on the Company's  manufacturing  and  distribution  facility located in
Cartersville,  Georgia.  This  property was sold on October 1, 1997.  To release
NAN's  security  interest  in the  property  and to extend the cure  period with
respect to a  $172,500  interest  payment  default  on the NAN  Debentures,  the
Company  prepaid  $707,000 of the principal  amount of the Nan Debentures plus a
$176,000 prepayment penalty.(1) In connection therewith,  in September 1997, the
Company entered into an agreement with NAN Investors (the "First NAN Forbearance
Agreement")  providing  for the  extension of the cure period for the default on
the interest payments. The First NAN Forbearance Agreement was extended month by
month  until  May  1998,  at  which  time,  the  Company  entered  into  another
forbearance   agreement  with  NAN  Investors   (the  "Second  NAN   Forbearance
Agreement")  to extend,  until  December  1998,  the cure  period  for  interest
payments then in default (totalling  $322,551) as well as the interest payments,
which were to fall due in August and December  1998. In  consideration  for such
extension,  the Company  agreed to secure the NAN Debentures by a first priority
lien on all the assets of the  Company,  both  tangible and  intangible,  to the
extent not otherwise prohibited under the Congress revolving credit facility and
to  issue  to  NAN  Investors  five-year  warrants  convertible  to a  total  of
16,500,000 shares of the Company's stock at an exercise price of $.10 per share.
Thereafter,  the Company  remained in default on all  interest  payments as they
fell due.  There was no  forbearance  agreement in effect for interest  payments
which fell due  subsequent to December 1998 and, as at February  1999,  interest
payments  in  default  under  the  NAN  Debentures  totalled  $2,052,986.  As  a
consequence of such default,  in accordance with their rights under the terms of
the NAN Security  Agreement,  Nan Investors took possession of all assets of the
Company, which consisted principally of inventory having a value of $430,000 and
outstanding  accounts  receivable  in an amount of  approximately  $500,000.  On
October 12, 1999,  the inventory  was sold by NAN  Investors to American  Basics
Company  LLC.  a third  party  which was  unaffiliated  with the  Company or any
affiliate of the Company or of NAN Investors. The proceeds of the inventory sale
and the  accounts  receivable  have been  applied by NAN  Investors  towards the
Company's  outstanding  debt. As at May 31, 2000,  the remaining debt to Nan was
approximately $820,000.


Termination of All Operations

      In the years  preceding the  termination  of  operations,  the Company had
experienced  difficulty  in filling all of its  orders,  caused in large part by
recurring  cash  shortages,  the expiration of its financing  arrangements  with
Congress (and before that with Chemical Bank), and the failure to

----------
      (1)  Total  proceeds  from  the  sale of the  Cartersville  facility  were
$2,850,000.  In  addition  to the  $883,000  paid to NAN  Investors  by way of a
$707,000 prepayment of principal and a $176,000 prepayment penalty,  the Company
used $525,000 to pay other  financing  secured by this  property.  The remaining
proceeds  were  utilized  to reduce the  Company's  revolving  credit  line with
Congress.


                                       7
<PAGE>

obtain the investment  necessary to support and develop the GUESS? product line.
The Company had  previously  addressed its  liquidity  issues by the infusion of
debt and equity  financing,  including  (i) a  refinancing  in March 1994;  (ii)
additional  equity of $3.9 million  raised in fiscal 1995;  (iii) a $3.5 million
private  placement  completed in August 1996; and (iv) by the reduction in costs
associated with the  consolidation and restructuring of the operations in fiscal
1998 and 1999, and the attempt to more effectively  manage working capital.  All
of these efforts,  however, failed to keep the Company solvent and with the loss
of the Brittania  License,  continuing losses from operations,  interest payment
defaults,  and the lack of any  credit  facilities,  the  Company  was forced to
discontinue all business operations by the end of October 1999.

Products and Sales

      Since the  termination of all business  operations in October of 1999, the
Company has not produced  any  products or made any sales of any kind.  Prior to
that time,  the Company  manufactured  and sold men's fashion  underwear to mass
merchandisers and, in the case of the GUESS? division,  ladies' undergarments to
better  department  and specialty  stores,  primarily  through direct contact by
salaried and commissioned Company sales personnel. For a discussion in detail of
the Company's former products, sales, and operations,  reference is made to Item
1 of Part I of the  Company's  annual  report on Form 10-K for the  fiscal  year
ended  February 27, 1999.  With respect to results of operations  for the fiscal
year ended February 27, 2000 prior to the cessation of operations,  reference is
made  to  Item 7 of  this  Report,  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations.

Customers

      Until the Company ceased operations in October 1999, two of its customers,
Target Stores Inc. and Sears each  accounted  for more than 10% of  consolidated
net sales  during the fiscal years ended  February 27, 2000 and 1999.  These two
customers,  as well as K-Mart, each accounted for more than 10% of the Company's
consolidated net sales during fiscal 1998.

Delivery Requirements

      Until the Company ceased  operations in October 1999, all purchase  orders
were taken for current delivery and the Company had no long-term sales contracts
with any  customer,  or any contract  entitling  the Company to be the exclusive
supplier of merchandise to a retailer or distributor.


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<PAGE>

Backlog

      After the termination of the Guess?  license,  the Company did not, in the
normal course of its business,  carry any  significant  backlog.  Orders for the
Company's two major  customers  were received the same week as the expected ship
date.  When the Company ceased doing business in October 1999, it had no backlog
of orders.  At the end of the most recent prior fiscal year (year ended February
27, 1999),  its backlog was an immaterial  amount,  as compared to $1 million at
the end of February 1998.

Competition

      Until the  Company  ceased  operations,  all of its  markets  were  highly
competitive.  For a more detailed description of the competitive  environment in
which the Company  operated and the bases on which it  endeavored  to compete in
such environment,  reference is made to the subtopic  "Competition" in Item 1 of
Part I of the  Company's  annual  report on Form 10-K for the fiscal  year ended
February 27, 1999.

Patents

      The Company has developed and patented  packaging  suitable for its former
products.  With the termination of the Company's operations in October 1999, the
Company was no longer in a position  to use its  patented  packaging  in its own
business.  Present  management  has  explored  the  possibility  of  selling  or
licensing the right to exploit the Company's packaging patents,  but to date has
met with only negative  responses  because of the wide  availability  of similar
types of packaging products.


Environmental Matters

      Until it ceased  operations in October 1999,  the Company's  packaging and
distribution facility was located in Cartersville, GA. The Company believes that
such facility materially conformed to all governmental regulations pertaining to
environmental quality as then promulgated.


Employees

      Since the  termination  of its  operations in October of 1999, the Company
has had no employees other than its president,  John H. Treglia and Marsha Ellis
its Treasurer and Chief Associate  Officer.  Both such officers devote such time
to the affairs of the Company as is required for the perforance of their duties.
None of the Company's  former  employees  were covered by collective  bargaining
agreements.  The  Company  never  experienced  a  work  stoppage  due  to  labor
difficulties  and its former  management  believed that the  relationship of the
Company  with its  employees  were  satisfactory.  (See Item 13 of this  Report,
Certain Relationships and Related Transactions.)


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<PAGE>

ITEM 2. PROPERTIES

      Since the termination of its business operations,  the Company's principal
headquarters  have been  located  at the  offices  of an  unaffiliated  company,
located at 73 Fifth Avenue,  Suite 6A, New York, NY 10003.  The Company utilizes
desk space and certain office personnel  services on these premises,  on a month
to month basis for a nominal fee.

      Until  October 1999 the  Company's  executive  offices were located at 510
Broadhollow  Road,  Melville,  New York. The Company  occupied 2,000 square feet
under a lease which was scheduled to expire July 31, 2002.  This lease  provided
for aggregate  rentals which  increased 4% annually from $46,000 to $52,000 plus
increases for certain taxes and energy costs. The Company  terminated this lease
agreement  effective  September  30, 1999 without  incurring any  penalties.  No
monies are owed in respect of this lease.

      Until  October  31,  1999,  the  Company  occupied  a 71,000  square  foot
manufacturing  and distribution  facility in Cartersville,  Georgia under a five
year lease. This facility was located at 435 Industrial Park Road, Cartersville,
Georgia.  The initial annual rental was $188,148,  subject to increases based on
an  established  formula  over the five year lease term which was  scheduled  to
expire on December 31, 2002.  The Company was notified on December 17, 1999 that
the premises were  considered  abandoned and that in accordance with sections 20
and 21 of the lease the lease was  terminated  effective  that date. To date, no
claims  have been filed  against the  Company in respect of this  property.  The
leased Cartersville  facility was used for the packaging and distribution of the
Company's products.

ITEM 3. LEGAL PROCEEDINGS

      Management is unaware of any pending or threatened  legal  proceedings  to
which the  Company is a party or of which any of its assets is the  subject.  No
director, officer, or affiliate of the Company, or any associate of any of them,
is a party  to or has a  material  interest  in any  proceeding  adverse  to the
Company,  except that George  Gold,  a director  of the  Company,  is a creditor
included in the Chapter 11 proceedings initiated by the Company.

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

      During the year ended  February  27,  2000 the  Company did not submit any
matters to a vote of its shareholders.


                                       10
<PAGE>

                                     PART II

ITEM 5. MARKET FOR THE  REGISTRANT'S  COMMON STOCK AND RELATED  SECURITY  HOLDER
        MATTERS

      The Company's  Common Stock,  $. 10 par value,  was traded on the American
Stock Exchange under the symbol "NAN" until April 17, 1998.  Because the Company
had fallen below  American  Stock  Exchange  guidelines  for continued  listing,
effective  April 17, 1998 the  Company's  Stock was  delisted.  It is  currently
traded in the over-the-counter  market and quoted on the OTC Electronic Bulletin
Board maintained by the National  Association of Securities  Dealers,  Inc. (the
"OTC Bulletin Board").  The stock was quoted on the OTC Bulletin Board under the
symbol NANK until March 3, 2000,  when the  Company  filed a Voluntary  Petition
under Chapter 11 of the  Bankruptcy  Code in the U.S.  Bankruptcy  Court for the
Southern District of New York. After that date, the Company's OTC Bulletin Board
Symbol was changed to, NANKQ,  which is its current symbol.  The following table
sets forth  representative  high and low bid prices by calendar  quarters during
the last two fiscal  years and the  subsequent  interim  period  through May 31,
2000,  as traded on the  American  Stock  Exchange  until  April 17, 1998 and as
reported in the OTC Bulletin  Board since May 21, 1998.  The level of trading in
the  Company's  common  stock has been  sporadic  and limited and the bid prices
reported may not be indicative of the value of the common stock or the existence
of an active  market.  The OTC market  quotations  reflect  inter-dealer  prices
without  retail  markup,  markdown,  or other fees or  commissions,  and may not
necessarily represent actual transactions.

                                                               Bid Prices
            Period                                            Common Stock
            ------                                            ------------

      Fiscal Year Ended February 27, 1999                   Low         High
                                                            ---         ----

               May 31, 1998                                $0.19       $0.45
               August 31, 1998                              0.13        0.44
               November 30, 1998                            0.23        0.58
               February 27, 1999                            0.18        0.44

      Fiscal Year Ended February 27, 2000                   Low         High
                                                            ---         ----

               May 31, 1999                                $0.03         .08
               August 31, 1999                              0.02        .625
               November 30, 1999                            0.02        .625
               February 27, 2000                            0.01        0.11

      Fiscal Year Ending February 28, 2001

               May 31, 2000                              $0.0625       $0.10


                                       11
<PAGE>

      As of May 19, 2000, the Company's Common Stock was held by approximately
262 holders of record and approximately 1,100 beneficial owners.

      The Company has never paid any cash dividends on its Common Stock, and has
no present intention of so doing in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

      The following table sets forth selected consolidated financial information
with respect to the Company and its subsidiaries for the five fiscal years ended
February 27, 2000.

      The  information  set  forth  below  should  be read in  conjunction  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operation"  and  in  conjunction  with  the  Company's   Consolidated  Financial
Statements and notes thereto appearing elsewhere in this Report.

<TABLE>
<CAPTION>

                                              For Fiscal Year Ended
                                              ---------------------
                                     (In thousands, except per share amounts)

                                  Feb 27         Feb 27          Feb 28           Mar 1          Mar 2
                                   2000           1999            1998             1997           1996
<S>                               <C>            <C>            <C>               <C>           <C>
Summary Statements
------------------
of Operations
-------------

Net sales                         $5,344         $11,518         $21,683          $35,394       $35,060

Gross Profit                       1,625           2,410           3,102            5,999         8,328

Net (loss) gain
  sale of asset                     (539)            (15)            712               --            --

Net gain sale of asset                --             712              --               --            --

Unusual Credit
(Charge)                              --              --              --               --           300

Net Income (loss)                  1,409             937          (4,665)          (2,747)         (239)
</TABLE>


                                       12
<PAGE>

<TABLE>

<S>                                 <C>             <C>           <C>              <C>           <C>
Net earnings (loss) per
share                               $(.40)          $.26          $(1.47)          $(.91)        $(.08)
 - basic and diluted

Average shares
outstanding                         3,239          3,239           3,239           3,125         2,985

Summary Balance
---------------
Sheet Data
----------

Total assets                          $22         $3,476          $7,208         $18,063       $18,855

Working capital                    (1,680)          (956)         (2,120)         10,906        10,825

Long-term debt
 (exclusive of current
 maturities)                            0             64             299           8,837         9,108

Convertible
 subordinated debt                    827          2,053           2,053           2,760            --

Stockholders' equity               (1,680)          (306)         (1,262)          3,159         5,257
</TABLE>

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

Termination of Operations

      The  Company  terminated  all  business  operations  in October  1999.  It
experienced significant losses from operations in recent years which resulted in
severe  cash flow  deficiencies  that  negatively  impacted  the  ability of the
Company to continue its business.  During fiscal 2000,  the combined  effects of
various  negative  developments,  including  but not  limited  to:  (i)  sharply
decreasing  revenues over the previous four years;  (ii) continuing  losses from
operations;  (iii) interest payment defaults on outstanding  debt, (iv) the lack
of a long-term  credit  facility;  and (v) the  concentration of all sales among
only three  customers  forced the Company to discontinue all of its business and
operations.

      Prior to the periods covered by the financial  statements included in this
report,  in fiscal 1995 and 1996, the Company had funded its operating losses by
refinancing  its debt and  increasing  its capital  through:  (i) the sale of $1
million of non-voting  convertible preferred stock to management;  (ii) the sale
of treasury stock which increased  equity by $2.9 million;  (iii) the completion
of a $3.5  million  private  placement.  During the  several  years prior to the
termination


                                       13
<PAGE>

of its operations, the Company had implemented a restructuring strategy aimed at
improving operating results, through the reduction of costs, the streamlining of
operations,  and the closing of the Company's  Puerto Rico plant.  These efforts
failed to bring the  Company's  operations  to a profitable  level.  Some of the
major  factors and  occurrences  which led to the Company's  insolvency  and the
termination  of its  operations  are described  below.  For a discussion in more
detail  of  each  of the  matters  discussed  below,  reference  is  made to the
Company's  annual  report on Form 10-K for the fiscal  year ended  February  27,
1999.

      The  factors  noted  above  resulted  in  the  termination  of  all of the
Company's business  activities in October 1999 and the filing, on March 3, 2000,
of a Voluntary Petition under Chapter 11 of the United States Bankruptcy Code in
the U.S. Bankruptcy Court for the Southern District of New York. Chief among the
factors  leading to the present  insolvency of the Company were: (i) the loss of
the Company's  largest  customer  because of  Levi-Strauss's  decision,  late in
fiscal 1997, to sell its "Brittania"  line of men's underwear and other products
which the Company was licensed to manufacture and sell; (ii) the failure to meet
sales goals  required  under various other  licenses held by the Company and the
resultant  loss  of  such  licenses;  and  (iii)  the  Company's  incurrence  of
substantial  amounts of debt in order to fund  losses  from  operations  and the
inability of the Company to repay such debt, including the following:

      1.  Termination  of  Levi  Strauss/Brittania  Operations.   Commencing  in
September  1988,  the Company  held a license  (the  "Brittania  License")  from
Brittania Sportswear Ltd. ("Brittania"). Levi Strauss & Co. ("Levi Strauss") was
the parent company of Brittania.  Under the Brittania  License,  the Company had
the right to manufacture and market men's underwear and other products under the
trademark  "Brittania from Levi Strauss & Co". Sales under the Brittania License
aggregated  $14.9  million  in fiscal  1997 and $4.5  million  in  fiscal  1998,
accounting for 49% of the Company's  fiscal 1997 sales, and 21% of the Company's
fiscal 1998 sales.  During the fiscal year ended  February 27, 1999, the Company
made no sales under the Brittania License.  As of January 1, 1997, the Brittania
License had been renewed for a five-year term,  including  automatic renewals of
two years if certain minimum sales levels were achieved. However, on January 22,
1997,  Levi's  announced  its  intention to sell  Brittania.  As a result of the
action taken by Levi  Strauss,  K-Mart,  the largest  retailer of the  Brittania
brand,  and the Company's  largest  customer  (accounting for sales of Brittania
product of  approximately  $11  million in fiscal  year 1997,  and $3 million in
fiscal year 1998),  advised the  Company  that it would no longer  continue  its
commitment to carry the Brittania  trademark.  In response,  the Company filed a
multi-million  dollar lawsuit  against Levi Strauss and Brittania in March 1997,
alleging  that  Brittania  had breached  various  obligations  under its license
agreement with the Company,  including without  limitation it's covenant of good
faith and fair  dealing.  This  litigation  was  settled in June 1998,  with the
Company realizing approximately $725,000 in gross value out of such settlement.

      2. Discontinuance of GUESS?  Product Line. From December 7, 1992 until the
first quarter of the fiscal year ended  February 27, 1999,  the Company held the
exclusive  United  States rights to produce and sell  undergarments  bearing the
"GUESS?"  trademark  and  variations   thereof.   The  license  was  subject  to
termination prior to its expiration if certain minimum sales goals were not met,
with the  payment of minimum  royalties  required  in the  amounts of  $560,000,
$700,000


                                       14
<PAGE>

and  $840,000  for  the  contract  years  ended  May 31,  1997,  1998  and  1999
respectively. Minimum sales goals were never achieved under this license. Due to
the lack of capital  resources  necessary  to  develop  and  support  the GUESS?
product line at the levels  required in the  licensing  agreement,  The Company,
with the support of the  licensor,  initiated a strategy to terminate the GUESS?
license,  and the  Company  discontinued  its GUESS?  division  during the first
quarter of fiscal year 1999.

      3. Termination of "Arrow" License. Pursuant to an agreement, dated October
5, 1992, with Cluett, Peabody & Co., Inc., the Company held the exclusive United
States rights (the "Arrow  License") to produce and sell men's and boys' fashion
underwear,  T-shirts, V- neck shirts, tank tops, briefs and boxer shorts bearing
the "ARROW" trademark during the period commencing January 1, 1993 and expiring,
pursuant to an  extension,  December  31, 1999.  The terms of the Arrow  License
required  that the  Company pay a minimum  royalty of  $162,500  for each annual
period through December 31, 1996,  increasing to $250,000 for each annual period
from January 1, 1997 through  December 31, 1999.  Because the Company was unable
to meet the minimum sales requirements under the Arrow License,  as of March 12,
1999, the Company  reached an agreement with the licensor to terminate the Arrow
License.

      4. Failure to Meet Minimum Sales  Requirements Under "Botany 500" License.
On December 21, 1992, the Company  obtained from the McGregor  Corporation,  the
exclusive  United  States  rights (the "Botany 500 License") to produce and sell
men's and boys' fashion knit underwear briefs bearing the "BOTANY 500" trademark
during the period  commencing  on January 1, 1993 and  expiring,  pursuant to an
extension,  December 31,  2001.  Under the terms of the license  agreement,  the
McGregor  Corporation had the right to terminate the Botany 500 License prior to
its expiration if certain minimum sales goals were not met. Minimum sales levels
required  under the Botany 500 License for  calendar  1996 were  $750,000 and $1
million for each  calendar year  thereafter.  The Company was never able to meet
the minimum sales requirements under the Botany 500 License with net sales under
the  license  for fiscal  1997  (which  included  most of  calendar  1996) being
$652,000 and $225,000 for fiscal 1998 (which  included  most of calandar  1997).
After  fiscal  1998,  the  Company  ceased all  operations  under the Botany 500
License.

      5. Loss of Revolving  Credit Line. Until October 15, 1999, the Company had
a fifteen million dollar revolving credit facility with Congress Financial Corp.
("Congress"). This facility provided for: (i) loans based upon eligible accounts
receivable and inventory; (ii) a $3,000,000 letter of credit facility; and (iii)
purchase money term loans of up to 75% of the orderly liquidation value of newly
acquired and eligible equipment. Borrowings bore interest at 2-3/4% above prime.
The Company's  agreement with Congress  required,  among other things,  that the
Company  maintain of minimum  working  capital and net worth levels.  Borrowings
under the agreement were  collateralized  by a lien on substantially  all of the
assets of the Company. As at February 27, 1999 the Company was not in compliance
with the net worth and working


                                       15
<PAGE>

capital  covenants.  This credit facility utilized was terminated by Congress on
October 15, 1999 and,  because of its poor  financial  status and  outlook,  the
Company was not able to replace it.

      6. Continuing Default on Outstanding  Debentures.  On August 15, 1996, the
Company completed a $3.5 million private placement with NAN Investors,  L.P., an
investment partnership ("NAN Investors"). Terms of this transaction included the
issuance of 250,000  shares of the  Company's  common stock and two  convertible
subordinated  debentures in the aggregate  principal  amount of $2,760,000  (the
"NAN  Debenture")  The NAN Debentures  bore interest at an annual rate of 12.5%,
payable  semi-annually,  with the principal amount due and payable on August 15,
2001.  Although the NAN Debentures were  convertible  into the Company's  common
stock,  current  management has been advised by members of the former management
that NAN Investors has waived all conversion rights.

      Beginning in August 1997, the Company was in default on interest  payments
due  under the NAN  Debentures.  The NAN  Debentures  were  secured  by a second
mortgage on the Company's  manufacturing  and  distribution  facility located in
Cartersville,  Georgia.  This  property was sold on October 1, 1997.  To release
NAN's  security  interest  in the  property  and to extend the cure  period with
respect to a $172,500  interest  payment default on the Debentures,  the Company
prepaid  $707,000 of the principal  amount of the Nan Debentures plus a $176,000
prepayment  penalty.(2) In connection therewith,  in September 1997, the Company
entered  into  anagreement  with NAN  Investors  (the  "First  NAN  Forebearance
Agreement")  providing  for the  extension of cure period for the default on the
interest  payments.  The First NAN  Forbearance  Agreement was extended month by
month  until  May  1998,  at  which  time,  the  Company  entered  into  another
forebearance   agreement  with  NAN  Investors  (the  "Second  NAN  Forebearance
Agreement")  to extend,  until  December  1998,  the cure  period  for  interest
payments then in default  (totalling  $322,551) as well as the interest payment,
which was to fall due in August 1998. In consideration  for such extension,  the
Company and NAN Investors  entered into a security  agreement (The "NAN Security
Agreement), pursuant to which the Company agreed to secure the NAN Debentures by
a first  priority  lien on all the  assets of the  Company,  both  tangible  and
intangible,  to the extent not otherwise prohibited under the Congress revolving
credit facility and to issue to NAN Investors five-year warrants  convertible to
a total of 16,500,000 shares of the Company's stock at an exercise price of $.10
per share. Thereafter,  the Company remained in default on all interest payments
due after August 1997. There was no forbearance agreement in effect with respect
to interest  payments  which fell due subsequent to December 1998 and therefore,
at that point, the Company was in default with respect to the full principal

----------
      (2)  Total  proceeds  from  the  sale of the  Cartersville  facility  were
$2,850,000.  In  addition  to the  $883,000  paid to NAN  Investors  by way of a
$707,000 prepayment of principal and a $176,000 prepayment penalty,  the Company
used $525,000 to pay other  financing  secured by this  property.  The remaining
proceeds were utilized to reduce the Company's  revolving  credit financing with
Congress.


                                       16
<PAGE>

amount of the NAN Debentures and all unpaid interest accrued  thereon,  which at
that time totalled  $2,052,986.  Pursuant to their rights under the NAN Security
Agreement, NAN Investors took possession of all of the Company's assets, subject
to the  release  of the  senior  creditor  (Congress).  These  assets  consisted
entirely of inventory and receivables. NAN Investors ultimately realized a total
of  $1,222,654  from  the  sale or  collection  of  such  assets,  reducing  the
Company,'s  indebtedness to approximately $826,845 as at the end of fiscal 2000.
Further,  in  recognition  of NAN  Investors  rights,  under  the  NAN  Security
Agreement, to any and all remaining assets of the Company, on February 17, 2000,
the Company surrendered to NAN Investors,  all of its right, title, and interest
in certain unasserted claims it believes it had against Target Stores,  Inc. and
SGS U.S.  Testing Co., Inc. (the  "Claims") on the condition that the net amount
collected  in  respect  of the  Claims  be set off  against  the  amount  of the
Company's  indebtedness to NAN Investors.  Management believed that the value of
the Claims  would thus be  maximized  because the Company  lacked the  financial
resources to assert the Claims and NAN Investors  already had an existing  right
to any  amounts  that the  Company  might  collect  in  respect  of the  Claims.
Management  believed that the Claims  consisted  of: (i) a claim against  Target
Stores,  Inc.  for  unauthorized  off-sets  and  credits  taken  in a  presently
undetermined  amount;  (ii) a claim  against SGS U.S.  Testing Co.,  Inc. in the
approximate amount of $35,000. To the best of present managment's knowledge, NAN
Investors is currently  pursuing all legal  remedies  available  with respect to
these claims.

      In the years  preceding the  termination  of  operations,  the Company had
experienced  difficulty  in filling all of its  orders,  caused in large part by
recurring  cash  shortages,  the  expiration  of its working  capital  financing
arrangements,  and the failure to obtain the investment necessary to support and
develop the GUESS?  product line. From at least fiscal 1996 onwards, the Company
had attempted to address its liquidity issues by the infusion of debt and equity
financing,  including (i) a refinancing in March 1994; (ii) additional equity of
$3.9 million  raised in fiscal 1995;  (iii) an August 1996 $3.5 million  private
placement,  which  left  the  Company  with  $2,760,000  in debt  under  the NAN
Debentures,  bearing  interest  at an  annual  rate of  12.5%;  and  (iv) by the
reduction in costs associated with the  consolidation  and  restructuring of the
operations in fiscal 1998 and 1999, and the attempt to more effective management
of working capital.  All of these efforts,  however,  failed to keep the Company
solvent  and with the loss of the  Brittania  License,  continuing  losses  from
operations,  interest payment defaults,  and the lack of any credit  facilities,
the Company was forced to  discontinue  all  business  operations  by the end of
October  1999.  For a discussion  in more detail of the  restructuring  strategy
which the  Company  implemented  in attempts  to improve  operating  results and
enhance its financial  resources,  reference is made to Item 7 of Part II of the
Company's  annual  report on Form 10-K for the fiscal  year ended  February  27,
1999.

      Operating  results for fiscal 1998 reflected $1.8 million in restructuring
charges  including  $1.2  million  associated  with the phase out of the  GUESS?
division ($660,000  inventory  write-offs,  $540,000 in deferred costs and other
charges),  with the balance  associated with write-downs,  and reserves of asset
values, and other non-cash items. The operating results for


                                       17
<PAGE>

fiscal 1999  included  $1,930,000 in other income all of which was the result of
litigation  settlements as discussed  earlier.  The operating results for fiscal
2000 do not include any unusual credits or charges.

Results of Operations

Sales

      Total  net  sales  for the  fiscal  year  ended  February  27,  2000  were
$5,344,223, all of which sales occured prior to the termination of operations in
October of 1999. These sales represented a decrease of approximately  53.6% from
fiscal  1999 when total net sales were  approximately  $11.5  million.  In turn,
fiscal 1999 net sales had  represented a decrease of 47% from fiscal 1998,  when
net sales totaled $21.7 million.  Net sales for 1998 also represented a decrease
from net sales for 1997 which had totaled $30.4 million.

      No sales were generated under the discontinued Brittania license in fiscal
2000 or fiscal 1999 as compared to $4.5 million in fiscal 1998.  Sales under the
Brittania  license in fiscal 1998, in turn, had  represented a decrease of $10.4
million from Brittania sales in fiscal 1997.

      Operations  under the GUESS?  Licence  were  completely  phased out by the
first quarter of fiscal 1999. There were,  therefore,  no sales  attributable to
this line in fiscal  2000,  as  compared  to $2.4  million in fiscal 1999 and $7
million in fiscal 1998.

      Former  management  of the Company has  attributed  the steady  decline in
total net sales, since fiscal 1998,  primarily to the phase out of the Brittania
product  associated  with  the  actions  announced  by  Levi to  dispose  of the
Brittania  brand,  and the loss of  certain  styles to  competitors  within  the
Company's business environment as well as a lack of sufficient working capital.

Selling, General and Administrative Expenses

      Selling,  general and administrative expenses in fiscal 2000 of $2,161,376
were approximately 41% of sales. All of such expenses were incurred prior to the
termination  of  operations  in October  1999.  In fiscal  1999 and 1998,  these
expenses were $2.9 million and $2 million  respectively,  and as a percentage of
sales,  25% for fiscal  year 1999,  and 33% for fiscal  year 1998.  General  and
administrative  expenses for fiscal year 1998 included $691,000 in non-recurring
charges  incurred as part of the Company's  restructuring  efforts.  While these
efforts were somewhat  successful in reducing expenses as a percentage of sales,
the loss of the  Brittania  product line  ultimately  resulted in the  Company's
becoming insolvent.


                                       18
<PAGE>

Interest Expense

      Interest  expense  decreased  by $172,715 in fiscal 2000,  reflecting  the
payment  of  interest  for only eight  months of the fiscal  year as well as the
reduction of debt caused by the application to the outstanding  debt of proceeds
from the sale and liquidation by the creditor, NAN Investors,  of certain of the
Company's  assets.  In fiscal 1999,  interest expense decreased by approximately
$805,000, reflecting reductions in the outstanding revolving credit facility and
the  subordinated  debt.  Prior to that, in fiscal 1998,  interest  expenses had
increased by approximately  $112,000,  reflecting $175,000 booked as the expense
resulting from the issuance of 16,500,000 warrants.

Liquidity and Capital Resources

      The Company  incurred  significant  operating losses in recent years which
resulted in severe cash flow problems which  negatively  impacted the ability of
the Company to conduct its business as structured and ultimately caused it to be
insolvent.  The pertinent history in recent years of the Company's liquidity and
capital resources is as follows:

      Prior to the periods covered by the financial  statements included in this
Report, in March, 1994, the Company's principal  arrangements consisted of (i) a
three year $15,000,000 revolving credit facility with Congress Financial; (ii) a
$2,000,000  Term Loan  Agreement  with  Chemical  Bank;  and (iii) an additional
$1,500,000  Term Loan with Congress.  The financing  arrangements  with Congress
were  covered  by a loan and  security  agreement,  dated  March  24,  1994 (the
"Congress Loan and Security  Agreement").  On May 31, 1996, the Company  amended
the  Congress  Loan and  Security  Agreement  to provide  for:  (i)  $251,000 in
additional equipment term loan financing, (ii) extension of the repayment period
for all outstanding term loans, (iii)  supplemental  revolving loan availability
from March 1st through June 30th of each year and (iv)  extension of the renewal
date to March 20, 1998.  In March,  May,  August and December of 1998,  Congress
extended its Loan and Security Agreement with the Company.  The agreement was to
expire on December 31,  1998,  but was extended to August 31, 1999 and from each
month  thereon,  on a month to month basis,  until  October 15, 1999 when it was
mutually  terminated by Congress and the Company.  With the loss of the Congress
financing, the Company was left with no credit facility, and became insolvent.

      During the several years  preceding its ultimate  insolvency,  the Company
had raised money through the sale of equity  securities  with:  (i) a $1,000,000
investment  by a group of investors  headed by George  Samberg,  who was at that
time, the president and CEO of the Company;  (ii) a $2.9 million sale of 490,000
shares of common treasury stock to GUESS?,  and certain of its  affiliates;  and
(iii) a sale of 250,000 shares of the Company's common stock to NAN Investors in
fiscal 1997.  The sale of common stock to NAN  Investors was tied to the sale of
debt  securities  consisting of two convertible  subordinated  debentures in the
aggregate face amount of $2,760,000 bearing interest at an annual rate of 12,5%.
Therefore,  while the Company  realized  gross proceeds of $3.5 million from its
sales to NAN Investors,  $2,760,000 of this amount actually represented new debt
because it constituted the aggregate principal amount of two NAN


                                       19
<PAGE>

Debentures.  The  NAN  Debentures  were  secured  by a  second  mortgage  on the
Company's manufacturing and distribution facility in Cartersville,  Georgia (the
"Cartersville  Facility").  The Company  utilized the $3.5 in proceeds  from its
sales  to  NAN  Investors  to  prepay  existing  debt.  Therefore,  while  these
transactions  had a  positive  effect on the  Company's  liquidity  and  capital
resources,  the Company was ultimately left with substantial  debt which,  after
the loss of the  Brittania  line,  the  Company  was  unable to repay or even to
service.

      During  fiscal  1998,  on October  1,  1997,  the  Company  completed  the
consolidation  of its  facilities  and sold the  Cartersville  facility for cash
aggregating to $2,850,000. The Company reflected a gain on the sale of $793,000.
The  proceeds  were  used to:  (i)  repay  $525,000  financing  secured  by this
property;  (ii) to prepay  $707,000  of the NAN  Debentures;  and (iii) to pay a
$176,000 prepayment penalty incurred from the prepayment of NAN Debentures.  The
remaining  net proceeds were  utilized to reduce the Congress  revolving  credit
financing.

      During fiscal 2000, working capital levels decreased to $ (1,685,573) from
$(956,404) at February 27, 1999 levels reflecting the surrender of the Company's
assets NAN  Investors  pursuant to its rights under the NAN Security  Agreement.
Working  capital at February 27, 1999,  reflected  reductions in receivable  and
inventories  utilized to reduce  debt  levels.  The  respective  $1,108,860  and
$1,981,523 million reductions in inventory levels, as at the ends of fiscal 2000
and fiscal 1999,  reflected  the Company's  reduction in sales  volume,  and its
continuing  efforts to manage  its supply  chain  towards  delivering  inventory
closer to forecasted  demand.  During  fiscal 1999,  the  subordinated  debt was
reclassified  as short  term due to the  Company's  inability  to make  interest
payments on the NAn  Debentrues.  During fiscal 2000,  on October 11, 1999,  the
Board of Directors  voted to allow NAN Investors to liquidate the assets covered
by its security agreement.


Outlook

      Nantucket Industries,  Inc. (the "Company") is currently insolvent. It has
had no business and carried on no business  activities  since  October  1999. On
March 3, 2000,  the Company filed a Voluntary  Petition  under Chapter 11 of the
United  States  Bankruptcy  Code in the U.S.  Bankruptcy  Court for the Southern
District of New York. (Case Name: Nantucket Industries,  Inc., Case Number: 00-B
10867).  The Company intends to file a Chapter 11 Plan of  Reorganization  and a
Disclosure  Statement  in  July  2000.  If the  Plan  of  Reorganization  is not
confirmed by the Bankruptcy  Court,  or if it is confirmed but management is not
able to successfully complete a merger or acquisition, the Company will cease to
exist.

      The  goal  of the  projected  Chapter  11  reorganization  will be for the
Company and each of its  subsidiaries to effect a merger,  acquire the assets or
the capital stock of existing businesses,  or to effect another similar business
combination.  No assurances  can be given that the Company will be successful in
doing so. Management will have sole discretion to determine which businesses, if
any,  may be  formed  or  acquired,  as well as the  terms  of any  acquisition.


                                       20
<PAGE>

The  Plan of  Reorganization  and the  Disclosure  Statement,  which  Management
intends to file with the Bankruptcy Court, will propose that the Company acquire
Accutone,  in a "reverse  acquisition".  Before it can be put into  effect,  the
proposed  Plan of  Reorganization  will  have to be  approved  by the  Company's
creditors, confirmed by the Bankruptcy Court, and not objected to after the fact
by the court  appointed  Trustee for the  Creditors.  Management  is  completely
unable to predict or to even venture an opinion as to whether all such  required
approvals and confirmations will be forthcoming.  As a result, no prediction can
be made with  respect to whether  the  reverse  acquisition  of  Accutone by the
Company will ever take place. If it should occur, such acquisition  would not be
considered  to be an arm's  length  transaction.  Any  transaction  between  the
Company and any of its affiliates  could present  management  with a conflict of
interest. Therefore, it is the intention of management that, if such transaction
should occur,  the terms thereof will be no less  beneficial to the Company than
they would be if such transactions had been effected on an arms length basis.

      The proposed  reorganization  of the Company and its  subsidiaries and the
acquisition  of or merger  with new  businesses  can be  expected to require the
issuance of substantial  amounts of new shares of the Company's  common stock or
other  securities.  Any such  stock  issuances  will  significantly  reduce  the
proportionate ownership and voting power of each other shareholder.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial  statements of the Company,  required to be included in this
Report are set forth below.


                                       21
<PAGE>

                           NANTUCKET INDUSTRIES, INC.
                           --------------------------

                         (A Developental Stage Company)
                         ------------------------------

                                      INDEX
                                      -----

                                                                           PAGE

Report of Independent Certified Public Accounts -
Pilotti, Cunzio & Associates LLP                                            23

Consolidated Balance Sheets-                                                24
February 27, 2000 and February 27, 1999

Consolidated Statements of Operations - Years Ended                         25
February 27, 2000, February 27, 1999, and February 28, 1998

Consolidated  Statements  of  Stockholders'  Equity - Years Ended           26
February 27, 2000, February 27, 1999, and February 28, 1998

Consolidated Statements of Cash Flows - Years Ended                         27
February 27, 2000, February 27, 1999, and February 28, 1998

Notes to Consolidated Financial Statements                                  28

Report of Independent Certified Public Accounts - Grant Thornton LLP        41

Consolidated Balance Sheets -                                               42
February 27, 1999 and February 28, 1998

Consolidated  Statements  of  Operations -                                  44
Years Ended February 27, 1999, February 28, 1998, and March 1, 1997

Consolidated  Statements of Stockholders' Equity -                          45
Years Ended February 27, 1999, February 28, 1998, and March 1, 1997

Consolidated  Statements  of Cash Flows - Years Ended                       47
February  27,  1999, February 28, 1998, and March 1, 1997

Notes to Consolidated Financial Statements                                  49
(a)(2)    Financial Statement Schedule


                                       22
<PAGE>

                [Letterhead of Pilotti, Cunzio & Associates LLP]

Independent Auditors' Report

To the Board of Directors
Nantucket Industries, Inc. and Subsidiaries
New York, New York

We have  audited  the  accompanying  consolidated  balance  sheet  of  Nantucket
Industries,  Inc.  and  Subsidiaries  as of  February  27,  2000 and the related
consolidated statements of operations,  stockholders' deficit and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial  statements based on our audit. The financial  statements for February
27, 1999 and February 28, 1998 were audited by other  auditors,  therefore we do
not render an opinion on these financial statements.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  consolidated  financial  position  of  Nantucket
Industries,  Inc. and Subsidiaries as of February 27, 2000, and the consolidated
results  of its  operations  and its cash  flows  for the year  then  ended,  in
conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern.  As  represented  in the  accompanying
financial  statements,  the  Company  has a net  capital  deficiency,  operating
losses,  and  defaulted  on  interest  payments.  These  factors,  among  others
discussed in Note 1 to the accompanying financial statements,  raise substantial
doubt about the company's  ability to continue as a going concern.  Management's
plans in regard to these matters are also  described in Note 1. These  financial
statements do not include any adjustments  that might result from the outcome of
these uncertainties.

/s/ Pilotti, Cunzio & Associates LLP

May 23, 2000


<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                                     Consolidated Balance Sheets

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  February 28,
February 27,                                                                           2000             1999              1998
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>              <C>                 <C>
Assets
   Cash and cash equivalents                                                     $     1,452      $   622,268      $     8,850
   Accounts receivable (Notes 2 and 8)                                                    --          961,989        2,879,735
   Inventories (Notes 6 and 8)                                                            --        1,108,860        3,090,383
   Other current assets                                                               20,331           67,347           71,895
------------------------------------------------------------------------------------------------------------------------------
              Total current assets                                                    21,783        2,760,464        6,050,863
------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (Notes 7 and 8)                                        --          538,522          958,075
Other assets, net                                                                         --          176,601          198,786
------------------------------------------------------------------------------------------------------------------------------
                                                                                 $    21,783      $ 3,475,587      $ 7,207,724
------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
   Current portion of long-term debt (Note 8)                                    $        --      $        --      $ 3,161,286
   Current portion of capital lease obligations (Note 8)                              93,070           56,452           51,898
   Convertible subordinated debt (Note 4)                                            826,845        2,052,986        2,052,986
   Accounts payable                                                                  244,764          248,538          722,483
   Accrued salaries and employee benefits                                             11,031           80,740          223,031
   Accrued unusual charge (Note 5)                                                    77,083           95,833          465,000
   Accrued expenses and other liabilities                                            129,515          863,271          730,478
   Accrued royalties                                                                 319,048          319,048          763,270
------------------------------------------------------------------------------------------------------------------------------
              Total current liabilities                                            1,701,356        3,716,868        8,170,432
Capital lease obligations, net of current portion (Note 8)                                --           64,250          120,702
Accrued unusual charge (Notes 5 and 12)                                                   --               --          178,717
------------------------------------------------------------------------------------------------------------------------------
              Total liabilities                                                    1,701,356        3,781,118        8,469,851
------------------------------------------------------------------------------------------------------------------------------
Stockholders' deficit (Notes 4 and 11)
   Preferred stock, $.10 par value; 500,000 shares authorized, of which
      5,000 shares have been designated as non-voting convertible with
      liquidating preference of $200 per share and are issued and
      outstanding                                                                        500              500              500
   Common stock, $.10 par value; authorized 20,000,000
      shares;            issued 3,241,848                                            324,185          324,185          324,185
   Additional paid-in capital                                                     12,539,503       12,539,503       12,539,503
   Deferred issuance cost                                                            (61,069)         (96,425)        (115,541)
   Accumulated deficit                                                           (14,462,755)     (13,053,357)     (13,990,837)
------------------------------------------------------------------------------------------------------------------------------
                                                                                  (1,659,636)        (285,594)      (1,242,190)
   Less 3,052 shares of common stock held in treasury, at cost                        19,937           19,937           19,937
------------------------------------------------------------------------------------------------------------------------------
              Total stockholders' deficit                                         (1,679,573)        (305,531)      (1,262,127)
------------------------------------------------------------------------------------------------------------------------------
                                                                                 $    21,783      $ 3,475,587      $ 7,207,724
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                 See accompanying notes to financial statements.
                                                                               3


                                       24
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                           Consolidated Statements of Operations

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                                       February 28,
Years ended February 27,                                           2000                 1999               1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>                 <C>
Net sales                                                      $ 5,344,223          $11,517,842         $21,683,326
Cost of sales                                                    3,719,692            9,107,947          18,581,718
-------------------------------------------------------------------------------------------------------------------
              Gross profit                                       1,624,531            2,409,895           3,101,608
Selling, general and administrative expenses                     2,161,376            2,879,200           7,166,124
-------------------------------------------------------------------------------------------------------------------
              (Loss) from operations                              (536,845)            (469,305)         (4,064,516)
Other income (expense):
   Net loss (gain) on sale of assets (Note 7)                      538,522               15,093            (711,686)
   Interest expense                                                334,031              506,746           1,311,875
   Other income (Note 12)                                               --           (1,928,624)                 --
-------------------------------------------------------------------------------------------------------------------
              Total other (income) expense                         872,553           (1,406,785)            600,189
-------------------------------------------------------------------------------------------------------------------
              Earnings (loss) before income taxes               (1,409,398)             937,480          (4,664,705)
Income taxes (Note 10)                                                  --                   --                  --
-------------------------------------------------------------------------------------------------------------------
Net income (loss)                                              $(1,409,398)         $   937,480         $ 4,664,705)
Net earnings (loss) per share - basic and diluted              $      (.40)         $      0.26         $     (1.47)
-------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding                       3,238,796            3,238,796           3,238,796
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                 See accompanying notes to financial statements.

                                                                               4


                                       25
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                 Consolidated Statement of Stockholders' Deficit

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                        Preferred stock
                                         designated as
                                     non-voting convertible          Common stock
                                    ------------------------------------------------
                                                                                           Additional    Deferred
                                                                                            paid-in      issuance       Accumulated
                                      Shares      Amount       Shares         Amount        capital        costs          deficit
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>         <C>        <C>            <C>          <C>            <C>           <C>
Balance at March 1, 1997               5,000        $500      3,241,848      $324,185     $12,364,503    $(183,772)    $ (9,326,132)

Net loss                                  --          --             --            --              --           --       (4,664,705)

Issuance of warrants                      --          --             --            --         175,000           --               --

Amortization of deferred costs            --          --             --            --              --       68,231               --
                                     ----------------------------------------------------------------------------------------------

Balance at February 28, 1998           5,000         500      3,241,848       324,185      12,539,503     (115,541)     (13,990,837)

Net earnings                              --          --             --            --              --           --          937,480

Amortization of deferred costs            --          --             --            --              --       19,116               --
                                     ----------------------------------------------------------------------------------------------

Balance at February 27, 1999           5,000         500      3,241,848       324,185      12,539,503      (96,425)     (13,053,357)

Net loss                                  --          --             --            --              --           --       (1,409,398)

Amortization of deferred costs            --          --             --            --              --       35,356               --
                                     ----------------------------------------------------------------------------------------------

Balance at February 27, 2000           5,000        $500      3,241,848      $324,185     $12,539,503     $(61,069)    $(14,462,755)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                            Treasury stock
                                            --------------

                                          Shares      Amount         Total
-----------------------------------------------------------------------------

Balance at March 1, 1997                   3,052    $(19,937)     $ 3,159,347

Net loss                                      --          --       (4,664,705)

Issuance of warrants                          --          --          175,000

Amortization of deferred costs                --          --           68,231
                                          -----------------------------------

Balance at February 28, 1998               3,052     (19,937)      (1,262,127)

Net earnings                                  --          --          937,480

Amortization of deferred costs                --          --           19,116
                                          -----------------------------------

Balance at February 27, 1999               3,052     (19,937)        (305,531)

Net loss                                      --          --       (1,409,398)

Amortization of deferred costs                --          --           35,356
                                          -----------------------------------

Balance at February 27, 2000               3,052    $(19,937)     $(1,679,573)
-----------------------------------------------------------------------------

                                 See accompanying notes to financial statements.

                                                                               5


                                       26
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                           Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                                                                           February 28,
Years ended February 27,                                                     2000              1999            1998
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>            <C>
Cash flows from operating activities:
   Net earnings (loss)                                                   $(1,409,398)       $  937,480     $(4,664,705)
   Adjustments to reconcile net earnings (loss) to
      net cash provided by operating activities:
        Depreciation and amortization                                         35,356           397,053         569,121
        Provision for doubtful accounts                                           --            11,210         239,982
        Loss (gain) on sale of fixed assets                                  538,522            15,093        (711,686)
        Provision for obsolete and slow-moving inventory                          --            77,528       1,175,646
        Issue of warrants                                                         --                --         175,000
        Decrease (increase) in assets:
           Accounts receivable                                               961,989         1,906,536       2,753,047
           Inventories                                                     1,108,860         1,903,995       3,560,411
           Other current assets                                               47,016             4,548         419,024
        (Decrease) increase in liabilities:
           Accounts payable                                                   (3,774)         (473,945)       (166,629)
           Accrued expenses and other liabilities                           (803,465)         (453,720)        468,708
           Income taxes payable                                                   --                --          (1,909)
           Accrued unusual charge                                            (18,750)         (547,884)        (92,151)
-----------------------------------------------------------------------------------------------------------------------
              Net cash provided by operating activities                      456,356         3,777,894       3,723,859
-----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Additions to property, plant and equipment                                     --           (59,562)       (212,093)
   Proceeds from sale of fixed assets                                             --            51,745       2,808,731
   Decrease in other assets                                                  176,601            56,525         348,724
-----------------------------------------------------------------------------------------------------------------------
              Net cash provided by investing activities                      176,601            48,708       2,945,362
-----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   (Repayments) borrowings under line of credit agreement, net                    --        (3,161,286)     (5,915,589)
   Payments of short-term debt                                            (1,226,141)               --              --
   Payments of long-term debt and capital lease obligations                  (27,632)          (51,898)       (752,693)
-----------------------------------------------------------------------------------------------------------------------
              Net cash (used in) provided by financing activities         (1,253,773)       (3,213,184)     (6,668,282)
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                        (620,816)          613,418             909
Cash and cash equivalents, beginning of year                                 622,268             8,850           7,941
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                   $     1,452        $  622,268     $     8,850
-----------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
   Cash paid during the year for:
      Interest                                                           $   881,670        $  191,440     $   762,798
      Income taxes                                                       $        --        $       --     $        --
</TABLE>

                                 See accompanying notes to financial statements.

                                                                               6


                                       27
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1. Restructuring and    The accompanying financial statements have been prepared
   Liquidity Matters    assuming  that  the  Company  will  continue  as a going
                        concern.  There have been no sales since  November 1999.
                        The Company filed for Chapter 11  bankruptcy  Protection
                        in March, 2000.  Management is seeking merger candidates
                        in order to continue the  Corporation.  If Management is
                        unsuccessful  in its merger  search,  the  Company  will
                        cease to exist.  There were no sales under the Brittania
                        license for the fiscal years 2000 and 1999, and sales in
                        fiscal  1999 under the GUESS?  license  declined by $4.5
                        million  from 1998  levels.  As more fully  described in
                        Note 3,  Levi  Strauss  & Co.,  the  parent  company  of
                        Brittania Sportswear Ltd. a licensor which accounted for
                        $14.9  million of the Company's  fiscal 1997 sales,  and
                        $4.5  million  of fiscal  1998  sales,  announced  their
                        intention  to sell  Brittania.  In light of the  actions
                        announced by Levi's, K mart, the largest retailer of the
                        Brittania  brand  and the  Company's  largest  customer,
                        advised the Company that it would no longer continue its
                        on-going commitment to the Brittania trademark. Sales to
                        this customer  decreased from $11 million in fiscal year
                        1997,  to $3  million  in  fiscal  1998,  to $0 sales in
                        fiscal  year 1999.  In  response,  the  Company  filed a
                        lawsuit  against Levi Strauss & Co.,  alleging  that the
                        licensor breached various  obligations under the license
                        agreement,  including without limitation its covenant of
                        good faith and fair  dealing.  The Company  settled this
                        litigation  in June 1998 (see Note 12).

                        The Company has experienced significant losses in recent
                        years which have generally  resulted in severe cash flow
                        issues that have negatively  impacted the ability of the
                        Company to conduct its business as presently structured.
                        In fiscal year 1999 due to the lack of capital resources
                        needed  to  properly  develop  and  support  the  GUESS?
                        product line, the Company has  discontinued  sales under
                        the  GUESS?  license.  Sales  for this  product  line in
                        fiscal 1999,  1998, and 1997  aggregated  $2.5, $7.0 and
                        $4.7  million,  with gross  margins  of 11.8%,  6.4% and
                        13.2%,  respectively.  As of  March  1999,  the  company
                        reached an  agreement  with  Cluett,  Peabody & Co., the
                        licensor of the ARROW trademark,  to terminate its Arrow
                        license  (see  Note  12).  Until  April  17,  1998,  the
                        Company's  common stock was traded on the American Stock
                        Exchange.  Because the Company fell below American Stock
                        Exchange  guidelines  for continued  listing,  effective
                        April 17, 1998,  the Company's  stock was delisted.  The
                        Company  has  defaulted  on  interest  payments  to  its
                        subordinated  debt holder,  and has no long-term  credit
                        facility  in  place.  As  a  result,  there


                                                                              7
                                       28
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                        can be no  assurance  that the Company can continue as a
                        going concern. The accompanying  financial statements do
                        not   include   any   adjustments    relating   to   the
                        recoverability  and  classification  of  recorded  asset
                        amounts or amounts and  classifications  of  liabilities
                        that might be necessary  should the Company be unable to
                        continue in existence. The ultimate impact or resolution
                        of these matters may have a materially adverse effect on
                        the Company or on its financial  condition.

                        The   Company  has  funded  its   operating   losses  by
                        refinancing  its debt in fiscal 1995 and  increasing its
                        capital through (a) the sale of $1 million of non-voting
                        convertible  preferred stock to management  (Note 11) in
                        fiscal 1995;  (b) the fiscal 1995 sale of treasury stock
                        which  increased  equity  by $2.9  million,  and (c) the
                        completion in 1996 of a $3.5 million  private  placement
                        (Note 4).

2. Summary of
   Significant
   Accounting Policies

                        a. The  Company

                        Nantucket   Industries,   Inc.   and  its   wholly-owned
                        subsidiaries   (the  "Company")  design  and  distribute
                        branded and private label fashion  undergarments to mass
                        merchandisers  and national chains throughout the United
                        States, until it ceased doing business in October 1999.

                        b. Principles  of   Consolidation

                        The  consolidated   financial   statements  include  the
                        accounts  of   Nantucket   Industries,   Inc.   and  its
                        wholly-owned subsidiaries.  All significant intercompany
                        balances  and  transactions  have  been  eliminated.

                        c. Accounts Receivable

                        An  allowance  for doubtful  accounts is provided  based
                        upon   historical  bad  debt   experience  and  periodic
                        evaluations of the aging of the accounts.


                                                                              8
                                       29
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                        d. Property, Plant and Equipment

                        Property,  plant  and  equipment  are  stated  at  cost.
                        Equipment  under lease is stated at the present value of
                        the  minimum  lease  payments  at the  inception  of the
                        lease. Depreciation and amortization are provided by the
                        straight-line  method over the estimated useful lives of
                        the assets as follows:

                                                                        Years
                                                                        -----

                        Buildings and improvements                      20-40

                        Machinery and equipment                          3-10

                        Furniture and fixtures                             10

                        e. Stock Options

                        As described  in Note 11, the Company has granted  stock
                        options for a fixed  number of shares to  employees  and
                        officers at an exercise  price equal to the market value
                        of the shares on the date of grant. As permitted by SFAS
                        No. 123,  the Company has elected to continue to account
                        for stock options  grants in accordance  with APB No. 25
                        and recognizes no compensation expense for these grants.

                        f. Income  Taxes

                        The Company  and its wholly  owned  subsidiaries  file a
                        consolidated federal income tax return.  Deferred income
                        taxes arise as a result of differences between financial
                        statement and income tax reporting.

                        g. Earnings (Loss) Per Common Share

                        In fiscal year 1998,  the Company  adopted  Statement of
                        Financial  Accounting  Standards No. 128 (SFAS No. 128),
                        Earnings Per Share,  which requires public  companies to
                        present  earnings per share and, if applicable,  diluted
                        earnings  per share.  All  comparative  periods  must be
                        restated as of February 28, 1998 in accordance with SFAS
                        No.  128.  Basic  earnings  per  share  is  based on the
                        weighted  average  number of common  shares  outstanding
                        without   consideration   of   potential   common  share
                        equivalents.  Diluted earnings per share is based on the
                        weighted  average number of common and potential  common
                        shares  outstanding.  The calculation takes into account
                        the shares  that may be issued  upon  exercise  of stock
                        options,  reduced by the shares that may be  repurchased
                        with the funds received from the exercise,  based on the
                        average price during the year. At February 27, 2000, the
                        Company had outstanding  warrants to purchase 16,500,000
                        shares of common  stock which would  potentially  dilute
                        basic  earnings  per share but have not been  considered
                        for the two  prior  periods  as they  would  have had an
                        antidilutive impact (see Note 9).


                                                                              9
                                       30
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                        h. Reporting  Comprehensive  Income

                        In June 1997, the Financial  Accounting  Standards Board
                        (FASB)   issued   Statement  of   Financial   Accounting
                        Standards   No.   130   (SFAS   No.   130),    Reporting
                        Comprehensive   Income,   which  is  effective  for  the
                        Company's  year ending  February 27, 1999.  SFAS No. 130
                        addresses the reporting and displaying of  comprehensive
                        income  and its  components.  Earnings  (loss) per share
                        will only be reported for net earnings  (loss),  and not
                        for  comprehensive  income.  Adoption  of SFAS  No.  130
                        relates to disclosure  within the  financial  statements
                        and is not  expected  to have a  material  effect on the
                        Company's financial  statements.

                        i. Segment Information

                        In  June  1997,  the  FASB  also  issued   Statement  of
                        Financial  Accounting  Standards No. 131 (SFAS No. 131),
                        Disclosure  About  Segments of an Enterprise and Related
                        Information,  which is effective for the Company's  year
                        ending  February 27, 1999.  SFAS No. 131 changes the way
                        public  companies report  information  about segments of
                        their  business  in  their   financial   statements  and
                        requires them to report selected segment  information in
                        their  quarterly  reports.  Adoption  of  SFAS  No.  131
                        relates to disclosure  within the  financial  statements
                        and is not  expected  to have a  material  effect on the
                        Company's  financial  statements.

                        j. Fiscal Year

                        The Company's  fiscal year ends on the Sunday nearest to
                        February 28. The fiscal  years ended  February 27, 2000,
                        February  27, 1999 and  February  28, 1998  contained 52
                        weeks.

                        k. Reclassification

                        Certain  prior year  amounts have been  reclassified  in
                        order to conform to the current year's presentation.

                        l. Use of Estimates

                        In  preparing   the  Company's   financial   statements,
                        management is required to make estimates and assumptions
                        that   affect  the   reported   amounts  of  assets  and
                        liabilities and the 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.

                        m. Impairment of Long-Lived Assets

                        The Company  applies  Statement of Financial  Accounting
                        Standards  No. 121,  Accounting  for the  Impairment  of
                        Long-Lived  Assets  and  for  Long-Lived  Assets  to  be
                        Disposed of. Accordingly,  when indicators of impairment
                        are  present,  the Company  periodically  evaluates  the
                        carrying  value of  property,  plant and  equipment  and
                        intangibles in relation to the operating performance and
                        future   undiscounted   cash  flows  of  the  underlying
                        business.  The Company  adjusts  carrying  amount of the
                        respective  assets if the expected  future  undiscounted
                        cash  flows  are  less  than  their  book   values.   No
                        impairment  loss was required in fiscal years 2000, 1999
                        and 1998.

                                                                              10


                                       31
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                        n. Fair Value of Financial Instruments

                        Based on  borrowing  rates  currently  available  to the
                        Company for debt with similar terms and maturities,  the
                        fair value of the company's  long-term debt  approximate
                        the  carrying  value.  The  carrying  value of all other
                        financial  instruments  potentially subject to valuation
                        risk, principally cash, accounts receivable and accounts
                        payable, also approximate fair value.


3. Concentration of     For February 27, 1999,  sales to the  Company's  largest
   Risk                 customer  accounted  for  38.8% of net sales and 23% and
                        18%, respectively, for the two prior fiscal years. Sales
                        to the second  largest  customer in the 1999 fiscal year
                        were  33.6% of net sales and 22% and 19%,  respectively,
                        for  the  1998  and  1997  fiscal  years. As  previously
                        described,  K Mart, which represented $0 of net sales in
                        the 1999 fiscal year, and 16% and 40%, for the two prior
                        fiscal  years,  advised  the  Company it would no longer
                        continue its  commitment to the Brittania  trademark and
                        consequently, the Company currently has no business with
                        this customer.  No other customer accounts for more than
                        10% of the Company's  consolidated  net sales for fiscal
                        1999 and 1998.

4. Private Placement    On August 15, 1996, the Company completed a $3.5 million
                        private placement with an investment partnership.  Terms
                        of this  transaction  included  the  issuance of 250,000
                        shares and $2,760,000 of 12.5% convertible  subordinated
                        debentures   which  are  due   August  15,   2001.

                        The convertible subordinated debentures are secured by a
                        second  mortgage  on  the  Company's  manufacturing  and
                        distribution facility located in Cartersville,  Georgia.
                        In conjunction with the sale of this property  completed
                        on  October 1, 1997 (see Note 7),  the  Company  prepaid
                        $707,000  of these  debentures.

                        The  debentures,  after giving effect to the  prepayment
                        related to the sale of the Company's  facility  referred
                        to above,  were  convertible  into the Company's  common
                        stock  over  the  next  five   years.   The   investment
                        partnership  waived all conversion rights.

                        The agreement grants the investor  certain  registration
                        rights for the shares issued and the  conversion  shares
                        to be issued.

                        The difference  between the purchase price of the shares
                        issued and their fair  market  value on August 15,  1996
                        aggregated  $197,500.  This was  reflected  as  deferred
                        issue  cost and  will be  amortized  over  the  expected
                        five-year   term   of   the   subordinated   convertible
                        debentures.   The   prorated   portion  of  these  costs
                        associated with the prepaid $707,000 of these debentures
                        was  recognized  in the  accounting  period in which the
                        event  occurred.

                        Costs associated with this private placement  aggregated
                        $409,000 including $104,000 related to the shares issued
                        which  have  been  charged  to  paid  in  capital.   The
                        remaining balance of $305,000 will be amortized over the
                        five-year  term of the  debentures.

                        The  Company  was in  default  in  respect  to  interest
                        payments  due on the  subordinated  debt in August 1997,
                        and again in  February  1998.  In  September  1997,  the
                        Subordinated debt holder and the Company entered into an
                        agreement to extend the cure period on the default. This
                        forbearance  agreement was extended month by month

                                                                              11


                                       32
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                        until May 1998. In May 1998, the Company entered into an
                        agreement  with  the  debt  holder  to  extend  the cure
                        period,  with  respect  to  $322,551  in prior  interest
                        payment  defaults  and for the  interest  payment due in
                        August 1998, until December 1998. In return, the Company
                        agreed to secure the debentures by a first priority lien
                        on all the  assets of the  Company,  to the  extent  not
                        otherwise prohibited under the revolving credit facility
                        (Note 8), and to issue five-year warrants convertible to
                        16,5000,000 shares of the Company's stock at an exercise
                        price of  $.10.  The  Company  obtained  an  independent
                        valuation  of  this   transaction,   in  the  amount  of
                        $175,000,  and this  amount was  expensed in fiscal year
                        1998.  The Company is  currently in default for interest
                        payments due since  August 1997 on this note,  including
                        the  interest  payment due  February  1999.  There is no
                        forbearance  agreement in effect  subsequent to December
                        1998  and  therefore,   the  outstanding   liability  of
                        $2,052,986  is  classified  as a current  liability.  In
                        October   1999,   the  Company   assigned  the  accounts
                        receivable,   inventory   and  all  law   suits  to  the
                        subordinated creditor.


5. Unusual (Credit)     In  November,   1992,  the  Company   acquired   Phoenix
   Charge               Associates,  Inc.,  a  manufacturing  facility in Puerto
                        Rico,  pursuant to a stock purchase  agreement.  Phoenix
                        had  been  an  exclusive  contractor  for  the  Company,
                        manufacturing  many of the Company's  product  lines.  A
                        portion  of the  purchase  price was  subordinated  debt
                        payable  to the  former  owners  of  Phoenix,  of  which
                        $300,000 was due February 2, 1998. In April,  1993,  the
                        Company  discovered an inventory variance of $1,700,000,
                        principally attributable to unrecorded manufacturing and
                        material  cost  variance  at the Puerto  Rico  facility,
                        which were incurred  prior to the Company's  acquisition
                        of this facility.  As a result, the Company initiated an
                        action against the former owners of the facility as more
                        fully described in Note 12. Accordingly,  in fiscal 1995
                        the Company  eliminated  this payable and reflected such
                        reduction  as an  unusual  credit in the 1995  financial
                        statements.

                        In March of fiscal  1994,  the  Company  terminated  the
                        employment  contracts of its Chairman and Vice-Chairman.
                        In accordance with the underlying  agreement,  they were
                        paid in aggregate of approximately  $400,000 per year in
                        severance and other benefits, through February 27, 1999.

                        As of February 27, 2000,  the accrued  unusual charge of
                        $77,083  represents  payments due under the  termination
                        agreements to the former Chairman and Vice-chairman.  As
                        of October 1997,  pending  negotiation of more favorable
                        terms, payment under these agreements was suspended.

                                                                              12


                                       33
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

6. Inventories          Inventories  are recorded at the lower of cost or market
                        value  using the  first  in-first-out  (FIFO)  cost flow
                        method, and are summarized as follows:
<TABLE>
<CAPTION>

                                                    February 27,     February 27,       February 28
                                                       2000             1999              1998
                        ---------------------------------------------------------------------------
                        <S>                           <C>          <C>               <C>
                        Raw materials                 $    --      $       --        $  166,646
                        Work in process                    --              --           756,959
                        Finished goods                     --       1,108,860         2,166,778
                        ---------------------------------------------------------------------------
                                                      $    --      $1,108,860        $3,090,383
                        ---------------------------------------------------------------------------
</TABLE>

7. Property, Plant      Property, plant and equipment are summarized as follows:
   and Equipment

<TABLE>
<CAPTION>

                                                           February 27,     February 27,    February 28,
                                               ---------------------------------------------------------
                                                              2000               1999           1998
                                               ---------------------------------------------------------
                        <S>                                 <C>             <C>               <C>
                        Land                                $    --         $       --        $       --
                        Buildings and improvements               --             26,034             9,130
                        Machinery and equipment                  --          1,485,090         3,384,115
                        Furniture and fixtures                   --            142,489           791,242
                        --------------------------------------------------------------------------------
                                                                 --          1,653,613         4,184,487
                        Less accumulated depreciation            --          1,115,090         3,226,412
                        --------------------------------------------------------------------------------
                                                            $    --         $  538,523        $  948,075
                        --------------------------------------------------------------------------------
</TABLE>

                        On  October  1,  1997,   the   Company   completed   the
                        consolidation  of its  facilities  and sold its  152,000
                        square foot  manufacturing and distribution  facility in
                        Cartersville,  Georgia for cash aggregating  $2,850,000.
                        The  Company  reflected  a gain on the sale in its third
                        fiscal  quarter of $793,000.  The proceeds  were used to
                        pay the $525,000 financing secured by this property,  to
                        prepay   $707,000   of  the   convertible   subordinated
                        debentures   secured  by  a  second   mortgage  on  this
                        property,  and  to  pay a  $176,000  prepayment  penalty
                        incurred from the prepayment of the  subordinated  debt.
                        The  remaining  proceeds  were  utilized  to reduce  the
                        revolving credit financing.

  8. Long-Term Debt
     and Notes Payable  a. Revolving  Credit

                        The Company has a $15 million  revolving credit facility
                        which expired in March,  1998,  and has been extended to
                        August 31, 1999. The revolving credit agreement provides
                        for loans based upon eligible  accounts  receivable  and
                        inventory,  a $3,000,000  letter of credit  facility and
                        purchase  money term  loans of up to 75% of the  orderly
                        liquidation   value  of  newly   acquired  and  eligible
                        equipment.  Borrowings  bear  interest  at 2 3/4%  above
                        prime. The agreement  requires,  among other provisions,
                        the maintenance of minimum working capital and net worth
                        levels and also contains restrictions  regarding payment
                        of  dividends.   Borrowings   under  the  agreement  are
                        collateralized by substantially all of the assets of the
                        Company.  At February 27,  2000,  the  revolving  credit
                        facility was not in place.

                                                                              13


                                       34
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


                        b. Capital Leases

                        The  Company  leases  equipment  under  capital  leases.
                        During Fiscal 2000, the Company's equipment was returned
                        for non-payment.

9. Net Earnings (Loss)  The following  table sets forth the computation of basic
   Per Common Share     and diluted loss per share:

<TABLE>
<CAPTION>

                                                                         February 27,    February 27,   February 28,
                                                                              2000          1999            1998
                        ---------------------------------------------------------------------------------------------
                        <S>                                             <C>              <C>            <C>
                        Net earnings (loss)  attributable to common
                            stockholders                                $(1,409,398)     $  937,480     $(2,746,515)
                        Accrued dividends on preference shares          $   (81,074)     $  (81,103)    $   (82,274)

                        Numerator   for  basic  and   diluted   net
                            earnings  (loss)  per  common  share  -
                            earnings (loss)  attributable to common
                            stockholders                                $                $  856,377     $(2,828,789)
                        ---------------------------------------------------------------------------------------------
                        Denominator   for  basic  and  diluted  net
                            earnings  (loss)  per  common  share  -
                            weighted average shares outstanding           3,238,796       3,238,796       4,124,785
                        ---------------------------------------------------------------------------------------------
                        Basic and diluted net  earnings  (loss) per
                            share                                       $      (.40)     $     0.26     $     (0.91)
                        ---------------------------------------------------------------------------------------------
</TABLE>

 10. Income Taxes       Deferred   income  taxes   reflect  the  net  effect  of
                        temporary  differences  between the carrying  amounts of
                        assets and liabilities for financial  reporting purposes
                        and the amount  used for income tax  purposes.  Deferred
                        tax assets and  liabilities  are measured  using enacted
                        tax  rates.  Significant  components  of  the  Company's
                        deferred  taxes at February 27, 2000,  February 27, 1999
                        and February 28, 1998 are as follows:

<TABLE>
<CAPTION>

                                                                       February 27,     February 27,     February 28,
                                                                           2000             1999             1998
                        ---------------------------------------------------------------------------------------------
                        Deferred tax assets

                           <S>                                           <C>             <C>              <C>
                           Net operating loss carryforward               $7,215,000      $ 6,987,000     $ 7,150,000

                           Accrued severance                                     --           36,000         257,000

                            Excess of tax basis  over book  basis of             --               --         333,000
                            inventories

                           Capitalized inventory costs                           --           22,000          63,000

                           Other                                                 --          121,000         127,000
                        ---------------------------------------------------------------------------------------------

                                                                          7,215,000        7,166,000       7,930,000

                        Deferred tax liabilities

                           Difference   between  the  book  and  tax
                               basis   of   property,    plant   and
                               equipment                                    331,000          331,000         366,000
                        ---------------------------------------------------------------------------------------------

                           Net deferred tax asset                         6,884,000        6,835,000       7,564,000

                           Valuation allowance                            6,884,000       (6,835,000)     (7,564,000)
                        ---------------------------------------------------------------------------------------------

                           Net deferred taxes                            $       --      $        --     $        --
                        ---------------------------------------------------------------------------------------------
</TABLE>

                                                                              14


                                       35
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                        The  Company  anticipates  utilizing  its  deferred  tax
                        assets   only  to  the  extent  of  its   deferred   tax
                        liabilities. Accordingly, the Company has fully reserved
                        all  remaining  deferred  tax  assets,  which it  cannot
                        presently utilize.  The increase in valuation  allowance
                        of $49,000 is equal to the  decrease in net deferred tax
                        assets.

                        For tax purposes at February 27, 2000, the Company's net
                        operating loss  carryforward was $20,200,000,  which, if
                        unused,  will  expire  from  2009 to 2014.  Certain  tax
                        regulations  relating  to the  change in  ownership  may
                        limit the Company's ability to utilize its net operating
                        loss  carryforward if the ownership  change, as computed
                        under each regulation, exceeds 50%. Through February 27,
                        2000,  the change in ownership was less than 50%.

                        There  was no income  tax  provision  (benefit)  for the
                        fiscal  years 2000,  1999 and 1998.

                        The following is a reconciliation of the normal expected
                        statutory  federal income tax rate to the effective rate
                        reported  in  the  financial  statements.

<TABLE>
<CAPTION>
                                                              February  27,    February 27,   February 28,
                                                                  2000           1999           1998
                        ------------------------------------------------------------------------------------------
                        <S>                                      <C>            <C>           <C>
                        Computed "expected"  provision for:
                          Federal income taxes                   (35.0)%        (35.0)%       (35.0)%

                          Valuation  allowance                    35.0           35.0          35.0
                        ------------------------------------------------------------------------------------------
                        Actual   provision  for  income  taxes      -- %           -- %          -- %
                        ------------------------------------------------------------------------------------------
</TABLE>

11. Stockholders'       a. Stock Options
    Equity

                        The 1972 stock option plan, as amended,
                        provides  for the  issuance of options to purchase up to
                        340,000  shares of common  stock at the market  value of
                        the date of grant.  Options  are  exercisable  up to ten
                        years from the date of grant and vest at 20% per year.

                        The Company has adopted the  disclosure-only  provisions
                        of SFAS No. 123. Accordingly, no compensation costs have
                        been  recognized  for grants  made  under the  Company's
                        stock option plan. Had compensation cost been determined
                        based on the fair value,  as  determined  in  accordance
                        with the  requirements  of SFAS No.  123, at the date of
                        grant of stock  option  awards,  the increase in the net
                        loss for fiscal  2000,  1999 and 1998 would be  $91,000,
                        $91,000 and $91,000,  respectively. In fiscal 2000, 1999
                        and 1998 there were no awards of stock  options.  During
                        the  initial  phase-in  period  of SFAS  No.  123,  such
                        compensation  may not be  representative  of the  future
                        effects of applying this statement.

                                                                              15


                                       36
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


                        A summary  of  option  activity  for the years  ended
                        February 27, 2000,  February 28, 1999,  and February 28,
                        1998 is as follows:
<TABLE>
<CAPTION>

                                                                                           Weighted
                                                                       Number of           Average
                                                                        Options         Exercise Price
                        ------------------------------------------------------------------------------
                        <S>                                              <C>                  <C>
                           Balance, February 28, 1998                    174,500              $4.84

                            Forfeited                                    (68,500)             $4.51
                        ------------------------------------------------------------------------------
                           Balance, February 28, 1999                    106,000              $5.05

                            Forfeited                                    106,000              $5.05
                        ------------------------------------------------------------------------------
                           Balance, February 27, 2000                         --                 --
                        ------------------------------------------------------------------------------
</TABLE>

                        b. Issuance of Preferred Stock

                        On March 22, 1994,  the Company  sold to its  management
                        group 5,000 shares of non-voting  convertible  preferred
                        stock for $1,000,000.  These shares are convertible into
                        200,000  shares of common stock at the rate of $5.00 per
                        share. These shares provide for cumulative  dividends at
                        a floating rate equal to the prime rate.  Such dividends
                        were  convertible into common stock at the rate of $5.00
                        per share.  The  conversion  rights  were  waived in May
                        1998. These shares are redeemable,  at the option of the
                        Company,  on or  after  February  27,  1999  and  have a
                        liquidation preference of $200 per share. As of February
                        27,  2000,  February  27,  1999 and  February  28,  1998
                        dividends  in  arrears  were   $489,484,   $408,384  and
                        $327,281, respectively.

                        c. Issuance of Treasury Stock

                        In connection  with the Company's  refinancing  on March
                        22, 1994,  the Company  entered  into a $2,000,000  term
                        loan agreement with a financial institution. Pursuant to
                        the  agreement,  the  Company  issued to the bank 10,000
                        treasury common shares related to mandatory prepayments,
                        which were not made.

                        d. Grant of Warrants

                        Warrants  have  been  granted  to  NAN  Investors  LP to
                        purchase 16,500,000 shares of the Company's Common Stock
                        for $.10 per share,  with a five-year term effective May
                        21, 1998.

                                                                              16


                                       37
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
12. Commitments,
    Contingencies
    and Related Party
    Transactions
                        a.  Agreement with  Principal  Stockholders

                        On March 1, 1994, in connection  with the  restructuring
                        described in Note 4, the Company entered into agreements
                        with  its two  principal  stockholders  and a  group  of
                        employees  (the  "Management   Group").  The  agreements
                        provide,  among other things, for :

                        The reimbursement of the principal stockholders, limited
                        to $1.50 per share to the extent that the gross proceeds
                        per  share  from  the  sale  of  common   stock  by  the
                        stockholders   during  the  two-year  period   beginning
                        September  1, 1994 are less than $5.00 per  share.  Such
                        guaranty is  applicable  to a maximum of 150,000  shares
                        sold by such  stockholders,  subject to reductions under
                        certain  circumstances.  The principal stockholders sold
                        157,875  shares  including  88,400 at prices below $5.00
                        per share;  37,125 shares in the fiscal year ended March
                        1, 1997 and  51,275  shares in the year  ended  March 2,
                        1996 which resulted in a charge to operating  results of
                        $12,000 and $35,000, respectively.

                        Warrants  to  purchase  up to  157,875  shares of common
                        stock  equal  to  the  number  of  shares  sold  by  the
                        principal stockholders.  The exercise price per share of
                        such warrants  would equal the gross  proceeds per share
                        from   the   corresponding   sale   by   the   principal
                        stockholders. Such warrants expire on February 28, 2000.
                        As of  May  14,  1999,  these  warrants  have  not  been
                        requested to be issued, nor have they been issued.

                        The  contribution  to  the  Company  of  life  insurance
                        policies  with  a  cash  value  of  $535,000  which,  if
                        borrowed  by the  Company,  would be  repaid  by the two
                        principal    stockholders.

                        b. Trademark  Licensing  Agreements

                        Royalties   including  minimum  licensing   payments  to
                        GUESS?,  Inc. which owns 9.9% of the outstanding  common
                        stock of the Company, aggregated $74,000 in fiscal 1999,
                        $840,000 in fiscal 1998 and $294,000 in fiscal 1997. Due
                        to the lack of capital  resources  necessary  to develop
                        and  support  the  GUESS?   product  line,  the  company
                        discontinued its GUESS? division in the first quarter of
                        fiscal year 1999.  The GUESS?  license was terminated as
                        of March 31, 1998.

                                                                              17


                                       38
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                        c. Litigation

                        In September  1993,  the Company filed an action against
                        the former owners of Phoenix Associates, Inc. (Phoenix).
                        The Company sought compensatory damages of approximately
                        $4.0 million plus declaratory and injunctive  relief for
                        acts   of   alleged    securities   fraud,    fraudulent
                        conveyances,   breach  of  fiduciary  trust  and  unfair
                        competition  in connection  with the  acquisition of the
                        common stock of Phoenix.

                        Additionally,   the  Company  has  filed  a  demand  for
                        arbitration  which  seeks  compensatory  damages of $4.0
                        million,  rescission  of the stock  purchase  agreement,
                        rescission of an employment agreement and other matters,
                        all  on  account  of  alleged   breaches  of  the  stock
                        employment agreement,  fraudulent  misrepresentation and
                        breach of fiduciary duties.

                        In November  1993,  the former  owners of Phoenix  filed
                        counter  claims  against the Company  alleging  improper
                        termination  with regard to their  employment  agreement
                        and breach of the stock purchase agreement.  The Company
                        settled this litigation and realized  $675,000 from this
                        matter which is included in the  accompanying  statement
                        of operations for 1999 under the caption "Other income."

                        On December 9, 1997,  a former  officer and  director of
                        the Company filed a complaint against the Company in the
                        State Court of Fulton County,  State of Georgia relating
                        to payments  allegedly  due him under the March 18, 1994
                        Severance  Agreement,  and was  seeking  damages  in the
                        amount of  $219,472.  The Company  reached a  settlement
                        with the  officer  in the  amount  of  $100,000  plus an
                        amount based on reaching a certain level of recovery, if
                        any,  from the  Levi  Strauss  litigation.  Based on the
                        settlement  with Levi's,  no  additional  accrual to the
                        former  officer and director was  necessary.

                        On January 15, 1998,  in the Supreme  Court of the State
                        of New  York,  Westchester  County,  a  Director  of the
                        Company filed a complaint against the Company for breach
                        of the March 18, 1994 Severance  Agreement,  and seeking
                        damages  in  the  amount  of  $559,456  plus  applicable
                        interest and legal fees which was accrued as of February
                        28,   1998.   The  Company  on  March  9,  1998,   filed
                        counterclaims in a significantly larger amount. In April
                        1999, the Company reached a settlement with the Director
                        for  $75,000   which   resulted  in  the   reduction  of
                        approximately  $530,000  in the accrued  unusual  charge
                        this reduction is included in the accompanying Statement
                        of  Operations  under the caption  "Other  Income."

                        The  Company is subject to other legal  proceedings  and
                        claims,  which  arise,  in the  ordinary  course  of its
                        business.  In the  opinion of  management,  other  legal
                        proceedings and claims in which the Company is defendant
                        will be  successfully  defended  or  resolved  without a
                        material  adverse effect on the  consolidated  financial
                        position or results of  operations  of the Company.  The
                        Company with respect to the aforementioned litigation at
                        February   27,  2000  has  made  no   provision  in  the
                        accompanying financial statements.

                                                                              18


                                       39
<PAGE>

                                                      Nantucket Industries, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

13. Retirement Plan     The  Company  has a 401(k)  plan for the  benefit of all
                        qualified employees. No contribution was made for fiscal
                        years 2000, 1999 and 1998.

14. Brittania
    Litigation          Beginning  in  September  1988,  the  Company  became  a
                        licensee of Brittania  Sportswear,  Ltd., a wholly-owned
                        subsidiary  of Levi  Strauss & Co., to  manufacture  and
                        market  men's  underwear  and other  products  under the
                        trademark  "Brittania  from Levi  Strauss & Co.".  Sales
                        under this  license  aggregated  $0 in fiscal year 1999,
                        $4.5 million in fiscal 1998, and $14.9 million in fiscal
                        1997.

                        As of January 1, 1997,  the  license  was  renewed for a
                        five-year  term,  including  automatic  renewals  of two
                        years if certain minimum sales levels were achieved.  On
                        January 22, 1997, Levi's announced its intention to sell
                        Brittania.  In light of the actions announced by Levi's,
                        K Mart, the largest  retailer of the Brittania brand and
                        the   Company's   largest   customer    accounting   for
                        approximately  $11 million of the Company's  fiscal 1997
                        sales of Brittania product,  advised the Company that it
                        would no longer continue its on-going  commitment to the
                        Britannia trademark.

                        The Company  filed a lawsuit  against Levi Strauss & Co.
                        and  Brittania  Sportswear,   Ltd.,  alleging  that  the
                        licensor   breached   various   obligations   under  the
                        licensing  agreement,  including without  limitation its
                        covenant  of good faith and fair  dealing.  The  Company
                        agreed  to  settle  this  litigation  in June  1998  and
                        realized approximately $725,000 in gross value from this
                        matter which is included in the  accompanying  statement
                        of operations under the caption "Other income."

15. Subsequent Events   On March 3,  2000,  the  Company  filed for  Chapter  11
                        protection with U.S.  Bankruptcy  Court.  The Company is
                        involved in discussion  with merger  candidates,  should
                        these  discussions  prove  futile,  a move to  Chapter 7
                        liquidation is probable.

                                                                              19


                                       40
<PAGE>

                           [GRANT THORNTON LETTERHEAD]

      Report of Independent Certified Public Accountants

Board of Directors
Nantucket Industries, Inc. and Subsidiaries

      We have audited the accompanying  consolidated balance sheets of Nantucket
Industries,  Inc.  and  Subsidiaries  as of February  27, 1999 and  February 28,
1998,and  the  related  consolidated  statements  of  operations,  stockholders'
deficit and cash flows for each of the three years in the period ended  February
27, 1999.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

      We conducted our audits in accordance  with  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, the financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position of Nantucket
Industries, Inc. and Subsidiaries as of February 27, 1999 and February 28, 1998,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period  ended  February  27, 1999 in  conformity  with
generally accepted accounting principles.

      The accompanying financial statements have been prepared assuming that the
Company will  continue as a going  concern.  As  presented  in the  accompanying
financial  statements,  the  Company  has had  significant  decreases  in sales,
operating  losses,  and defaulted on interest  payments.  These  factors,  among
others  discussed  in Note A to the  accompanying  financial  statements,  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in regard to these  matters  are also  described  in Note A.
These financial statements do not include any adjustments that might result from
the outcome of these uncertainties.


                             /s/ Grant Thornton LLP
Atlanta, Georgia
May 14, 1999


                                       41
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>

                                                              February 27,         February 28,
                                                                  1999                1998
                                                              ------------         ------------
<S>                                                             <C>                 <C>
CURRENT ASSETS
   Cash                                                         $  622,268          $     8,850
   Accounts receivable, less allowance for doubtful
     accounts of $273,000 and $351,000, respectively
     (Notes B and H)                                               961,989            2,879,735
   Inventories (Notes F and H)                                   1,108,860            3,090,383
   Other current assets                                             67,347               71,895
                                                                ----------          -----------

Total current assets                                             2,760,464            3,050,863

PROPERTY, PLANT AND EQUIPMENT,
   NET (Notes G and H)                                             538,522              958,075

OTHER ASSETS, NET                                                  176,601              198,786
                                                                ----------          -----------

                                                                $3,475,587          $ 7,207,724
                                                                ==========          ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                       42
<PAGE>

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>

                                                                 February 27,         February 28,
                                                                     1999                 1998
                                                                 ------------         ------------
<S>                                                                <C>                  <C>
CURRENT LIABILITIES
   Current portion of long-term debt (Note H)                      $                   $ 3,161,286
   Current portion of capital lease obligations (Note H)               56,452               51,898
   Convertible subordinated debt (Note D)                           2,052,986            2,052,986
   Accounts payable                                                   248,538              722,483
   Accrued salaries and employee benefits                              80,740              223,031
   Accrued unusual charge (Note E)                                     95,833              465,000
   Accrued expenses and other liabilities                             863,271              730,478
   Accrued royalties                                                  319,048              763,270
                                                                   ----------          -----------
         Total current liabilities                                  3,716,868            8,170,432

CAPITAL LEASE OBLIGATIONS,
   NET OF CURRENT PORTION (Note H)                                     64,250              120,702

ACCRUED UNUSUAL CHARGE (Notes E and L)                                 78,717
                                                                   ----------          -----------
                                                                    3,781,118            8,469,851

STOCKHOLDERS' DEFICIT (Notes D and K)
   Preferred stock, $.10 par value;  500,000 shares
    authorized,  of which 5,000
     shares have been  designated as  non-voting
     convertible  with  liquidating
     preference of $200 per share
     and are issued and outstanding                                       500                  500
   Common stock, $.10 par value; authorized 20,000,000 shares;
     Issued 3,241,848                                                 324,185              324,185
   Additional paid-in capital                                      12,539,503           12,539,503
   Deferred issuance cost                                             (96,425)            (115,541)
   Accumulated deficit                                            (13,053,357)         (13,990,837)
                                                                 ------------          -----------
                                                                     (285,594)          (1,242,190)
Less 3,052 shares of common stock held
in treasury, at cost                                                    9,937               19,937
                                                                 ------------          -----------
                                                                     (305,531)          (1,262,127)
                                                                 ------------          -----------
                                                                 $  3,475,587          $ 7,207,724
                                                                 ============          ===========
</TABLE>


                                       43
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                             Year ended
                                           February 27,      February 28,         March 1,
                                               1999             1998               1997
                                           ------------      ------------       -----------
<S>                                        <C>              <C>                 <C>
Net sales                                  $11,517,842                          $30,394,409
Cost of sales                                9,107,947       18,581,718          24,395,054
                                           -----------      -----------         -----------

     Gross profit                            2,409,895        3,101,608           5,999,355

Selling, general and
 administrative expenses                     2,879,200        7,166,124           7,546,341
                                           -----------      -----------         -----------

     Operating profit (loss)                  (469,305)      (4,064,516)         (1,546,986)

Other (income) expense
   Net loss (gain) on sale of assets
 (Note G)                                       15,093         (711,686)                 --
   Interest expense                            506,746        1,311,875           1,199,529
   Other income (Note L)                    (1,928,624)              --                  --
                                           -----------      -----------         -----------

     Total other (income) expense           (1,406,785)         600,189           1,199,529

     Earnings (loss) before income taxes       937,480       (4,664,705)         (2,746,515)

Income taxes (Note J)                               --               --                  --
                                           -----------      -----------         -----------
     Net earnings (loss)                   $   937,480      $(4,664,705)        $(2,746,515)
                                           ===========      ===========         ===========

Net earnings (loss) per share
 - basic and diluted                       $      0.26      $     (1.47)        $     (0.91)
                                           ===========      ===========         ===========

Weighted average common
 shares outstanding                          3,238,796        3,238,796           3,124,785
                                           ===========      ===========         ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                       44
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries
                     CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
       Years ended February 27, 1999, February 28, 1998 and March 1, 1997

<TABLE>
<CAPTION>
                                      Preferred stock
                                       designated as
                                      non convertible               Common stock            Additional
                                      ----------------              ------------              paid-in
                                   Shares         Amount        Shares        Amount         capital
                                   ------         ------        ------        ------         -------
<S>                             <C>             <C>            <C>           <C>           <C>
Balance at March 2, 1996            5,000       $      500     2,991,848     $299,185      $11,556,386

Net loss                               --               --            --           --               --

Common stock issued (Note D)           --               --       250,000       25,000          808,117

Balance at March 1, 1997            5,000              500     3,241,848      324,185       12,364,503

Net loss                               --               --            --           --               --

Issue of warrants                      --               --            --           --          175,000

Amortization of deferred costs         --               --            --           --               --
                                ---------       ----------     ---------     --------      -----------
Balance at February 28, 1998        5,000              50      3,241,848      324,185       12,539,503

Net earnings                           --               --            --           --               --

Amortization of deferred costs         --               --            --           --               --
                                ---------       ----------     ---------     --------      -----------

Balance at February 27, 1999        5,000           $  500     3,241,848     $324,185      $12,539,503
                                =========       ==========     =========     ========      ===========


                                 Deferred                          Treasury stock
                                 issuance      Accumulated         --------------
                                   costs         deficit          Shares      Amount          Total
                                   -----         -------          ------      ------          -----
Balance at March 2, 1996        $      --      $(6,579,617)        3,052     $(19,937)      $5,256,517

Net loss                               --       (2,746,515)           --           --       (2,746,515)

Common stock issued (Note D)     (183,772)              --            --           --          649,345
                                  -------      -----------         -----     --------       ----------
</TABLE>


                                       45
<PAGE>

<TABLE>
<CAPTION>

<S>                             <C>           <C>                  <C>       <C>            <C>
Balance at March 1, 1997         (183,772)      (9,326,132)        3,052      (19,937)       3,159,347

Net loss                               --       (4,664,705)           --                    (4,664,705)
Issue of warrants                      --               --            --           --          175,000

Amortization of deferred costs     68,231               --            --           --           68,231
                                ---------     ------------         -----     --------        ---------
Balance at February 28, 1998     (115,541)     (13,990,837)        3,052      (19,937)      (1,262,127)

Net earnings                           --          937,480            --           --          937,480

Amortization of deferred costs     19,116               --            --           --           19,116
                                ---------     ------------         -----     --------       ----------

Balance at February 27, 1999    $ (96,425)    $(13,053,357)        3,052     $(19,937)      $ (305,531)
                                =========     ============         =====     ========       ==========
</TABLE>

The accompanying notes are an integral part of this statement.


                                       46
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                             February 27,    February 28,      March 1,
                                                                 1999            1998            1997
                                                             ------------    ------------     ------------
<S>                                                          <C>             <C>              <C>
Cash flows from operating activities:
   Net earnings (loss)                                       $   937,480     $(4,664,705)     $(2,746,515)
   Adjustments to reconcile net earnings (loss) to
     net cash provided by (used in) operating activities
       Depreciation and amortization                             397,053         569,121          361,425
       Provision for doubtful accounts                            11,210         239,982           32,000
       Loss (gain) on sale of fixed assets                        15,093        (711,686)         (44,496)
       Provision for obsolete and
         slow-moving inventory                                    77,528       1,175,646          415,000
       Issue of warrants                                              --         175,000               --
       Decrease (increase) in assets
        Accounts receivable                                    1,906,536         253,047       (1,487,701)
         Inventories                                           1,903,995         560,411        1,915,199
         Other current assets                                      4,548         419,024          283,886
       (Decrease) increase in liabilities
         Accounts payable                                       (473,945)       (497,380)
         Accrued expenses and other liabilities                 (453,720)        468,708          221,895
         Income taxes payable                                         --          (1,909)          (1,025)
         Accrued unusual charge                                 (547,884)        (92,151)        (408,011)
                                                               ---------       ---------        ---------
              Net cash provided by (used in)
                operating activities                           3,777,894       3,723,859       (1,955,723)

Cash flows from investing activities:
   Additions to property, plant and equipment                    (59,562)       (212,093)        (152,516)
   Proceeds from sale of fixed assets                             51,745       2,808,731           33,756
   Decrease (increase) in other assets                            56,525         348,724         (396,838)
                                                               ---------       ---------        ---------

              Net cash provided by (used in)
                investing activities                              48,708       2,945,362         (515,598)
</TABLE>


                                       47
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED


<TABLE>
<CAPTION>
                                                      February 27,     February 28,      March 1,
                                                          1999             1998            1997
                                                      ------------     ------------     ---------
<S>                                                    <C>             <C>             <C>
Cash flows from financing activities:
   (Repayments) borrowings under line of credit
     agreement, net                                     (3,161,286)     (5,915,589)       173,093
   Payments of short-term debt                                  --              --       (800,000)
   Issuance of convertible subordinated debentures,
     net of expenses                                            --              --      2,351,084
   Payments of long-term debt and capital lease
     obligations                                           (51,898)       (752,693)            --
   Issuance of common stock                                     --              --        740,000
                                                       -----------     -----------     ----------
              Net cash (used in) provided by
                financing activities                    (3,213,184)     (6,668,282)     2,464,177

              Net increase (decrease) in cash              613,418             909         (7,144)

Cash at beginning of year                                    8,850           7,941         15,085
                                                       -----------     -----------     ----------

Cash at end of year                                    $   622,268     $     8,850     $    7,941
                                                       ===========     ===========     ==========
Supplemental Disclosure of Cash Flow Information:
-------------------------------------------------

   Cash paid during the year for:
     Interest                                          $   191,440     $   762,798     $1,173,981
                                                       ===========     ===========     ==========

     Income taxes                                      $        --     $        --     $       --
                                                       ===========     ===========     ==========
</TABLE>
The accompanying notes are an integral part of these statements.


                                       48
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE A - RESTRUCTURING AND LIQUIDITY MATTERS

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Net sales for the fiscal year ended
February 27, 1999 decreased 47% from the prior year level to $11.5 million.
There were no sales under the Brittania license for the current fiscal year, and
sales under the GUESS? license declined by $4.5 million from prior year levels.
As more fully described in Note L, Levi Strauss & Co., the parent company of
Brittania Sportswear Ltd. a licensor which accounted for $14.9 million of the
Company's fiscal 1997 sales, and $4.5 million of fiscal 1998 sales, announced
their intention to sell Brittania. In light of the actions announced by Levi's,
K mart, the largest retailer of the Brittania brand and the Company's largest
customer, advised the Company that it would no longer continue its on-going
commitment to the Brittania trademark. Sales to this customer decreased from $11
million in fiscal year 1997, to $3 million in fiscal 1998, to $0 sales in fiscal
year 1999. In response, the Company filed a lawsuit against Levi Strauss & Co.,
alleging that the licensor breached various obligations under the license
agreement, including without limitation its covenant of good faith and fair
dealing. The Company settled this litigation in June 1998 (see Note L).

      The Company has experienced significant losses in recent years which have
generally resulted in severe cash flow issues that have negatively impacted the
ability of the Company to conduct its business as presently structured. In
fiscal year 1999 due to the lack of capital resources needed to properly develop
and support the GUESS? product line, the Company has discontinued sales under
the GUESS? license. Sales for this product line in fiscal 1999, 1998, and 1997
aggregated $2.5, $7.0 and $4.7 million, with gross margins of 11.8%, 6.4% and
13.2%, respectively. As of March 1999, the Company reached an agreement with
Cluett, Peabody & Co., the licensor of the ARROW trademark, to terminate its
Arrow license (see Note L). Until April 17, 1998, the Company's common stock was
traded on the American Stock Exchange. Because the Company fell below American
Stock Exchange guidelines for continued listing, effective April 17, 1998, the
Company's stock was delisted. The Company has defaulted on interest payments to
its subordinated debt holder, and has no long-term credit facility in place, and
currently three customers represent 90% of the Company's net sales.


                                       49
<PAGE>

      As a result of sharply decreasing revenue, the continuing losses, interest
payment default, the lack of a long-term credit facility and the present sales
concentration over three customers, there can be no assurance that the Company
can continue as a going concern. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classifications of liabilities that might
be necessary should the Company be unable to continue in existence. The ultimate
impact or resolution of these matters may have a materially adverse effect on
the Company or on its financial condition.

      In view of the issues described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon the continued operations of the Company, which
in turn is dependent upon the Company's ability to maintain the financing of its
working capital requirements on a continuing basis and to improve its future
operations.


                                       50
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997
NOTE A - RESTRUCTURING AND LIQUIDITY MATTERS - Continued

      The Company has funded its operating losses by refinancing its debt in
fiscal 1995 and increasing its capital through (a) the sale of $1 million of
non-voting convertible preferred stock to management (Note K) in fiscal 1995;
(b) the fiscal 1995 sale of treasury stock which increased equity by $2.9
million, and (c) the completion in 1996 of a $3.5 million private placement
(Note D).

      The Company has been implementing a restructuring strategy to improve
operating results and enhance its financial resources which included reducing
costs, streamlining its operations and closing its Puerto Rico plant. In
addition, management has implemented additional steps to reduce its operating
costs which it believes are sufficient to provide the Company with the ability
to continue in existence. Major elements of these action plans include:

      o     The phase-out of the GUESS? product line, completed in the second
            quarter of fiscal year 1999.

      o     The sale of the Company's Cartersville, Georgia location (Note G),
            and the relocation to more appropriate space for its packaging and
            distribution facilities.

      o     The transfer of all domestic manufacturing requirements to foreign
            manufacturing contract facilities.

      o     Staff reductions associated with the transfer of manufacturing to
            offshore contractors.

      o     The relocation of executive offices and showrooms to more
            appropriate, lower cost facilities.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. The Company

      Nantucket Industries, Inc. and its wholly-owned subsidiaries (the
"Company") design and distribute branded and private label fashion undergarments
to mass merchandisers and national chains throughout the United States.


                                       51
<PAGE>

2. Principles of Consolidation

      The consolidated financial statements include the accounts of Nantucket
Industries, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.


                                       52
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

       NOTESTO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

3. Accounts Receivable

      An allowance for doubtful accounts is provided based upon historical bad
debt experience and periodic evaluations of the aging of the accounts.

4. Property, Plant and Equipment

      Property, plant and equipment are stated at cost. Equipment under lease is
stated at the present value of the minimum lease payments at the inception of
the lease. Depreciation and amortization are provided by the straight-line
method over the estimated useful lives of the assets as follows:

                                                      Years
                                                      -----

    Buildings and improvements                        20-40
    Machinery and equipment                            3-10
    Furniture and fixtures                               10

5. Other Assets

      Other long-term assets consist primarily of capitalized loan origination
costs. These costs are being amortized over the term of the related credit
agreements. Other assets includes $196,000 and $151,000 of accumulated
amortization as of February 27, 1999 and February 28, 1998, respectively.

6. Stock Options

      As described in Note I, the Company has granted stock options for a fixed
number of shares to employees and officers at an exercise price equal to the
market value of the shares on the date of grant. As permitted by SFAS No. 123,
the Company has elected to continue to account for stock options grants in
accordance with APB No. 25 and recognizes no compensation expense for these
grants.


                                       53
<PAGE>

7.  Income Taxes

      Company and its wholly-owned subsidiaries file a consolidated federal
income tax return. Deferred income taxes arise as a result of differences
between financial statement and income tax reporting.


                                       54
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

8. Earnings (Loss) Per Common Share

      In fiscal year 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), Earnings Per Share, which requires public
companies to present earnings per share and, if applicable, diluted earnings per
share. All comparative periods must be restated as of February 28, 1998 in
accordance with SFAS No. 128. Basic earnings per share is based on the weighted
average number of common shares outstanding without consideration of potential
common share equivalents. Diluted earnings per share is based on the weighted
average number of common and potential common shares outstanding. The
calculation takes into account the shares that may be issued upon exercise of
stock options, reduced by the shares that may be repurchased with the funds
received from the exercise, based on the average price during the year. At
February 27, 1999, the Company had 106,000 outstanding stock options and
warrants to purchase 16,500,000 shares of common stock which would potentially
dilute basic earnings per share but have not been considered for the two prior
periods as they would have had an antidilutive impact (see Note I).

9. Reporting Comprehensive Income

      In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 (SFAS No. 130), Reporting
Comprehensive Income, which is effective for the Company's year ending February
27, 1999. SFAS No. 130 addresses the reporting and displaying of comprehensive
income and its components. Earnings (loss) per share will only be reported for
net earnings (loss), and not for comprehensive income. Adoption of SFAS No. 130
relates to disclosure within the financial statements and is not expected to
have a material effect on the Company's financial statements.

10. Segment Information

      In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131 (SFAS No. 131), Disclosure About Segments of an Enterprise and
Related Information, which is effective for the Company's year ending February
26, 1999. SFAS No. 131 changes the way public companies report information about
segments of their business in their financial statements and requires them to
report selected segment information in their quarterly reports. Adoption of SFAS
No. 131


                                       55
<PAGE>

relates to disclosure within the financial statements and is not expected to
have a material effect on the Company's financial statements.

11. Fiscal Year

      The Company's fiscal year ends on the Sunday nearest to February 28. The
fiscal years ended February 27, 1999, February 28, 1998 and March 1, 1997
contained 52 weeks.

12. Reclassification

      Certain prior year amounts have been reclassified in order to conform to
the current year's presentation.


                                       56
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

13. Use of Estimates

      In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the 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.

14. Impairment of Long-Lived Assets

      The Company applies Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of. Accordingly, when indicators of impairment are present, the
Company periodically evaluates the carrying value of property, plant and
equipment and intangibles in relation to the operating performance and future
undiscounted cash flows of the underlying business. The Company adjusts carrying
amount of the respective assets if the expected future undiscounted cash flows
are less than their book values. No impairment loss was required in fiscal years
1999, 1998 and 1997.

15. Fair Value of Financial Instruments

      Based on borrowing rates currently available to the Company for debt with
similar terms and maturities, the fair value of the Company's long-term debt
approximate the carrying value. The carrying value of all other financial
instruments potentially subject to valuation risk, principally cash, accounts
receivable and accounts payable, also approximate fair value.

NOTE C - CONCENTRATION OF RISK

      For the current fiscal year, sales to the Company's largest customer
accounted for 38.8% of net sales and 23% and 18%, respectively, for the two
prior fiscal years. Sales to the second largest customer in the current fiscal
year were 33.6% of net sales and 22% and 19%, respectively, for the two prior
fiscal years. As previously described, K mart, which represented $0 of net sales
in the current fiscal year, 16% and 40%, for the two prior fiscal years, advised
the Company it would no longer continue its commitment to the Brittania
trademark


                                       57
<PAGE>

and consequently, the Company currently has no business with this customer. No
other customer accounts for more than 10% of the Company's consolidated net
sales for fiscal 1999, 1998 and 1997.


                                       58
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE D - PRIVATE PLACEMENT

      On August 15, 1996, the Company completed a $3.5 million private placement
with an investment partnership. Terms of this transaction included the issuance
of 250,000 shares and $2,760,000 of 12.5% convertible subordinated debentures
which are due August 15, 2001.

      The convertible subordinated debentures are secured by a second mortgage
on the Company's manufacturing and distribution facility located in
Cartersville, Georgia. In conjunction with the sale of this property completed
on October 1, 1997 (see Note G), the Company prepaid $707,000 of these
debentures.

      The debentures, after giving effect to the prepayment related to the sale
of the Company's facility referred to above, were convertible into the Company's
common stock over the next five years. The investment partnership waived all
conversion rights.

      The agreement grants the investor certain registration rights for the
shares issued and the conversion shares to be issued.

      The difference between the purchase price of the shares issued and their
fair market value on August 15, 1996 aggregated $197,500. This was reflected as
deferred issue cost and will be amortized over the expected five-year term of
the subordinated convertible debentures. The prorated portion of these costs
associated with the prepaid $707,000 of these debentures was recognized in the
accounting period in which the event occurred.

      Costs associated with this private placement aggregated $409,000 including
$104,000 related to the shares issued which have been charged to paid in
capital. The remaining balance of $305,000 will be amortized over the five-year
term of the debentures.


                                       59
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE D - PRIVATE PLACEMENT - Continued

      The Company was in default in respect to interest payments due on the
subordinated debt in August 1997, and again in February 1998. In September 1997,
the Subordinated debt holder and the Company entered into an agreement to extend
the cure period on the default. This forbearance agreement was extended month by
month until May 1998. In May 1998, the Company entered into an agreement with
the debt holder to extend the cure period, with respect to $322,551 in prior
interest payment defaults and for the interest payment due in August 1998, until
December 1998. In return, the Company agreed to secure the debentures by a first
priority lien on all the assets of the Company, to the extent not otherwise
prohibited under the revolving credit facility (Note H), and to issue five-year
warrants convertible to 16,500,000 shares of the Company's stock at an exercise
price of $.10. The Company obtained an independent valuation of this
transaction, in the amount of $175,000, and this amount was expensed in fiscal
year 1998. To the extent that the Company has insufficient authorized and
unissued shares of common stock to satisfy the exercise of the warrants, the
Company shall use its best efforts to promptly cause its authorized capital to
be increased to the extent necessary to satisfy the conversion rights in full.
The Company can, at its option within the framework of the forbearance
agreement, prepay all or part of the outstanding subordinated debt at a price
equal to 125% of the principal amount paid. The Company is currently in default
for interest payments due since August 1997 on this note, including the interest
payment due February 1999. There is no forbearance agreement in effect
subsequent to December 1998 and therefore, the outstanding liability of
$2,052,986 is classified as a current liability.

NOTE E - UNUSUAL (CREDIT) CHARGE

      In November, 1992, the Company acquired Phoenix Associates, Inc., a
manufacturing facility in Puerto Rico, pursuant to a stock purchase agreement.
Phoenix had been an exclusive contractor for the Company, manufacturing many of
the Company's product lines. A portion of the purchase price was subordinated
debt payable to the former owners of Phoenix, of which $300,000 was due February
2, 1998. In April, 1993, the Company discovered an inventory variance of
$1,700,000, principally attributable to unrecorded manufacturing and material
cost variance at the Puerto Rico facility, which were incurred prior to the


                                       60
<PAGE>

Company's acquisition of this facility. As a result, the Company initiated an
action against the former owners of the facility as more fully described in Note
L. Accordingly, in fiscal 1995 the Company eliminated this payable and reflected
such reduction as an unusual credit in the 1995 financial statements.

      In March of fiscal 1994, the Company terminated the employment contracts
of its Chairman and Vice-Chairman. In accordance with the underlying agreement,
they were paid in aggregate of approximately $400,000 per year in severance and
other benefits, through February 27, 1999.

      As of February 27, 1999, the accued unusual charge of $95,833 represents
payments due under the termination agreements to the former Chairman and
Vice-Chairman. As of October 1997, pending negotiation of more favorable terms,
payment under these agreements was suspended (see Note L).


                                       61
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE F - INVENTORIES

      Inventories are recorded at the lower of cost or market value using the
first in-first-out (FIFO) cost flow method, and are summarized as follows:

                                   February 27,      February 28,
                                        1999              1998
                                   ------------      ------------
     Raw materials                   $       --        $  166,646
     Work in process                         --           756,959
     Finished goods                   1,108,860         2,166,778
                                     ----------        ----------

                                     $1,108,860        $3,090,383
                                     ==========        ==========

NOTE G - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized as follows:

                                    February 27,     February 28,
                                       1999              1998
                                    ------------     ------------
     Land                            $       --        $       --
     Buildings and improvements          26,034             9,130
     Machinery and equipment          1,485,090         3,384,115
     Furniture and fixtures             142,489           791,242
                                     ----------        ----------
                                      1,653,613         4,184,487
     Less accumulated
     depreciation                     1,115,090         3,226,412
                                     ----------        ----------

                                     $  538,523        $  948,075
                                     ==========        ==========


                                       62
<PAGE>

      On October 1, 1997, the Company completed the consolidation if its
facilities and sold its 152,000 square foot manufacturing and distribution
facility in Cartersville, Georgia for cash aggregating $2,850,000. The Company
reflected a gain on the sale in its third fiscal quarter of $793,000. The
proceeds were used to pay the $525,000 financing secured by this property, to
prepay $707,000 of the convertible subordinated debentures secured by a second
mortgage on this property, and to pay a $176,000 prepayment penalty incurred
from the prepayment of the subordinated debt. The remaining proceeds were
utilized to reduce the revolving credit financing.


                                       63
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE H - LONG-TERM DEBT AND NOTES PAYABLE

1. Revolving Credit

The Company has a $15 million revolving credit facility which expired in March,
1998, and has been extended to August 31, 1999. The revolving credit agreement
provides for loans based upon eligible accounts receivable and inventory, a
$3,000,000 letter of credit facility and purchase money term loans of up to 75%
of the orderly liquidation value of newly acquired and eligible equipment.
Borrowings bear interest at 2-3/4% above prime. The agreement requires, among
other provisions, the maintenance of minimum working capital and net worth
levels and also contains restrictions regarding payment of dividends. Borrowings
under the agreement are collateralized by substantially all of the assets of the
Company. At February 27, 1999, the revolving credit facility was not utilized,
and the Company was not in compliance with the net worth and working capital
covenants.

2. Capital Leases

The Company leases equipment under capital leases. A schedule of the yearly
minimum rental payments is as follows:

          February 2000                          $ 64,488
          February 2001                            64,488
          February 2002                             2,857
                                                 --------
         Total minimum lease payments             131,833
         Less amount representing interest        (11,131)
                                                 --------

         Present value of net minimum lease
         payments                                 120,702
         Less current maturities                  (56,452)
                                                 --------
         Long-term capital lease obligation      $ 64,250
                                                 ========

      At February 27, 1999, the Company has approximately $96,709 of equipment
under capital lease with accumulated depreciation of approximately $29,013.


                                       64
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE  I - NET EARNINGS (LOSS) PER COMMON SHARE

      The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>

                                                          February 27,      February 28,        March 1,
                                                              1999              1999              1998
                                                          ------------     -------------     -------------
<S>                                                       <C>              <C>               <C>
     Net earnings (loss) attributable to common
       stockholders                                       $   937,480      $ (4,664,705)     $ (2,746,515)

     Accrued dividends on
     preference shares                                        (81,103)          (84,603)          (82,274)
                                                          -----------      ------------      ------------
     Numerator for basic and
     diluted net earnings
     (loss) per common share
     - earnings (loss)
     attributable
     to common stockholders                               $   856,377      $ (4,749,308)     $ (2,828,789)
                                                          ===========      ============      ============
     Denominator for basic and diluted net earnings
       (loss) per common share - weighted average
       shares outstanding                                 $ 3,238,796         3,238,796      $  4,124,785
                                                          ===========      ============      ============

     Basic and diluted net
     earnings (loss) per
     share                                                $                $       0.26      $      (1.47)
                                                          ===========      ============      ============
</TABLE>


                                       65
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE J - INCOME TAXES

      Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Deferred tax assets and
liabilities are measured using enacted tax rates. Significant components of the
Company's deferred taxes at February 27, 1999 and February 28, 1998 are as
follows:

                                                February 27,      February 28,
                                                    1999              1998
                                                ------------      ------------
       Deferred tax assets
         Net operating loss carryforward        $ 6,987,000       $ 7,150,000
         Accrued severance                           36,000           257,000
         Excess of tax basis over book
         basis of inventories                            --           333,000
         Capitalized inventory costs                 22,000            63,000
         Other                                      121,000           127,000
                                                -----------       -----------
                                                  7,166,000         7,930,000
       Deferred tax liabilities
         Difference between the book
         and tax basis of property,
         plant and equipment                        331,000           366,000
                                                -----------       -----------

         Net deferred tax asset                   6,835,000         7,564,000
         Valuation allowance                     (6,835,000)       (7,564,000)
                                                -----------       -----------
         Net deferred taxes                     $        --       $        --


                                       66
<PAGE>

      The Company anticipates utilizing its deferred tax assets only to the
extent of its deferred tax liabilities. Accordingly, the Company has fully
reserved all remaining deferred tax assets, which it cannot presently utilize.
The decrease in valuation allowance of $729,000 is equal to the decrease in net
deferred tax assets.

      For tax purposes at February 27, 1999, the Company's net operating loss
carryforward was $18,405,000, which, if unused, will expire from 2009 to 2013.
Certain tax regulations relating to the change in ownership may limit the
Company's ability to utilize its net operating loss carryforward if the
ownership change, as computed under each regulation, exceeds 50%. Through
February 27, 1999, the change in ownership was less than 50%.

      There was no income tax provision (benefit) for the fiscal years 1999,
1998 and 1997.


                                       67
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE J - INCOME TAXES - Continued

      The following is a reconciliation of the normal expected statutory federal
income tax rate to the effective rate reported in the financial statements.
<TABLE>
<CAPTION>

                                            February 27,      February 28,       March 1,
                                               1999               1998             1997
                                            ------------      -----------        --------
    <S>                                        <C>               <C>              <C>
    Computed "expected" provision for
       Federal income taxes                   (35.0)%           (35.0)%          (35.0)%
       Valuation allowance                     35.0              35.0             35.0
                                               ----              ----             ----
       Actual provision for
       income taxes                              --%               --%              --%
                                               ====              ====             ====
</TABLE>

NOTE K - STOCKHOLDERS' EQUITY

1. Stock Options

      The 1972 stock option plan, as amended, provides for the issuance of
options to purchase up to 340,000 shares of common stock at the market value of
the date of grant. Options are exercisable up to ten years from the date of
grant and vest at 20% per year.

      The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation costs have been recognized for grants made under
the Company's stock option plan. Had compensation cost been determined based on
the fair value, as determined in accordance with the requirements of SFAS No.
123, at the date of grant of stock option awards, the increase in the net loss
for fiscal 1999, 1998 and 1997 would be $91,000, $91,000 and $91,000,
respectively. In fiscal 1999, 1998 and 1997 there were no awards of stock
options. During the initial phase-in period of SFAS No. 123, such compensation
may not be representative of the future effects of applying this statement.


                                       68
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE K - STOCKHOLDERS' EQUITY - Continued

      A summary of option activity for the years ended February 28, 1999,
February 28, 1998 and March 1, 1997 is as follows:

                                             Number of     Weighted Average
                                              Options       Exercise Price
                                             ---------     ----------------
       Balance, March 1, 1997                 264,000           $4.95
         Forfeited                            (11,000)          $3.37
                                              -------           -----

       Balance, March 1, 1997                 253,000           $5.02
         Forfeited                            (78,500)          $5.43
                                              -------           -----

       Balance, February 28, 1998             174,500           $4.84
         Forfeited                            (68,500)          $4.51
                                              -------           -----

       Balance, February 27, 1999             106,000           $5.05
                                              =======           =====

      At February 27, 1999 the status of outstanding stock options is summarized
as follows:

                                          Weighted average
         Exercise         Options            remaining              Options
          Prices        Outstanding      contractual life         exercisable
         --------       -----------      ------------------       -----------
           $3.37           31,000            6.7 years               18,600
           $5.75           75,000            5.7 years               60,000
                          -------                                    ------

                          106,000                                    78,600
                          =======                                    ======


                                       69
<PAGE>

The weighted average fair value at date of grant for those options granted in
fiscal 1996 was $2.34. The fair value of each option at date of grant was
estimated using the Black-Scholes options pricing model utilizing the following
weighted average assumptions:

       Dividend yield                                         0%
       Risk-free interest rate                             6.23%
       Expected life after vesting period               10 years
       Expected volatility                                   58%


                                       70
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE K - STOCKHOLDERS' EQUITY - Continued

3. Issuance of Preferred Stock

      On March 22, 1994, the Company sold to its management group 5,000 shares
of non-voting convertible preferred stock for $1,000,000. These shares are
convertible into 200,000 shares of common stock at the rate of $5.00 per share.
These shares provide for cumulative dividends at a floating rate equal to the
prime rate. Such dividends were convertible into common stock at the rate of
$5.00 per share. The conversion rights were waived in May 1998. These shares are
redeemable, at the option of the Company, on or after February 27, 1999 and have
a liquidation preference of $200 per share. As of February 27, 1999 and February
28, 1998 dividends in arrears were $408,384 and $327,281, respectively.

4. Issuance of Treasury Stock

      In connection with the Company's refinancing on March 22, 1994, (Note D),
the Company entered into a $2,000,000 term loan agreement with a financial
institution. Pursuant to the agreement, the Company issued to the bank 10,000
treasury common shares related to mandatory prepayments, which were not made.

5. Grant of Warrants

      Warrants have been granted to NAN Investors LP to purchase 16,500,000
shares of the Company's Common Stock for $.10 per share, with a five-year term
effective May 21, 1998.

NOTE L - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

1. Lease Commitments

      Minimum rental commitments under noncancellable leases (excluding
escalation) having a term of more than one year are as follows:


                                       71
<PAGE>

         Fiscal year ending
               2000                                $ 258,000
               2001                                  260,000
               2002                                  265,000
               2003                                  202,000
               2004                                    3,000
                                                   ---------

                                                   $ 988,000
                                                   =========

Rental expense under operating leases, including escalation amounts was
approximately $249,000, $228,007 and $266,000 for the fiscal years ended
February 27, 1999, February 27, 1998 and March 1, 1997, respectively.


                                       72
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE L - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
- Continued

2. Agreement with Principal Stockholders

On March 1, 1994, in connection with the restructuring described in Note A, the
Company entered into agreements with its two principal stockholders and a group
of employees (the "Management Group"). The agreements provide, among other
things, for:

      The reimbursement of the principal stockholders, limited to $1.50 per
      share to the extent that the gross proceeds per share from the sale of
      common stock by the stockholders during the two-year period beginning
      September 1, 1994 are less than $5.00 per share. Such guaranty is
      applicable to a maximum of 150,000 shares sold by such stockholders,
      subject to reductions under certain circumstances. The principal
      stockholders sold 157,875 shares including 88,400 at prices below $5.00
      per share: 37,125 shares in the fiscal year ended March 1, 1997 and 51,275
      shares in the year ended March 2, 1996 which resulted in a charge to
      operating results of $12,000 and $35,000, respectively.

      Warrants to purchase up to 157,875 shares of common stock equal to the
      number of shares sold by the principal stockholders. The exercise price
      per share of such warrants would equal the gross proceeds per share from
      the corresponding sale by the principal stockholders. Such warrants expire
      on February 28, 2000. As of May 14, 1999, these warrants have not been
      requested to be issued, nor have they been issued.

      The contribution to the Company of life insurance policies with a cash
      value of $535,000 which, if borrowed by the Company, would be repaid by
      the two principal stockholders.

      The cancellation of the outstanding stock options and incentive awards of
      the Group members and the principal stockholders and the authorization to
      issue options to Group members to purchase 150,000 shares of common stock
      based upon certain terms and conditions.


                                       73
<PAGE>

3. Trademark Licensing Agreements

Royalties including minimum licensing payments to GUESS?, Inc. which owns 9.9%
of the outstanding common stock of the Company, aggregated $74,000 in fiscal
1999, $840,000 in fiscal 1998 and $294,000 in fiscal 1997. Due to the lack of
capital resources necessary to develop and support the GUESS? product line, the
Company discontinued its GUESS? division in the first quarter of fiscal year
1999. The GUESS? license was terminated as of March 31, 1998.

Royalty payments including agreement minimums for product sold under the ARROW
brand aggregated $250,000 in fiscal 1999, $250,000 in fiscal 1998 and $315,000
in fiscal 1997. As of March 12, 1999, the Company reached an agreement with the
licensor to terminate the ARROW license agreement. No payment of sales
royalties, or guaranteed minimum royalties were required to be made after
January 1, 1999. The licensor made payment of $50,000 to the Company to settle
any and all outstanding issues connected with the termination of the licensing
agreement.


                                       74
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE L - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
- Continued

4. Litigation

In September 1993, the Company filed an action against the former owners of
Phoenix Associates, Inc. (Phoenix). The Company sought compensatory damages of
approximately $4.0 million plus declaratory and injunctive relief for acts of
alleged securities fraud, fraudulent conveyances, breach of fiduciary trust and
unfair competition in connection with the acquisition of the common stock of
Phoenix.

Additionally, the Company has filed a demand for arbitration which seeks
compensatory damages of $4.0 million, rescission of the stock purchase
agreement, rescission of an employment agreement and other matters, all on
account of alleged breaches of the stock employment agreement, fraudulent
misrepresentation and breach of fiduciary duties.

In November 1993, the former owners of Phoenix filed counter claims against the
Company alleging improper termination with regard to their employment agreement
and breach of the stock purchase agreement. The Company settled this litigation
and realized $675,000 from this matter which is included in the accompanying
statement of operations for 1999 under the caption "Other income."

On December 9, 1997, a former officer and director of the Company filed a
complaint against the Company in the State Court of Fulton County, State of
Georgia relating to payments allegedly due him under the March 18, 1994
Severance Agreement, and was seeking damages in the amount of $219,472. The
Company reached a settlement with the officer in the amount of $100,000 plus an
amount based on reaching a certain level of recovery, if any, from the Levi
Strauss litigation. Based on the settlement with Levi's, no additional accrual
to the former officer and director was necessary.


                                       75
<PAGE>

On January 15, 1998, in the Supreme court of the State of New York, Westchester
County, a Director of the Company filed a complaint against the Company for
breach of the March 18, 1994 Severance Agreement, and seeking damages in the
amount of $559,456 plus applicable interest and legal fees which was accrued as
of February 28, 1998. The Company on March 9, 1998, filed counterclaims in a
significantly larger amount. In April 1999, the Company reached a settlement
with the Director for $75,000 which resulted in the reduction of approximately
$530,000 in the accrued unusual charge this reduction is included in the
accompanying Statement of Operations under the caption "Other Income."


                                       76
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE L - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
- Continued

4. Litigation - Continued

The Company is subject to other legal proceedings and claims, which arise, in
the ordinary course of its business. In the opinion of management, other legal
proceedings and claims in which the Company is defendant will be successfully
defended or resolved without a material adverse effect on the consolidated
financial position or results of operations of the Company. The Company with
respect to the aforementioned litigation at February 27, 1999 has made no
provision in the accompanying financial statements.

5. Letters of Credit

At February 27, 1999, the Company had outstanding letters of credit, primarily
with foreign banks of approximately $597,000 for purposes of collateralizing the
Company's obligations for inventory purchases.

NOTE M - RETIREMENT PLAN

The Company has a 401(k) plan for the benefit of all qualified employees. No
contribution was made for fiscal years 1999, 1998 and 1997.

NOTE N - BRITTANIA LITIGATION

Beginning in September, 1988, the Company became a licensee of Brittania
Sportswear, Ltd., a wholly-owned subsidiary of Levi Strauss & Co., to
manufacture and market men's underwear and other products under the trademark
"Brittania from Levi Strauss & Co". Sales under this license aggregated $0 in
fiscal year 1999, $4.5 million in fiscal 1998, and $14.9 million in fiscal 1997.

As of January 1, 1997, the license was renewed for a five-year term, including
automatic renewals of two years if certain minimum sales levels were achieved.
On January 22, 1997, Levi's announced its intention to sell Brittania. In light
of the actions announced by Levi's, K mart, the largest retailer of the


                                       77
<PAGE>

Brittania brand and the Company's largest customer accounting for approximately
$11 million of the Company's fiscal 1997 sales of Brittania product, advised the
Company that it would no longer continue its on-going commitment to the
Britannia trademark.

The Company filed a lawsuit against Levi Strauss & Co. and Brittania Sportswear,
Ltd., alleging that the licensor breached various obligations under the
licensing agreement, including without limitation its covenant of good faith and
fair dealing. The Company agreed to settle this litigation in June 1998 and
realized approximately $725,000 in gross value from this matter which is
included in the accompanying statement of operations under the caption "Other
income."


                                       78
<PAGE>

                   Nantucket Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
             February 27, 1999, February 28, 1998 and March 1, 1997

NOTE O - SUBSEQUENT EVENT (UNAUDITED)

Subsequent to year-ended February 27, 1999, the Company ceased all operations
and sold certain inventory and fixed assets as well as turned over the
collection of all accounts receivable to the primary lender of the Company in
order to satisfy a portion of the outstanding debt secured by the assets. The
carrying value of the inventory and fixed assets sold was approximately
$1,000,000. The Company expects to seek relief from the remaining debt
outstanding, to all creditors, through a voluntary petition under Chapter 11 of
the United States Bankruptcy Code in February 2000. Pending Bankruptcy Court
approval of the Disclosure Statement as adequate, the Company intends to solicit
votes on the Plan of Reorganization ("the Plan") from the Company's secured
lenders and stockholders. From the Filing Date of the Plan until the Effective
Date of the Plan, the Company will operate its business as a
debtor-in-possession subject to the jurisdiction of the Bankruptcy Court.


                                       79
<PAGE>

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

      Grant Thornton LLP was the Company's independent certifying accountants
for the fiscal years ended February 27, 1999 and February 28, 1998. Effective
April 1, 2000, the Company's board of directors resolved to terminate that
firm's appointment and to engage Pilotto, Cunzio & Associates LLP, as the
Company's certifying accountants for the fiscal year ended February 27, 2000.
During the last two fiscal years and all interim subsequent periods, the Company
did not consult with Pilotto, Cunzio & Associates LLP.

      The reports of Grant Thornton on the financial statements of Company for
the past two fiscal years, contained no adverse opinion or disclaimer of
opinion, nor was either qualified or modified as to uncertainty, audit scope or
accounting principle except that both of such reports were modified with respect
to substantial doubt respecting the ability of Company to continue as a going
concern.

      In connection with the audits of the two fiscal years ended February 27,
1998 and February 28, 1999, and during the subsequent interim period preceding
their dismissal, there were no disagreements between the Company and Grant
Thornton on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to their satisfaction, would have caused Grant Thornton to make
reference to the subject matter of the disagreement in connection with their
reports.

      In connection with the audits of the two fiscal years ended February 27,
1999 and February 28, 2000, and during the subsequent interim period preceding
their dismissal, Grant Thornton did not advise Company that:

      (A) internal controls necessary for Company to develop reliable financial
statements did not exist;

      (B) information had come to their attention that led them to no longer be
able to rely on management's representations or made them unwilling to be
associated with the financial statements prepared by management;

      (C) there was a need to expand significantly the scope of their audit, or
that information had come to their attention during such time periods that if
further investigated might: (i) materially impact the fairness or reliability of
either: a previously issued audit report or the underlying financial statement;
or the financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report, or (ii) cause it to be unwilling to rely on management's
representations or be associated with Company's financial statements;


                                       80
<PAGE>

      (D) information had come to their attention that they had concluded
materially impacted the fairness or reliability of either (i) a previously
issued audit report or the underlying financial statements, or (ii) the
financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report.

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

Directors, Executive Officers and Significant Employees

      The following sets forth, as of June 27, 2000, the names and ages of all
directors, executive officers, and other significant employees of the Company;
the date when each director was appointed; and all positions and offices in the
Company held by each. Each director will hold office until the next annual
meeting of shareholders and until his or her successor has been elected and
qualified:

                                                                      Date
                                         Positions                 Appointed
            Name               Age         Held                     Director
-------------------------      ---       ---------                 ---------
   John H. Treglia             57     Director, President,        Jan. 18, 2000
                                        and Secretary

   Dr. Frank J. Castanaro      49     Director                    Feb. 17, 2000

   George D. Gold              78     Director                             1966

   Marsha Ellis                39     Treasurer and
                                       Chief Accounting Officer


      Set forth below is information regarding the principal occupations of each
current director during the past five years or more. None of the directors or
principal executive officers holds the position of director in any other public
company.

      Mr. Treglia is a graduate of Iona College, from which he received a BBA in
Accounting in 1964. Since January 18, 2000 he has served as president,
secretary, and a direct of the Company, devoting such time to the business and
affairs of the Company as is required for the performance of his duties. From
1964 until 1971, Mr. Treglia was employed as an accountant by Ernst & Ernst and,
thereafter, founded and operated several businesses in various areas. From


                                       81
<PAGE>

1994 through 1998, Mr. Treglia served as a consultant to several companies which
were  in  Chapter  11.  These  included  J.R.B.  Contracting,   Inc.,  Laguardia
Contracting, and Melli-Borrelli Associates. In 1996, Mr. Treglia founded
Accutone  Inc.,  a  company  engaged  in  the  business  of  manufacturing   and
distributing  hearing  aids.  He has served as its  president and CEO since such
time.

      George J. Gold has been a director of the Company since 1966. During his
tenure with the Company he has served as its Chairman of the Board, Chief
Executive officer, and Treasurer of the Company. He resigned all positions other
than director on March 18, 1994.

      Dr. Castanaro, received a Bachelor of Science degree from the University
of Scranton in 1974. In 1978 he graduated from Georgetown University School of
Dentistry and has been in private practice as a dentist since such time. Dr.
Castanaro was appointed as a director of the Company on February 17, 2000. Dr.
Castanaro has assisted two large ophthalmology practices to introduce and expand
their activities in Laser therapy, including, but not limited to. Lasik
procedures. Dr. Castanaro presently practices dentistry in partnership with
Dr.'s Joseph C. and John B. Fontana in Peekskill, New York, and has a solo
practice in Yonkers, New york. Dr. Castanaro is a member of the American Dental
Association, the Dental Society of the State of New York, the Ninth District
Dental Society, and the Peekskill-Yorktown Dental Society.

      Marsha Ellis has served as treasurer and chief accounting officer of the
Company since January 18, 2000. Miss Ellis attended North Carolina State
University at which she studied accounting and computer sciences. She is
currently employed full time as comptroller of St. Ives Country Club. Miss Ellis
served as assistant controller of the company from 1994 until it ceased doing
business in October of 1999. Since January 18, 2000 she has help that position
on a part tinme basis devoting such of her time to the business and affairs of
the Company as is required for the performance of her duties. From 1986 until
1993 Ms. Ellis was a manager in the Accounting Department of The
British-American International Services Group of Companies.

Resignations of Officers and Directors
  During the Fiscal Year

      On June 22, 1999, Stephen Samberg submitted his resignation as chairman,
CEO, and a director of the Company. As of such date, the Company was left with
only one executive officer, Nicholas J. Dmytryszyn, who served in the positions
of secretary, CFO, and treasurer. Members of the Company's former management
have advised present management that Mr. Dmytryszyn resigned all of his
positions with the Company some time in October 1999. The board of directors did
not take any action to fill the vacancies caused by the resignations of Messrs.
Samberg and Dmytryszyn. Therefore, from October 1999 until January 18, 2000 (see
below), the Company had no executive officers in place.


                                       82
<PAGE>

1. Resolution to Reorganize the Company Under Chapter 11 And Appointment of John
   H. Treglia to Administer Same

      At a special meeting of the board of directors, held on January 18, 2000,
the Company's board of directors reviewed the Company's insolvent state, its
total absence of business operations since October 1999 and the lack of
prospects to improve its financial and operational positions. In light of the
company's poor position and prospects, the board approved the filing of a
Voluntarily Petition under Chapter 11 of the United States Bankruptcy Code in
the Federal Court for the Southern District of New York for the purpose of
reorganizing the business and affairs of the Corporation through a merger with
or acquisition of a new and viable business.

      In connection with the projected reorganization of the Company with a new,
viable  business,  John H.  Treglia,  was  appointed  as a director  to fill the
vacancy  caused by the  resignation  of James H.  Carey,  which had  occurred on
October 8, 1999.  Upon the  appointment  of Mr.  Treglia,  the  Company's  board
consisted  of Mr.  Treglia  and four  members of the former  management,  Steven
Schneider,  Marc Feder,  Kenneth Klein, and George J. Gold. Mr. Treglia,  who is
the president and a controlling  shareholder of Accutone Inc., a company engaged
in the  business  of  manufacturing  and  distributing  hearing  aids,  was also
appointed  President and Secretary of the Company and of its four  subsidiaries.
Management is seeking merger or acquisition  candidates in order to continue the
existence of the Company. If management is unsuccessfull in finding at least one
appropriate candidate, the Company and its subsidiaries will cease to exist. The
Plan of Reorganization and the Disclosure Statement, which Management intends to
file with the Bankruptcy  Court,  will propose that the Company acquire Accutone
in a "reverse acquisition".  Before it can be put into effect, the proposed Plan
of Reorganization will have to be approved by the Company's creditors, confirmed
by the  Bankruptcy  Court,  and not  objected  to after  the  fact by the  court
appointed Trustee for the Creditors.  Management is completely unable to predict
or to even  venture an opinion as to whether  all such  required  approvals  and
confirmations  will be forthcoming.  As a result, no prediction can be made with
respect to whether the reverse  acquisition of Accutone by the Company will ever
take place. If it should occur,  such acquisition  would not be considered to be
an arm's length  transaction.  While any transaction between the Company and any
of its affiliates  could present  management with a conflict of interest,  it is
the intention of management  that if such  transaction  should occur,  the terms
thereof will be no less beneficial to the Company than if such transactions were
effected on an arms length basis.

Appointment of Marsha Ellis as Treasurer and Chief Accounting Officer

      At the January 18, 2000 special meeting of the board of directors, Marsh
Ellis, the former assistant comptroller of the Company, was appointed treasurer
and chief accounting officer, of the Company.


                                       83
<PAGE>

Resignation of Three Directors and Appointment of Dr. F.J. Castanaro to Board

      At a meeting of the board of directors held on February 17, 2000, Marc
Feder resigned his position as a director of the Company and the remaining
directors present at the meeting appointed Dr. Frank J. Castanaro to fill the
vacancy on the board caused by Mr. Feder's resignation. Subsequent to the said
meeting, two more directors, Steven Schneider and Kenneth Klein also resigned
from the board. The resignation of Messrs. Feder, Klein, and Schneider were
submitted in light of the termination of the Company's former business and the
projected reorganization of the Company through a Chapter 11 proceeding.

Section 16(a) Ownership Reporting Compliance

      To the best knowledge of current management and the members of management
who resigned in February 2000, during the fical year ended February 27, 2000,
the Company did not receive any Forms 3 or 4 or any amendments thereto, nor did
any director, officer or beneficial owner of more than 10% of the Company's
equity securities fail to file, on a timely basis, reports required by Section
16(a) of the Exchange Act.

ITEM 11. EXECUTIVE COMPENSATION

Compensation of Directors

      Until June of 2000, when the board of directors eliminated compensation
for directors other than those employed by the Company, such persons were paid
$5,000 annually and an additional $500 for each Board or committee meeting
attended in person. No payments were made during the fiscal year ended February
27, 2000.


Compensation Committee Interlocks and Insider Participation

      The Compensation Committee was disbanded in May 1998. As of the date
hereof, the Board of Directors has not established a new Compensation Committee
and it has no plans to do so until such time as the financial position and
prospects of the Company improve significantly.

SUMMARY COMPENSATION TABLE

      The Summary Compensation Table shows compensation information for each of
the fiscal years ended February 27, 2000 and 1999 and February 29, 1998 for all
persons who served as the Company's chief executive officer. No other executive
officers of the Company received compensation in excess of $100,000 during the
fiscal year ended February 27, 2000.


                                       84
<PAGE>

      To the best knowledge of current management, prior to and/or during the
fiscal year ended February 27, 2000 the Company had in effect a 401(k) Profit
Sharing Plan, a Long Term Incentive Plan and one or more Stock Option and SAR
Plans and/or granted stock options outside of specific Plans therefor. As part
of the projected reorganization under Chapter 11, all existing compensation
plans and rights to purchase securities of the Company arising thereunder will
be terminated, as will all outstanding stock options; any funds or assets in the
Company's 401(k) Profit Sharing Plan and any other compensation plan holding
funds or assests of former employees will be distributed by the Trustees of any
such plans to the beneficial owners thereof and all such Plans will also be
terminated.

                               ANNUAL COMPENSATION
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------



                                                                                Other Annual                 All Other
         Name and Principal                                 Salary              Compensation               Compensation
         ------------------
              Position                     Year              ($)                    ($)                         ($)
              --------
                (a)                         (b)              (c)                    (e)                         (i)
------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>                   <C>                       <C>
Stephen M. Samberg                   -----------------------------------------------------------------------------------
Chairman of the Board,                     2000            $278,438              $      0                  $     0
Chief Executive Officer,             -----------------------------------------------------------------------------------
President and Director                     1999            $300,000              $132,700(1)               $ 1,152
                                     -----------------------------------------------------------------------------------
                                           1998            $370,942              $ 79,280(1)               $14,786(2)(3)
------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------
John H. Treglia
President, Chief                     -----------------------------------------------------------------------------------
Executive Officer,                         2000                  $0                    $0                       $0
Secretary and Director               -----------------------------------------------------------------------------------
                                           1999                  $0                    $0                       $0
                                     -----------------------------------------------------------------------------------
                                           1998                  $0                    $0                       $0
------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Other annual compensation paid to Mr. Samberg for fiscal 1999 and 1998 is
      comprised of sales commissions.

(2)   All other compensation for fiscal 1998 was comprised solel of life
      insurance premiums and automobile lease payments.


                                       85
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners.

      The following table sets forth information as of June 27, 2000, with
respect to the persons known to the Company to be the beneficial owners of more
than 5% of the common stock, $.001 par value of the Company and of more than 5%
of the Class A Common Stock of the Company's subsidiary, Tirex R&D. Neither the
Company nor Tirex R&D have any shares of any other class issued or outstanding.

                          PRINCIPAL SHAREHOLDERS TABLE

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------

                 Name and                            Amount and
Title           Address of                            Nature of
 of             Beneficial                            Beneficial            Percent of
Class             Owner                                Ownership             Class (1)
--------------------------------------------------------------------------------------
<C>             <S>                                   <C>                    <C>
Common          NAN Investors, L.P.                   16,500,000(1)(3)       84.86%
Stock           c/o Fundamental Capital Corp.
                291 Ocean Avenue Lawrence, NY 11559

Common          George J. Gold                           359,078             11.09%
Stock           209 Sterling Road
                Harrison, NY 10528
</TABLE>

----------
(1)   Pursuant to the rules of the Securities and Exchange Commission, shares of
      Common Stock which an individual or member of a group has a right to
      acquire within 60 days pursuant to the exercise of options or warrants are
      deemed to be outstanding for the purpose of computing the percentage
      ownership of such individual or group, but are not deemed to be
      outstanding for the purpose of computing the percentage ownership of any
      other person shown in the table. Accordingly, where applicable, each
      individual or group member's rights to acquire shares pursuant to the
      exercise of options or warrants are noted below.

(2)   In accordance with Rule 13d-3(d) of the 1934 Act, assumes conversion of
      16,500,000 currently exercisable warrants into an equal number of shares
      of Common Stock. Such warrants were issued on May 21, 1998 to NAN
      Investors, L.P. pursuant to a Forbearance Agreement filed as Exhibit
      (10)(bbb)(i) to the Form 10-K of which this Amendment is a part. The
      exercise price of the warrants is $0.10 per share and the Company does not
      therefore believe that any of the warrants will be exercised prior to the
      completion of the Chapter 11 proceeding. All outstanding warrants and
      options will be eliminated in the Chapter 11 reorganization.


                                       86
<PAGE>

Security Ownership of Management

      The  following  table sets forth  information  as of June 27,  2000,  with
respect to the beneficial ownership of the Common Stock, $.001 par value, of the
Company by each of the  executive  officers and directors of the Company and all
executive officers and directors as a group:

                         MANAGEMENT SHAREHOLDINGS TABLE

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

Title            Name and                       Amount and
 of             Address of                       Nature of
Class           Beneficial                      Beneficial          Percent of
                 Owner                           Ownership           Class (1)

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

Common          George J. Gold                   359,078                11.09%
Stock           209 Sterling Road
                Harrison, NY 10528

Common          John H. Treglia                      -0-                  -0-%
Stock           45 Ludlow Street
                Suite 602
                Yonkers, NY 10705

Common          Dr. Frank J. Castanaro               -0-                  -0-%
Stock           970 North Broadway,
                Suite 108
                Yonkers, NY 10701


Common          Marsha Ellis                         -0-                  -0-%
Stock           3680 Chartwell Drive
                Suwanee, GA 30024

Common          All directors and                359,078                11.09%
Stock           officers as a
                group (4 persons)

------------------------------------------
(Notes to Table Appear on Following Page)


                                       87

<PAGE>

(1)   Pursuant to the rules of the Securities and Exchange Commission, shares of
      Common Stock which an individual or member of a group has right to acquire
      within 60 days  pursuant to the exercise of options or warrants are deemed
      to be outstanding for the purpose of computing the percentage ownership of
      such  individual or group,  but are not deemed to be  outstanding  for the
      purpose of computing the percentage ownership of any other person shown in
      the  table.  Accordingly,  where  applicable,  each  individual  or  group
      member's  rights to acquire shares  pursuant to the exercise of options or
      warrants are noted below.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The following is a description of any transactions  during the fiscal year
ended  February 27, 2000 or any presently  proposed  transactions,  to which the
Company  was  or is to  be a  party,  in  which  the  amount  involved  in  such
transaction (or series of transactions) was $60,000 or more and which any of the
following persons had or is to have a direct or indirect material interest:  (i)
any  director or executive  officer of the Company;  (ii) any person who owns or
has the right to acquire 5% or more of the issued and  outstanding  common stock
of the  Company;  and  (iii)  any  member  of the  immediate  family of any such
persons.  Current  management is not aware of any  requirements,  which may have
been in effect  prior to January  2000,  with respect to the approval of related
transactions by independent directors. Because of its current limited management
resources,  the Company does not presently have any  requirement  respecting the
necessity  for  independent  directors  to  approve  transactions  with  related
parties.  All  transactions  are  approved by the vote of the  majority,  or the
unanimous  written consent,  of the full board of directors.  All members of the
board of  directors,  individually  and/or  collectively,  could  have  possible
conflicts of interest with respect to transactions with related parties.

      On April 3, 2000,  the Company  entered into an employment  agreement with
John H. Treglia,  its  President  and CEO. The agreement  provides for an annual
salary in the amount of  $150,000  and a term of three  years.  Mr.  Treglia has
agreed to waive the right to be paid in cash until,  in the opinion of the board
of  directors,  the  Company has  sufficient  financial  resources  to make such
payments.  In lieu of cash salary  payments,  Mr.  Treglia may accept  shares of
common stock at, or at a discount from, the market price. His agreement provides
for the  possibility  of both  increases in salary and the payment of bonuses at
the sole  discretion  of the board of  directors,  participation  in any pension
plan,  profit-sharing plan, life insurance,  hospitalization or surgical program
or insurance  program  hereafter  adopted by the Company (to the extent that the
employee  is eligible to do so under the  provisions  of such plan or  program),
reimbursement  of  business  related   expenses,   for  the   non-disclosure  of
information   which  the   Company   deems  to  be   confidential   to  it,  for
non-competition  with the Company for the two-year period following  termination
of  employment  with the Company and for various  other terms and  conditions of
employment.  The Company  does not intend to provide any of its  employees  with
medical,  hospital  or life  insurance  benefits  until the  board of  directors
determines that it has sufficient financial resources to do so.


                                       88

<PAGE>

                                     PART IV

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

      The following is a list of all exhibits and financial  statement schedules
filed as part of this report,  certain of which documents have been incorporated
by reference to documents previously filed on behalf of the Company.

Financial Statements

     The financial statements filed as a part of this report are as follows:

Consolidated Balance Sheets-
February 27, 2000 and February 27, 1999                                   24

Consolidated Statements of Operations - Years Ended
February 27, 2000, February 27, 1999, and February 28, 1998               25

Consolidated Statements of Stockholders' Equity - Years Ended
February 27, 2000, February 27, 1999, and February 28, 1998               26

Consolidated Statements of Cash Flows - Years Ended
February 27, 2000, February 27, 1999, and February 28, 1998               27

Notes to Consolidated Financial Statements                                28

Report of Independent Certified Public Accounts -
 Grant Thornton LLP                                                       41

Consolidated Balance Sheets-                                              42
February 27, 1999 and February 28, 1998

Consolidated  Statements  of  Operations -
  Years Ended  February 27, 1999,                                         44
  February 28, 1998, and March 1, 1997

Consolidated  Statements of Stockholders'  Equity -
 Years Ended February 27,                                                 45
 1999, February 28, 1998, and March 1, 1997


                                       89

<PAGE>

Consolidated Statements of Cash Flows -
Years Ended February 27,  1999,
February 28, 1998, and March 1, 1997                                      47

Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule                                       49

Reports on Form 8-K

      No  reports on Form 8-K have been  filed  during  the last  quarter of the
period covered by this report.

Exhibits

      Exhibits which, in their  entirety,  are  incorporated by reference to any
report, exhibit or other filing previously made with the Securities and Exchange
Commission  are  designated by an asterisk (*) and the location of such material
is included in its description.

Exhibit                            Description                              No.

(3)(a)     Certificate of Incorporation as currently in effect (filed as     *
           Exhibit 3 (a) to Form 10-K Report for the fiscal year ended
           February 27, 1988 (the "1988 10-K").

(3)(b)     By-Laws as currently in effect (filed as Exhibit 3(b) to the      *
           Form 8K dated August 15, 1996).

(3)(c)     Certificate of Incorporation of Nantucket Hosiery Mills Corp.    106
           filed March 1, 2000.

(3)(d)     Certificate of Incorporation of                                  108
           Nantucket Hosiery Mills Inc. filed February 25, 2000.


                                       90

<PAGE>

(4)(a)     Specimen Stock Certificate (filed as Exhibit 4(b) to              *
           Registration Statement on Form S-1, No. 2-87229 filed
           October 17, 1983 (the "1983 Form S-1).

(4)(b)     Share Purchase Rights Agreement, dated as of September 6,         *
           1988, between the Company and State Street Bank and Trust
           Company (filed as Exhibit 4(a) to Form 8-K Report dated as
           of September 6, 1988), as amended by the following:
           Amendment No. 1 dated October 3, 1988 (filed as Exhibit 9
           to Schedule 14D-9 Amendment No. I dated October 4,
           1988), Amendment No. 2 dated October 18, 1988 (filed as
           Exhibit 14 to Schedule 14D-9 Amendment No. 2 dated
           October 19, 1988) and Amendment No. 3 dated November 1,
           1988 (filed as Exhibit 4(c) to Form 10-K Report for the
           fiscal year ended February 25, 1989 (the "1989 10K"),
           Amendment No. 4 dated as of November 17, 1988 (filed as
           Exhibit 1 to Amendment No. 1 to Form 8-A, dated
           November 18, 1988) and Amendment dated as of August 15,
           1994 (filed as Exhibit 4(e) to Form 8-K dated August 19,
           1994).

(4)(c)     Note Acquisition Rights Agreement dated as of September 6,        *
           1988 between the Company and State Street Bank and Trust
           Company, as amended on September 19, 1988 (filed as
           Exhibit 4(b) to Form 8-K Report dated Septemuer 6, 1988)
           as amended by the following: Amendment No. 2 dated
           October 3, 1988 (filed as Exhibit 10 to Schedule 14D-9
           Amendment No. 2 dated October 4, 1988), Amendment No.
           3 dated October 18, 1988 (filed as Exhibit 15 to Schedule
           14D-9 Amendment No. 2 dated October 19, 1988),
           Amendment No. 4 dated November 1, 1988, (filed as Exhibit
           4(d) to the 1989 10-K) and Amendment No. 5 dated as of
           November 17, 1988 (filed as Exhibit 2 to Amendment No. 1
           to Form 8-A, dated November 18, 1988).

(4)(d)     Certificate of Designation, Preferences and Rights of             *
           Non-Voting Convertible Preferred Stock of Nantucket
           Industries, Inc. (filed as Exhibit 4 to Form 8-K Current
           Report dated March 22, 1994 (the "1994 8-K").


                                       91

<PAGE>

(4)(e)     Common Stock Purchase Agreement dated as of August 18,            *
           1994 by and among Company, Guess?, Inc., the Maurice
           Marciano 1990 Children's Trust, the Paul Marciano Trust
           u/t/d 2/20/86, the Armand Marciano Trust u/t/d 2/20/86 and
           The Samberg Group, L.L.C. (filed as Exhibit 4(d) to Form
           8-K dated August 19, 1994).

(4)(f)     Common Stock and Convertible Subordinated Debenture               *
           Purchase Agreement dated as of August 13, 1996 by and
           among Nantucket Industries, Inc. and NAN Investors, L.P.
           (filed as Exhibit 4(f) to the Form 8-K dated August 15,
           1996).

(4)(g)     Sixth Amendment dated as of August 15, 1996 to that certain       *
           Rights Agreement dated as of September 6, 1988 between
           Nantucket Industries, Inc., and State Street Bank & Trust
           Company (filed as Exhibit 4(g) to the Form 8-K dated
           August 15, 1996).

(9)        Voting Trust Agreement by and among the Samberg Group,            *
           L.L.C., George Gold, Donald Gold, Stephen Samberg,
           Stephen Sussman, Robert Polen, Ray Wathen, Nantucket
           Industries, Inc., Robert Rosen and Joseph Mazzella dated as
           of March 21, 1994 (filed as Exhibit 99(b) to 1994 8-K).

(10)(a)    Nantucket Industries, Inc. Savings Plan effective June 1,         *
           1988 by and between the Company and George Gold and
           Donald Gold as  Trustees,  Amendment  No. 1 thereto  dated
           June 22, 1990 and Amendment  No. 2 thereto dated  November
           19, 1990 (filed as Exhibit (10)(a) to Form 10-K Report for
           the  fiscal  year  ended  February  29,  1992  (the " 1992
           10-K")).

(10)(b)    Incentive Stock Option Plan (filed as Exhibit 10(d) to the        *
           1988 10-K).

(10)(c)    1988 Nantucket Industries, Inc. Nonstatutory Stock Option         *
           Plan (filed as Exhibit 10(c) to the 1989 10-K).


                                       92

<PAGE>

(10)(e)(i)   Trademark Agreement between Company and Faberge,                *
             Incorporated dated November 1, 1980 ("Trademark
             Agreement") regarding the trademarks "Faberge" and
             "BRUT" for use with men's and boy's underwear and
             bathing suits (filed as Exhibit 10(g)(i) to 1987 10-K);
             Amendment dated November 16, 1982 regarding the
             trademark "BRUT 33" (filed as Exhibit 10(m) to 1983 S-1);
             Letter dated August 24, 1983 from Faberge to Company with
             respect to renewal of the Trademark Agreement for an
             additional five year period (filed as Exhibit 10(g)(iii) to 1987
             10-K); Amendment dated May 6, 1983 regarding the
             trademarks "BRUT Medallion Design" and "Brut Royale"
             (filed as Exhibit 10(k)(ii) to 1983 S-1; Amendment dated
             December 5, 1983 (filed as Exhibit 10(g)(iv) to the Form
             10-K Report for the fiscal year ended March 3, 1984 (the "
             1984 10-K"); Amendment dated October 3 1, 1984 (filed as
             Exhibit 10(g)(xiii) to the Form 10-K Report for the fiscal
             year ended March 2, 198 5 (the "1985 10-K")); Amendment
             dated March 14, 1986 extending license to include swimwear
             tops (filed as Exhibit 10(g)(v) to the 1986 10-K; Amendment
             dated April 25, 1984 (filed as Exhibit 10(g)(v) to the 1984
             10-K); Letter dated December 31, 1987, extending term of
             Trademark Agreement for an additional five year period and
             deleting men's and boy's bathing suits from coverage (filed
             as Exhibit 10(g)(iii) to the 1988 10-K); extension dated
             February 24, 1989, extending expiration date of the
             Trademark Agreement to February 28, 1998 (filed as Exhibit
             10(e)(ii) to the 1989 10-K).

(10)(e)(ii)  Intentionally omitted.

(10)(e)(iii) License Agreement between the Company and BRITTANIA             *
             Sportswear, Ltd. (subsidiary of Levi Strauss) dated
             September 6, 1988 for the manufacture and sale of men's and
             ladies' underwear under the "BRITTANIA" trademark (filed
             as Exhibit 19 to Form 10-Q for the Quarter ended August 27,
             1988).

(10)(e)(iv)  License Agreement between the Company and BRITTANIA             *
             Sportswear, Ltd. (subsidiary of Levi Strauss) dated December
             31, 1991 for the manufacture and sale of men's and ladies'
             underwear under the "BRITTANIA" trademark (filed as
             Exhibit 10(e)(iv) to Form 10-K for the fiscal year ending
             February 26, 1994.


                                       93

<PAGE>

(10)(e)(v)   Amendment dated January 31, 1996 to License Agreement           *
             between the Company and BRITTANIA Sportswear, Ltd.
             (subsidiary of Levi Strauss) for the manufacture and sale of
             men's and ladies' loungewear under the "BRITTANIA"
             trademark.

(10)(e)(vi)  Intentionally omitted.

(10)(e)(vii) License Agreement between the Company and Brittania             *
             Sportswear Limited, a subsidiary of Levi Strauss & Co.
             effective as of January 1, 1997,  extending  the Company's
             license through December 31, 1999, for the manufacture and
             sale  of  men's   underwear  and   loungewear   under  the
             'BRITTANIA"  trademark (filed as Exhibit 10(e)(iii) to the
             Form 10-Q for the quarter ended August 31, 1996).

(10)(f)      Modification and Extension of Lease dated November 30,          *
             1982 between Company and Satti Development Corp. (filed
             as Exhibit 10(1) to the 1983 10-K); (i) amendment dated
             February 16, 1988 extending term of lease through April 30,
             1993 (filed as Exhibit 10(h) to the 1988 10-K); (ii)
             amendment dated August 15, 1991 expanding dernised
             premises, extending term of lease through May 31, 1997 and
             modifying annual rental (filed as Exhibit 10(f)(ii) to 1992
             Form 10-K).

(10)(f)(i)   Intentionally omitted.

(10)(g)      Promissory Notes from George J. Gold and Donald D. Gold         *
             to Company (filed as Exhibit 10(s) to 1983 S-1).

(10)(h)      Intentionally omitted.


                                      94

<PAGE>

(10)(i)      Amended and Restated Credit Agreement dated December            *
             8, 1989, between Company and Manufacturers Hanover
             Trust Company ("MHTC") for the borrowing of up to
             $11,500,000 of which $8,500,000 is on a revolving
             credit basis until March 5, 1993, the balance to be
             used against letters of credit issued by NIETC for the
             benefit of the Company; $8,500,000 Note dated December
             8, 1989, from Company to MHTC; Continuing Letter of
             Credit Security Agreement dated December 8, 1989,
             between Company and MHTC. (filed as Exhibit 10(i) to
             the Form 10-K Report for the fiscal year ended March
             3, 1990 (the " 1990 10-K") Omitted exhibits to said
             Agreement will be ftunished to the Commission upon
             request. (i) First Amendment dated August 1, 1990 to
             Loan Agreement between Company and M]HTC (filed as
             Exhibit 10(i)(i) to the Form 10-K Report for the
             fiscal year ended March 2, 1991); (ii) Second
             Amendment and Waiver dated as of May 23, 1991 to Loan
             Agreement between Company and MHTC (filed as Exhibit
             (10)(i)(ii) to the 1992 Form 10-K); (iii) Fifth
             Amendment and Waiver dated as of February 22, 1993, to
             Amended and Restated Credit Agreement dated as of
             December 8, 1989, between the Company and Chemical
             Bank, as successor by merger to MHTC (filed as Exhibit
             (iii) to the Form 8-K dated March 4, 1993); (iv) Sixth
             Amendment and Waiver dated as of March 4, 1993, to
             Amended and Restated Credit Agreement (filed as
             Exhibit 10(k)(iv) to 1993 10-K).

(10)(j)(i)   Revolving Credit Agreement dated as of December 30, 1993        *
             by and between Chemical Bank, Nantucket Industries, Inc.,
             Nantucket Mills, Inc. and Nantucket Management
             Corporation  (the  "Credit  Agreement")  (filed as Exhibit
             10(j)(i) to the 1994 Form 10-K).

(10)(j)(ii)  First Amendment to Credit Agreement dated as of February        *
             28, 1994 by and between Chemical Bank, Nantucket
             Industries, Inc., Nantucket Mills, Inc. and Nantucket
             Management Corporation (filed as Exhibit 10(j)(ii) to the
             1994 10-K).

(10)(j)(iii) Second Amendment to Credit Agreement dated as of March          *
             17, 1994 by and between Chemical Bank, Nantucket
             Industries, Inc., Nantucket Mills, Inc. and Nantucket
             Management Corporation (filed as Exhibit 10(j)(iii) to the
             1994 10-K).


                                       95

<PAGE>

(10)(k)      Intentionally omitted.

(10)(n)      Intentionally omitted.

(10)(o)      Intentionally omitted.

(10)(q)      Intentionally omitted.

(10)(s)      Intentionally omitted.

(10)(t)      Intentionally omitted.

(10)(u)      Intentionally omitted.

(10)(v)      Sublicense Agreement dated November 20, 1991 by and             *
             among Dawson Consumer Products, Inc., Company and PGH
             Company regarding the use of the trademark "Adolfo" on
             men's high fashion underwear briefs (filed as Exhibit (10)(v)
             to the 1992 Form 10-K).

(10)(w)      Sublicense Agreement dated October 16, 1992 by and among        *
             Salant Corporation, Dawson Consumer Products, Inc. and the
             Company regarding the use of the trademark "John Henry" on
             men's  high  fashion  underwear  briefs  (filed as Exhibit
             (10)(w) to the 1992 Form 10-K).

(10)(x)      Employment Agreement dated May 26, 1992 by and between          *
             the Company and Stephen P. Sussman (filed as Exhibit 10(x)
             to the Form 10Q Report for November 28, 1992) as amended
             by the Amendment dated August 8, 1994 (filed as Exhibit
             99(a) to Form 8-K dated August 19, 1994).

(10)(x)(i)   Amendment No. 2 dated August 9, 1996 to that certain            *
             Employment Agreement dated as of May 26, 1992 by and
             between Nantucket Industries, Inc. and Stephen P. Sussman
             (filed as Exhibit 99(a) to the Form 8-K dated August 15,
             1996).


                                       96

<PAGE>

(10)(y)      Purchase and Sale Agreement dated as of July 31, 1997 by        *
             and among Mimms Investments, a Georgia general
             partnership and Nantucket Industries, Inc. regarding the sale
             of the Company's property at 200 Cook St., Cartersville,
             GA.(filed as Exhibit (10)(y) to 10Q report for August 30,
             1997).

(10)(y)(i)   Amendment dated August 14, 1997 to Purchase and Sale            *
             Agreement dated as of July 31, 1997 by and among Mimms
             Investments, a Georgia general partnership regarding the sale
             of the Companys property located at 200 Cook St.,
             Cartersville, GA (filed as Exhibit (10)(y)(i) to 10Q report for
             August 30, 1997).

(10)(y)(ii)  Amendment dated August 27, 1997 to Purchase and Sale            *
             Agreement dated as of July 31, 1997 by and among
             MimmsInvestments, a Georgia general partnership regarding
             the sale of the  Companys property located at 200 Cook St.,
             Cartersville, GA (filed as Exhibit (10)(y)(ii) to 10Q report
             for August 31,1997).

(10)(z)(i)   Intentionally omitted.

(10)(z)(ii)  Amended and Restated Employment Agreement by and                *
             between Nantucket Industries, Inc. and Stephen M. Samberg
             (filed as  Exhibit  10(z)(ii)  to the 1994  Form  10-K) as
             amended by the  Amendment  dated  August 8, 1994 (filed as
             Exhibit 99(c) to Form 8-K dated August 19, 1994).

(10)(z)(iii) Amendment No. 2 dated August 9, 1996 to that certain            *
             Employment Agreement dated as of March 18, 1994 by and
             between Nantucket Industries, Inc. and Stephen M. Samberg
             (filed as Exhibit 99(c) to the Form 8-K dated August 15,
             1996).

(10)(z)(iv)  Amendment No. 3 dated July 1, 1997 to that certain              *
             Employment Agreement dated as of March 18, 1994 by and
             between Nantucket Industries, Inc and Stephen M. Samberg
             (filed as Exhibit (10)(z)(iv) to 1998 10-K).


                                       97

<PAGE>

(10)(aa)     License Agreement dated October 5, 1992 between Cluett          *
             Peabody & Co., Inc. and Company with respect to the
             ARROW trademark (filed as Exhibit 2 to Form 10Q Report
             for November 28, 1992).

(10)(bb)     License Agreement dated December 9, 1992 between                *
             GUESS?, Inc. and Company with respect to the GUESS?
             trademark  (filed  as  Exhibit  3 to Form 10Q  Report  for
             November 28, 1992).

(10)(cc)     Company's  1992  Long-Term  Stock  Option Plan (filed as        *
             Exhibit 4 to Form 10Q Report for November 28, 1992).

(10)(dd)     Company's 1992 Executive Performance Benefit Plan (filed        *
             as Exhibit 5 to Form 10Q for November 28, 1992).

(10)(ee)     Management Agreement made as of January 1, 1993 by and          *
             between Nantucket Management Corp. (a subsidiary of
             Company) and Company (filed as Exhibit 10(ee) to 1993
             10-K).

(10)(ff)     License Agreement dated December 21, 1992 between               *
             Company and McGregor Corporation with respect to the
             Botany 500 Trademark (filed as Exhibit 10(ff) to 1993
             10-K).

(10)(ff)(I)  Letter Agreement dated July 10, 1995 amending License           *
             Agreement between the Company and McGregor Corporation
             with respect to the Botany 500 Trademark (filed as Exhibit
             10(ff) to 1993 10-K).

(10)(gg)     Severance Agreement dated as of March 18, 1994 by and           *
             among Nantucket Industries George J. Gold and Donald Gold
             (filed as Exhibit 10(gg)(i) to the Form 10K Report for the
             fiscal year ended February 25, 1995). (Filed as Exhibit
             10(gg) to the 1994 Form 10-K) as amended by the
             Amendment dated August 17, 1994 (filed as Exhibit 99(b) to
             Form 8-K dated August 19, 1994).

(10)(gg)(i)  Letter dated February 28, 1995 amending Severance               *
             Agreement by and among Company, George J. Gold and
             Donald D. Gold (filed as Exhibit 10(gg)(i) to the Form 10-K
             Report for the fiscal year ended February 25, 1995).


                                       98

<PAGE>

(10)(gg)(ii)  Third Amendment dated August 9, 1996 to that certain           *
              Severance Agreement dated as of March 18, 1994 by and
              among Nantucket Industries, Inc. George J. Gold and Donald
              D.  Gold  (filed  as  Exhibit  99(b) to the Form 8-K dated
              August 15, 1996).

(10)(hh)      Agreement dated as of March 1, 1994 by and among the           *
              Samberg Group, L.L.C., George J. Gold, Donald D. Gold,
              Stephen M. Samberg, Stephen P. Sussman, Robert Polen,
              Raymond L. Wathen and Nantucket Industries, Inc. (filed as
              Exhibit 10(hh) to the 1994 Form 10-K).

(10)(ii)      Loan and Security Agreement by and between Nantucket           *
              Industries, Inc. and Congress Financial Corp. dated as of
              March 21, 1994 (filed as Exhibit 99(b) to 1994 8-K).

(10)(ii)(i)   Amendment No. 2 dated July 31, 1996, to Loan and Security      *
              Agreement dated as of March 21, 1994, among Nantucket
              Industries, Inc. and Congress Financial Corp. (filed as Exhibit
              99(o) to the Form 8-K dated August 15, 1996).

(10)(ii)(ii)  Amendment No. 3 dated August 15, 1996, to Loan and             *
              Security Agreement dated as of March 21, 1994, among
              Nantucket Industries, Inc. and Congress Financial Corp. (filed
              as Exhibit 99(p) to the Form 8-K dated August 15, 1996).

(10)(ii)(iii) Amendment No. 4 dated March 18, 1997 to Loan and               *
              Security Agreement dated as of March 21, 1994 among
              Nantucket Industries, Inc and Congress Financial Corp (filed
              as Exhibit (10)(ii)(ih) to 10Q report for August 30, 1997).

(10)(ii)(iv)  Amendment No. 5 dated March 31, 1997 to Loan and               *
              Security Agreement dated as of March 21, 1994 among
              Nantucket Industries, Inc and Congress Financial Corp (filed
              as Exhibit (10)(ii)(iv) to 10Q report for August 30, 1997).

(10)(ii)(v)   Amendment No. 6 dated May 4, 1997, to Loan and Security        *
              Agreement dated as of March 21, 1994, among Nantucket
              Industrie, Inc and Congress Financial Corp (filed as Exhibit
              (10)(ii)(v) to 10Q report for August 30, 1997).


                                       99

<PAGE>

(10)(ii)(vi)  Extention dated March 20, 1998 to the Loan and Security        *
              Agreement dated as of March 21, 1994, among Nantucket
              Industries, Inc and Congress Financial Corp.(filed as Exhibit
              (10)(ii)(vi) to 1998 10-K).

(10)(ii)(vii) Extention No. 2 dated May 20, 1998 to the Loan and             *
              Security Agreement dated as of March 21, 1994, among
              Nantucket Industries. Inc and Congress Financial Corp. (filed
              as Exhibit (10)(ii)(vii) to 1998 10-K).

(10)(jj)      Guaranty by Nantucket Mills, Inc. in favor of Congress         *
              Financial Corp. dated as of March 21, 1994 (filed as Exhibit
              99(c) to 1994 8-K).

(10)(kk)      General Security Agreement by Nantucket Mifls, Inc. in         *
              favor of Congress Financial Corp. dated as of March 21,
              1994 (filed as Exhibit 99(d) to 1994 8-K).

(10)(ll)      Guarantee of Nantucket Management Corporation in favor of      *
              Congress Financial Corp. dated as of March 21, 1994 (filed
              as Exhibit 99(e) to 1994 8-K).

(10)(mm)      General Security Agreement by Nantucket Management             *
              Corporation in favor of Congress Financial Corp. dated as of
              March 21, 1994 (filed as Exhibit 99(f) to 1994 8-K).

(10)(nn)      Amended and Restated Credit Agreement by and among             *
              Chemical Bank, Nantucket Industries, Inc., Nantucket Nfills,
              Inc.  and  Nantucket  Management  Corporation  dated as of
              March 21,  1994  (filed as Exhibit  99(g) to 1994 8-K) and
              amended by the  Amendment  dated  as.of  August  18,  1994
              (filed as Exhibit  99(e) to the Form 8-K dated  August 19,
              1994).

(10)(oo)      Amended and Restated Security Agreement by and between         *
              Nantucket Industries, Inc. and Chemical Bank dated as of
              March 21, 1994 (filed as Exhibit 99(h) to 1994 Form 8-K).

(10)(pp)      Amended and Restated Security Agreement by and between         *
              Nantucket Mills, Inc. and Chemical Bank dated as of March
              21 1994 (filed as Exhibit 99(i) to 1994 8-K).


                                       100

<PAGE>

(10)(qq)      Security Agreement by and between Management                   *
              Corporation and Chemical Bank dated as of March 21, 1994
              (filed as Exhibit 99(j) to 1994 8-K).

(10)(rr)      Deed to Secure Debt, Security Agreement and Assignment of      *
              Leases and Rents by Nantucket Industries, Inc. to Chemical
              Bank dated as of June 8, 1994 (filed as Exhibit 10(ss) to the
              1994 Form 10-K). and Assignment of Leases and Rents by
              Nantucket Industries, Inc. to Congress Financial Corporation
              dated June 8, 1994 (filed as Exhibit 10(rr) to the 1994 Form
              10-K).

(10)(ss)      Deed to Secure Debt, Security Agreement and Assignment of      *
              Leases and Rents by Nantucket Industries, Inc. to Chemical
              Bank dated as of June 8, 1994 (filed as Exhibit 10(ss) to the
              1994 Form 10-K).

(10)(tt)      Employment Agreement dated November 23, 1994 by and            *
              between Company and Raymond L. Wathen (filed as Exhibit
              10(tt) to Form 10-K Report for the fiscal year ended
              February 25, 1995).

(10)(tt)(i)   Amendment to Employment Agreement entered into as of           *
              January 1, 1996 between Company and Raymond L. Wathen.

(10)(uu)      Employment Agreement dated July 1, 1994 by and between         *
              Company and Ronald S. Hoffman (filed as Exhibit 10(uu) to
              Form 10-K Report for the fiscal year ended February 25,
              1995).

(10)(uu)(i)   Letter Agreement dated June 12, 1995 between Company and       *
              Ronald S. Hoffman, extending the term of his employment to
              June 30, 1996.

(10)(uu)(ii)  Letter Agreement dated August 9, 1996 between Company          *
              and Ronald S. Hoffman amending the change of control
              provision in his  employment  agreement  (filed as Exhibit
              99(e) to the Form 8-K dated August 15, 1996).

(10)(uu)(iv)  Letter Agreement dated as of June 30, 1996 between             *
              Company and Ronald S. Hoffman, extending the term of his
              employment to June 30, 1997 (filed as Exhibit 99(j) to the
              Form 8-K dated August 15, 1996).


                                       101

<PAGE>

(10)(vv)      Employment Agreement dated as of January 1996 by and           *
              between Company and Joseph Visconti.

(10)(vv)(i)   Amendment dated August 9, 1996 to that certain                 *
              Employment Agreement dated as of January 1, 1996 by and
              between Nantucket Industries, Inc and Joseph Visconti (filed
              as Exhibit 99(d) to the Form 8-K dated August 15, 1996).

(10)(vv)(ii)  Amendment No. 2 dated as of July 1, 1997 to that certain       *
              Employment Agreement dated as of January 1, 1996 by and
              between Nantucket Industries and Joseph Visconti (filed as
              Exhibit (10)(vv)(ii) to the 1998 10-K Form).

(10)(ww)      First Amendment, dated as of December 15, 1995 to              *
              Amended and Restated Credit Agreement dated as of March
              21, 1994, among Nantucket Industries, Inc. and its
              subsidiaries and Chemical Bank (filed as Exhibit (10)(w) to
              Form 10-Q Report for the quarter ended November 25,
              1995).

(10)(xx)      Complaint filed on March 7, 1997 with Superior Court of        *
              California for the County of San Francisco C.A. No. 985160,
              Nantucket Industries, Inc. v. Levi Strauss & Co., and
              Brittania Sportswear Limited (filed as Exhibit 99(q) to the
              Form 8-K dated March 7, 1997).

(10)(zz)      Press Release dated March 10, 1997 (filed as Exhibit 99(r) to  *
              the Form 8-K dated March 7, 1997).

(10)(aaa)     Lease between Company and First Industrial LP dated            *
              December 3, 1997 (filed as Exhibit 99(s) to Form 8-K dated
              November 26, 1997.

(10)(bbb)     Letter Agreement dated September 30, 1997 from Nantucket       *
              Industries, Inc. to NAN Investers,LP (filed as Exhibit 99(t) to
              the 10Q report for November 29, 1997.)

(10)(bbb)(i)  Letter Agreement No. 2 dated May 19, 1998 from Nantucket       *
              Industries to NAN Investers LP (filed as Exhibit (10)(bbb)(i)
              to 1998 Form 10-K).

(10)(ccc)     Termination of License Agreement dated March 25, 1998
              between GUESS? Inc. and the Company (filed as Exhibit
              (10)(ccc) to 1998 Form 10-K).


                                     102

<PAGE>

(10)(ddd)     Employment Agreement, dated April 3, 2000, between John
              H. Treglia and the Company                                   112

16(a)         Letter, dated June 8, 2000, of Grant Thornton LLP regarding
              change in certifying accountant                              120

23(a)         Consent of Grant Thornton LLP dated June 14, 2000            121

                                   SIGNATURES

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

                                          NANTUCKET INDUSTRIES, INC.

July 3, 2000                              By /s/ John H. Treglia
                                             -----------------------------------
                                                  John H. Treglia, President,
                                                  Secretary and CFO

July 3, 2000                              By /s/ Marsha Ellis
                                             -----------------------------------
                                                  Marsha Ellis, Treasurer and
                                                  Chief Accounting Officer

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

      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 on the dates indicated.

July 3, 2000                                 /s/ John H. Treglia
                                             -----------------------------------
                                                  John H. Treglia, Director

July 3, 2000                                 /s/ Frank Castanaro
                                             -----------------------------------
                                                  Frank Castanaro, Director

July 3, 2000                                 /s/ George J. Gold
                                             -----------------------------------
                                                  George J. Gold, Director


                                       103

<PAGE>

                     INDEX OF EXHIBITS BEING FILED HEREWITH

                                                                           Page
                                                                           ----

3.  (c) Certificate of Incorporation of Nantucket
        Hosiery Mills Corp. filed March 1, 2000 ...........................106


    (d) Nantucket Hosiery Mills Inc. filed
        February 25, 2000 .................................................108


10. (ddd) Employment Agreement, dated April 3, 2000
          between John H. Treglia and the Company .........................112

16. (a) Letter, dated June 8, 2000, of Grant Thornton LLP
        regarding change in certifying accountant .........................120

23. (a) Consent of Grant Thornton LLP dated June 14, 2000 .................121


                                       104