<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549

                                      FORM 10-Q

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

For the quarterly period ended              October 31, 1997                 
                                --------------------------------------------
                                          OR

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

For the transition period from                      to                        
                                ------------------      ----------------------

                            Commission File Number:  04954


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

            Delaware                                  13-2648900              
-------------------------------------    -------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification No.)
incorporation or organization)

    1175 State Street
     New Haven, Connecticut                           06511                   
-------------------------------------     ------------------------------------
(Address of principal executive offices)           (Zip Code)

                                (203) 777-5531                                
------------------------------------------------------------------------------
                  Registrant's telephone number, including area code

                                Not Applicable                                
------------------------------------------------------------------------------
  Former name, former address and former fiscal year, if changed since last 
                                    report.


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

Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.     Yes    X          No      

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

Common Stock, $.05 par value -- 19,762,649 shares as of December 5, 1997.


<PAGE>



                                        INDEX

                                      FORM 10-Q


                         APPAREL AMERICA, INC. AND SUBSIDIARY


Part I.  Financial Information                                  Page No.
------------------------------                                  --------
Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets -                      
           October 31, 1997 and July 31, 1997                     3 - 4

         Condensed Consolidated Statements of Operations - 
           Three Months Ended October 31, 1997 and 1996             5
                   
         Condensed Consolidated Statements of Cash Flows -
           Three Months Ended October 31, 1997 and 1996             6

         Condensed Consolidated Statement of Stockholders'
           Deficit - Three Months Ended October 31, 1997            7 

         Notes to Condensed Consolidated Financial Statements -
           October 31, 1997                                      8 - 12

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                  13 - 15


Part II.  Other Information

Item 6.  Exhibits and Reports on Form 8-K                          16

Signatures                                                         17

<PAGE>


PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
 
APPAREL AMERICA, INC. AND SUBSIDIARY
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share and per share data)
 
<TABLE>
<CAPTION>
                                                                                            OCTOBER 31,  JULY 31,
                                                                                               1997        1997
                                                                                           ------------  ---------
ASSETS                                                                                      (UNAUDITED)   (NOTE)
<S>                                                                                         <C>          <C>

CURRENT ASSETS:
  Cash and cash equivalents...............................................................   $     223   $     238
  Accounts receivable--net................................................................         276         355
  Due from factor--net....................................................................       3,583       5,198
  Inventories--Note B.....................................................................      12,223       8,365
  Due from affiliates.....................................................................      --              64
  Prepaid expenses and other current assets...............................................         485         655
                                                                                            -----------  ---------
      TOTAL CURRENT ASSETS................................................................      16,790      14,875


PROPERTY, PLANT AND EQUIPMENT--at cost
  Machinery and equipment.................................................................       5,487       5,468
  Leasehold improvements..................................................................       2,786       2,773
                                                                                            -----------  ---------
                                                                                                 8,273       8,241
  Less accumulated depreciation and amortization..........................................      (6,403)     (6,214)
                                                                                            -----------  ---------
                                                                                                 1,870       2,027
INTANGIBLES AND OTHER ASSETS:
  Trademark, less accumulated amortization of $255 and $227--- Note C.....................       1,445       1,473
  Cost in excess of net assets acquired, less accumulated amortization of $1,397 and
    $1,357................................................................................       4,288       4,328
  Other assets............................................................................          17          19
                                                                                            -----------  ---------
                                                                                                 5,750       5,820
                                                                                            -----------  ---------
                                                                                             $  24,410   $  22,722
                                                                                            -----------  ---------
                                                                                            -----------  ---------
</TABLE>
 

 
NOTE: The balance sheet at July 31, 1997 has been derived from the audited
consolidated financial statements at that date.
 
See notes to condensed consolidated financial statements
 
                                       3

<PAGE>

APPAREL AMERICA, INC. AND SUBSIDIARY
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share and per share data)
 

 
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT                  OCTOBER 31,    JULY 31,
                                                          1997          1997
                                                      ------------  ----------
                                                       (UNAUDITED)     (NOTE)
<S>                                                      <C>         <C>
CURRENT LIABILITIES:
  Current portion of long-term debt-- Note D...........    $316       $     355
  Current portion of deferred interest--Note D.........     308             330
  Current portion of accrued purchase price    
    -trademark--- Note C...............................     330             464
  Loan payable--revolver (factor)-- Note D.............  15,354          12,204
  Accounts payable.....................................   4,774           3,847
  Other current liabilities and accrued       
    expenses...........................................   1,854           1,860
  Accrued compensation.................................      57             201
                                                        ----------  -----------
        TOTAL CURRENT LIABILITIES......................  22,993          19,261
LONG-TERM DEBT, LESS CURRENT PORTION--NOTE D...........   6,433           6,460
ACCRUED PURCHASE PRICE-- TRADEMARK--NOTE C.............     545             586
DEFERRED INTEREST--LONG TERM PORTION--NOTE D...........     331             400
DIVIDENDS PAYABLE--NOTE F..............................   2,071           1,969
SUBORDINATED NOTE PAYABLE--NOTE E......................     550             550
                                                        ----------  -----------
                    TOTAL LIABILITIES..................  32,923          29,226
                                                        ----------  -----------
$9 CUMULATIVE REDEEMABLE PREFERRED STOCK--NOTE F.......   3,497           3,492
$8.50 CUMULATIVE REDEEMABLE PREFERRED STOCK--NOTE F....   1,118           1,118
STOCKHOLDERS' DEFICIT
  Common stock, par value $.05 per share;      
    authorized 30,000,000 shares; issued
    19,783,310 and 19,783,312..........................     989             989
  Additional paid-in capital...........................  64,071          64,071
  Deficit.............................................. (50,227)        (48,213)
  Less:
    Treasury stock-at cost--20,665 shares..............    (129)           (129)
    Acquisition cost in excess of historical  
      basis of net assets acquired from an
      affiliate........................................  (27,832)       (27,832)
                                                         ----------  -----------
                  TOTAL STOCKHOLDERS' DEFICIT..........  (13,128)       (11,114)
                                                         ----------  -----------
                                                         $24,410       $  22,722
                                                         ----------  -----------
                                                         ----------  -----------
</TABLE>
 
NOTE: The balance sheet at July 31, 1997 has been derived from the audited
consolidated financial statements at that date.
 
See notes to condensed consolidated financial statements.
 
                                      4

<PAGE>

APPAREL AMERICA, INC. AND SUBSIDIARY
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
    (in thousands, except share and per share data)
 
<TABLE>
<CAPTION>
                                                                                            THREE MONTHS ENDED
                                                                                               OCTOBER 31,
                                                                                        --------------------------
<S>                                                                                     <C>           <C>
                                                                                            1997          1996
                                                                                        ------------  ------------
Net sales.............................................................................  $      2,783  $      3,153
Cost of goods sold....................................................................         2,464         2,702
                                                                                        ------------  ------------
  Gross profit........................................................................           319           451
Operating expenses
  Selling, design and promotion.......................................................           557           953
  Shipping and warehousing............................................................           393           400
  General and administrative..........................................................           830           943
                                                                                        ------------  ------------
    Total operating expenses..........................................................         1,780         2,296
                                                                                        ------------  ------------
Operating loss........................................................................        (1,461)       (1,845)
Other non-operating charges:
  Interest and financing costs--net...................................................           436           239
                                                                                        ------------  ------------
                                                                                                 436           239
                                                                                        ------------  ------------
Loss before provision for income taxes................................................        (1,897)       (2,084)
Provision for income taxes............................................................             9             9
                                                                                        ------------  ------------
Net loss..............................................................................        (1,906)       (2,093)
Preferred stock dividends and accretion on redeemable preferred stock.................           108           117
                                                                                        ------------  ------------
Net loss applicable to common stockholders............................................  ($     2,014) ($     2,210)
                                                                                        ------------  ------------
                                                                                        ------------  ------------
Net loss per common share.............................................................  ($      0.10) ($      0.11)
                                                                                        ------------  ------------
                                                                                        ------------  ------------
Average number of common shares outstanding...........................................    19,762,648    19,762,644
                                                                                        ------------  ------------
                                                                                        ------------  ------------
</TABLE>
 
See notes to condensed consolidated financial statements.
 
                                       5
<PAGE>


APPAREL AMERICA, INC. AND SUBSIDIARY
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
(in thousands)
 
<TABLE>
<CAPTION>
                                                                                                THREE MONTHS ENDED
                                                                                                   OCTOBER 31,
                                                                                               --------------------
<S>                                                                                            <C>        <C>
                                                                                                 1997       1996
                                                                                               ---------  ---------
OPERATING ACTIVITIES:
Net cash used in operating activities........................................................  ($  4,507) ($  5,819)
                                                                                               ---------  ---------
INVESTING ACTIVITIES:
  Purchases of property, plant and equipment.................................................        (32)      (200)
                                                                                               ---------  ---------
Net cash used in investing activities........................................................        (32)      (200)
                                                                                               ---------  ---------
FINANCING ACTIVITIES:
  Proceeds from revolving debt...............................................................      3,150      5,770
  Increase in long-term debt.................................................................     --            300
  Payment of preferred stock dividends.......................................................     --            (24)
  Payments on long-term debt.................................................................       (241)       (60)
  Decrease in due from factor................................................................      1,615     --
                                                                                               ---------  ---------
Net cash provided by financing activities....................................................      4,524      5,986
DECREASE IN CASH AND CASH EQUIVALENTS........................................................        (15)       (33)
Cash and cash equivalents, at beginning of period............................................        238         41
                                                                                               ---------  ---------
Cash and cash equivalents, at end of period..................................................  $     223  $       8
                                                                                               ---------  ---------
                                                                                               ---------  ---------
</TABLE>
 
See notes to condensed consolidated financial statements.

                                       6
<PAGE> 

APPAREL AMERICA, INC. AND SUBSIDIARY
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED)
 
    (in thousands, except share data)
 
<TABLE>
<CAPTION>
                                                            COMMON STOCK         ADDITIONAL                              TOTAL
                                                     --------------------------    PAID-IN                            STOCKHOLDERS'
                                                       ISSUED      IN TREASURY     CAPITAL     DEFICIT    OTHER (1)     DEFICIT
                                                     -----------  -------------  -----------  ----------  ----------  ------------
<S>                                                  <C>          <C>            <C>          <C>         <C>         <C>
BALANCE, at August 1, 1997.........................   $     989     ($    129)    $  64,071   ($  48,213) ($  27,832)  ($  11,114)
Net loss for the three months ended October 31,
  1997.............................................                                               (1,906)                  (1,906)
Dividends and accretion on Redeemable Preferred
  Stock............................................                                                 (108)                    (108)
                                                          -----         -----    -----------  ----------  ----------  ------------
Balance, at October 31, 1997.......................   $     989     ($    129)    $  64,071   ($  50,227) ($  27,832)  ($  13,128)
                                                          -----         -----    -----------  ----------  ----------  ------------
                                                          -----         -----    -----------  ----------  ----------  ------------
</TABLE>
 
(1) Represents acquisition costs in excess of historical basis of net assets
    from affiliates.
 
See notes to condensed consolidated financial statements.
 
                                       7
<PAGE>


APPAREL AMERICA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

October 31, 1997

NOTE A--BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have 
been prepared in accordance with the generally accepted accounting principles 
for interim financial information and with the instructions to Form 10-Q and 
Article 10 of Regulation S-X.  Accordingly, they do not include all of the 
information and footnotes required by generally accepted accounting 
principles for complete financial statements.  In the opinion of management, 
all adjustments (consisting of normal recurring accruals) considered 
necessary for a fair presentation have been included.

The Company's financial statements have been prepared on the basis that it is 
a going concern, which contemplates the realization of assets and the 
satisfaction of liabilities in the normal course of business.  The Company 
has experienced negative cash flows over the last three years and recently 
completed a restructuring of its term loan and working capital loan (see Note 
D for additional information).  The Company's continued existence is 
dependent upon its ability to operate profitably, maintain adequate financing 
and generate sufficient cash flows to meet its obligations and sustain 
operations.

For further information, refer to the consolidated financial statements and 
footnotes thereto included in the Company's Annual Report on Form 10-K for 
the year ended July 31, 1997.

The operations of the Company are significantly affected by seasonal 
influences.  The results for the three month period ended October 31, 1997 
are not necessarily indicative of the results that may be expected for a full 
fiscal year.

Net income (loss) per common share has been computed, after deducting 
applicable preferred stock dividend requirements, based upon the weighted 
average number of common shares and equivalents outstanding during each of 
the respective periods.  

NOTE B--INVENTORIES

The components of inventory consist of the following:

                                       October 31,         July 31,
                                          1997               1997   
                                       -----------         ---------
                                               (000's omitted)

         Raw materials                 $  3,584            $   3,036
         Work in process                  2,730                1,219
         Finished goods                   5,909                4,110
                                       ---------          ----------
                                       $ 12,223            $   8,365
                                       ---------          ----------
                                       ---------          ----------


                                        8
<PAGE>

APPAREL AMERICA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
continued

October 31, 1997

NOTE C -- ACQUISITION

In August 1995, the Company acquired from Milady Brassiere and Corset Co.,
("Milady") the trademarks Roxanne and Harbour Casual and the tradename Coco
Reef.  The purchase price for the trademarks and tradename is to be
determined based on percentage of net sales of goods bearing the Roxanne
and Harbour Casual tradenames over the next seven years, with a minimum
guaranteed purchase price of $1,700,000.  The Company paid Milady a
$500,000 advance against such purchase price at the closing and additional
$325,000 has been paid through October 31, 1997.  The Company is amortizing
the trademark on a straight line basis over a period of fifteen years.

NOTE D -- LONG-TERM DEBT AND CREDIT ARRANGEMENTS

Long-term debt consists of the following:

                                      October 31,          July 31,
                                         1997                1997    
                                     ------------         ---------- 
                                             (000's omitted)
                                  
    Term loan payable (a)            $     6,060          $    6,210
    Litigation settlement (b)                 60                  60
    Other (including $598 and $84      
      due to related parties)                629                 695
                                     -----------          ----------
                                     $     6,749          $    6,815
    Less: current portion                   (316)               (355)
                                     -----------          ----------
                                     $     6,433          $    6,460 
                                     -----------          ----------
                                     -----------          ----------

(a) Term Loan 

Effective July 31, 1994, the Company and its lenders entered into a Fifth 
Amended and Restated Credit Agreement which, among other things, extended the 
maturity dates of the term loan, modified the payment terms and interest 
rates and reduced the outstanding principal amount of the debt by a total of 
$4,755,000.  The loan principal is repayable in varying amounts through 
fiscal 2001.  Interest is payable monthly on the outstanding loan balance.

Accounting for the amended agreement was based on Statement of Financial 
Accounting Standards No. 15, "Accounting by Debtors and Creditors for 
Troubled Debt Restructurings."  Accordingly, the carrying amount of the debt 
was reduced to the equivalent of the total future cash payments 
(approximately $8,745,000 of principal and $2,457,000 of estimated future 
interest), resulting in the recognition of an extraordinary gain of 
$4,165,000 in the fourth quarter of fiscal year 1994.  The estimated future 
interest is to be amortized against interest expense over the term of the 
credit agreement.  For the three months ended October 31, 1997 and 1996, 
amortization of deferred interest amounted to $91,000 and $120,000, 
respectively.

                                        9
<PAGE>

APPAREL AMERICA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
continued

October 31, 1997

NOTE D -- LONG TERM DEBT AND CREDIT ARRANGEMENTS - continued

The amended agreement contains various covenants and limitations on  a) the 
creation of new debt, b) the amortization of the subordinated debt (see Note 
D) and the redemption of the cumulative redeemable preferred stock (see Note 
E), c) the level of capital expenditures, and d) dividends and other 
restricted payments, as defined.  The amended agreement also contains certain 
mandatory repayment provisions.

During fiscal year ended July 1996, the Fifth Amended and Restated Credit 
Agreement was amended to authorize, among other things, the establishment of 
a foreign subsidiary, the deferral of a portion of the schedule June 1996 
principal payments, the payment of dividends and redemption of a portion of 
Series H Preferred Stock and the revision of certain financial covenants.

During fiscal year July 1997, the Company negotiated additional amendments to 
the credit agreement dated October 15, 1996, June 1, and September 1, 1997.  
The amendments provided for, among other things, the deferral of certain 
scheduled 1997 and 1998 principal and interest payments, the reduction of the 
loan interest rate and the modification of certain financial covenants.

(b) Litigation Settlement

In December 1994, the Company entered into an agreement to pay $460,000 to a 
former executive in settlement of certain litigation.  According to the terms 
of the agreement, payments aggregating $400,000 have been made through 
October 31, 1997.  The remaining unpaid balance of $60,000 is due in December 
1997.  The unpaid balance has been discounted at an annual effective interest 
rate of 9% to reflect its present value at October 31, 1997.

(c) Other

Other long-term debt is composed of certain equipment and leasehold 
improvement loans under which the Company is to make equal principal payments 
of $14,000 per month and will pay interest monthly at a rate equal to the 
prime rate plus 2% on the unpaid principal balance.

(d) Revolving Line of Credit/Factor Agreement

Prior to September 1, 1995 the Company was party to a $15,000,000 factoring 
agreement whereby the Company assigned substantially all accounts receivable 
to the factor for advances up to 80% of unmatured accounts receivable and 35% 
of eligible inventories.  The assignment was on a recourse basis, whereby the 
Company assumed all credit risk associated with the factored receivables.  
Effective September 1, 1995, the Company entered into a $15,000,000 revolving 
credit facility under which the Company can borrow up to 85% of eligible 
receivables and 50% of eligible inventories along with specified seasonal 
overadvances.  In January 1996, the maximum loan amount was increased 
$23,000,000.  This agreement was amended effective July 1997 to provide for 
the factoring of substantially all accounts receivable on a recourse basis 
and modified the permitted seasonal overadvance borrowing levels.

                                       10
<PAGE>

APPAREL AMERICA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
continued

October 31, 1997

NOTE D -- LONG TERM DEBT AND CREDIT ARRANGEMENTS - continued

The Company pays a commission rate of .45% of the gross amount of each 
invoice evidencing a receivable.  All receivables collections will reduce the 
outstanding principle balance of the revolving line of credit.  In addition, 
the agreement was further amended to modify certain financial covenants and 
cure existing events of default.  The amended agreement is partially secured 
by guarantees aggregating $5,800,000 provided by a corporate affiliate and a 
member of the family holding majority ownership of the Company.  The amended 
agreement expires August 31, 1999.

NOTE E -- SUBORDINATED NOTE PAYABLE 

Effective November 1, 1995, the Company entered into an agreement for the 
exchange of its $1,000,000 Subordinated Note plus unpaid interest of $150,000 
for an Amended and Restated Subordinated Note in the amount of $600,000.  As 
a result of this exchange, a gain of $550,000 was recognized and recorded in 
the 1996 fiscal year.  A principal payment of $50,000 was made in February 
1996 and additional annual principal payments of $50,000 can be made subject 
to excess cash flow provisions of senior debt. Interest accrues on the unpaid 
principal balance of the amended note at a rate of 81/2% and is payable on a 
quarterly basis.  Additional interest accrues at a rate of 4% on the unpaid 
principal balance and is payable on June 30, 1998.  The amended and restated 
note is subordinate to payment in full of all senior debt.  In October 1997, 
the maturity of the amended and restated note was extended from June 30, 1998 
to June 30, 2000.

NOTE F -- CUMULATIVE REDEEMABLE PREFERRED STOCK

The Company's $9 Series B Cumulative Redeemable Preferred Stock has a 
redemption value of $100 per share and is subject to mandatory semi-annual 
redemption requirements commencing on June 30, 1995, with a final redemption 
on December 31, 1997.  Such redemptions are not permitted under the terms of 
the Company's term loan agreement until payment in full of the senior debt.  
The shares were issued at a discount which is being amortized over the 
redemption period.  Accrued dividends on the Series B Preferred Stock are 
subject to certain restricted payment covenants of senior debt. At October 
31, 1997, such accrued dividends amounted to $2,071,000.

In fiscal 1995, the Company entered into agreements providing for the 
exchange of 25,000 shares of the $9 Series B Redeemable Preferred Stock and 
accrued dividends thereon for 11,650 shares of the Company's $8.50 Series H 
Redeemable Preferred Stock plus consideration of $85,000.  The Series H 
Preferred Stock has a redemption value of $100 per share and is subject to 
mandatory annual redemption requirements commencing May 1996 with a final 
redemption in May 2002.  In October 1997, certain scheduled redemptions for 
May 1996 and May 1997 were waived by the holder of the Series H Preferred 
Stock.  At October 31, 1997, 11,185 shares of Series H Preferred Stock were 
outstanding.

                                       11
<PAGE>


APPAREL AMERICA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
continued

October 31, 1997

NOTE G -- FOREIGN SUBSIDIARY - continued

In September 1996, the Company incorporated a foreign subsidiary, Trajes de 
Bano Morelos, S.A. de C.V. ("TBM"), for the purpose of establishing a 
manufacturing facility in Mexico.  The Company's investment in the subsidiary 
to date has been immaterial.  During the fiscal year ended July 31, 1997, the 
Company incurred certain non-recurring expenses associated with the start up 
of operations which amounted to approximately $100,000.  TBM began sewing 
operations in early May 1997.

NOTE H -- RESTRUCTURING AND OTHER SPECIAL CHARGES

In connection with the financial difficulties incurred by the Company in the 
fiscal year ended July 31, 1997, various restructuring and other special 
charges aggregating $750,000 were recorded and accrued as of July 31, 1997.

These charges consisted primarily of certain financial and operational 
consulting fees, severance pay for terminated employees and certain bank and 
professional fees.  At October 31, 1997, the accrued and unpaid balance for 
restructuring and other special charges amounted to $487,000.













                                       12

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Three Months Ended October 31, 1997

Net sales decreased by $370,000, or 11.7%, to $2,783,000 for the three months 
ended October 31, 1997 as compared to $3,153,000 for the three months ended 
October 31, 1996.  The decline in net sales is attributable primarily to 
decreased sales of prior year inventory of approximately $250,000 along with 
an approximate $300,000 decline in sales of Robby Len branded swimwear.  This 
decrease was partially offset by a reduction in return expense of 
approximately $200,000 due to lower levels of customer returns for the three 
months ended October 31, 1997 as compared to the prior year period.

Gross margin as a percentage of net sales decreased to 11.5% for the three 
months ended October 31, 1997 as compared to 14.3% for the three months ended 
October 31, 1996.  The reduction in gross margin is primarily attributable to 
sales of certain promotional swimwear utilizing prior year inventory.

Operating expenses decreased by $516,000, or 22.5%, to $1,780,000 for the 
three months ended October 31, 1997 as compared to $2,296,000 for the three 
months ended October 31, 1996.  This decline is principally attributable to a 
decrease in selling and design expense of approximately $400,000 related to 
the consolidation of showroom facilities, sales and design staff reductions 
and certain selling overhead reductions as a result of the operational 
restructuring of the Company (see Item 2. -- Liquidity and Capital Resources 
- Recent Events for additional information).  In addition, an approximate 
$115,000 decline in general and administrative expenses relating to certain 
staff and administrative overhead reductions also contributed to the decline 
in operating expenses.

The above activities resulted in a reduction in the operating loss by 
$384,000, or 20.8%, to $1,461,000 for the three months ended October 31, 1997 
as compared to an operating loss of $1,845,000 for the three months ended 
October 31, 1996.

Interest and financing costs increased by $197,000, or 82.4%, to $436,000 for 
the three months ended October 31, 1997 as compared to $239,000 in the prior 
year period.  The increase is due primarily to increased revolving debt 
borrowing levels under the revolving loan/factoring agreement which was 
amended in July 1997 (see Item 2 - Liquidity and Capital Resources for 
additional information).  In addition, increased fees and commissions 
relating to the revolving loan/factoring agreement also contributed to the 
increase in interest and financing costs.

The aggregate effect of the above activities resulted in a loss before 
provision for income taxes of $1,897,000 for the three months ended October 
31, 1997 as compared to a loss before provision for income taxes of 
$2,084,000 for the three months ended October 31, 1996.

                                       13
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Liquidity and Capital Resources

The ratio of current assets to current liabilities was 0.73 to 1.00 at 
October 31, 1997 as compared to 0.77 to 1.00 at July 31, 1997.  The working 
capital deficit increased by $1,817,000, or 41.3%, to $6,203,000 at October 
31, 1997 as compared to the working capital deficit of $4,386,000 at July 31, 
1997.  This decrease in working capital is primarily attributable to the net 
loss for the period of $1,906,000.

The Company's working capital requirements are affected significantly by the 
highly seasonal nature of its business through which it markets women's 
swimwear and related sportswear under the Robby Len, Longitude and Roxanne 
labels, among others, to leading national and regional department stores and 
specialty stores.  The Company also markets women's swimwear to a variety of 
national and regional department stores and catalogs under non-branded, or 
"private label", programs.

As a leading manufacturer of women's swimwear, the Company builds inventory 
during the first five months of the fiscal year (August - December) in order 
to meet its shipping requirements in January through June (approximately 80% 
of annual sales are shipped in this time period).  The $3,858,000 increase in 
inventory and $1,615,000 decrease in due from factor for the three months 
ended October 31, 1997 are attributable to the seasonality of the business.  
The $777,000 increase in accounts payable and accrued expenses and the 
$3,150,000 increase in the revolving loan balance are primarily attributable 
to the increase in the inventory.  The $4,507,000 of net cash used in 
operating activities for the three months ended October 31, 1997 resulted 
primarily from the net loss for the period (adjusted for non-cash items) 
along with the increases in inventory and accounts payable and accrued 
expenses.

The Company's investing activities consist primarily of purchases of 
machinery and equipment.  During fiscal years 1996 and 1997, the Company made 
certain leasehold improvements and purchased certain production and pattern 
making equipment financed primarily through long-term agreements (see Note D 
to the condensed consolidated financial statements for further information).  
The Company's planned capital expenditures for the next twelve months are not 
material.

In connection with the Company's establishment of a foreign subsidiary (see 
Note G to the condensed consolidated financial statements), approximately 
$300,000 of sewing equipment was purchased in the second and third quarters 
of the fiscal year ended July 31, 1997.  This equipment was financed under 
long-term arrangements discussed above.  In addition, certain start-up costs 
(principally consisting of certain operating overhead costs including 
payroll, travel, legal and professional fees) associated the establishment of 
the manufacturing facility of approximately $100,000 were incurred in fiscal 
1997.  Management believes that the Company's gross profit margin should 
improve as it expands production in Mexico and achieves operating 
efficiencies in that facility.

The Company's primary ongoing cash needs are for working capital 
requirements, capital expenditures, dividends and redemption of Series H 
Preferred Stock and term debt amortization (both principal and interest). The 
three present sources for the Company's liquidity needs are internally 
generated funds, long-term capital expenditure borrowings and short-term 
borrowing available under its revolving loan agreement (see Note D to the 
condensed consolidated financial statements).  Through this agreement, the 
Company finances its inventory and receivables build-up during the first five 
months of the fiscal year and repays these borrowings over the remainder of 
the fiscal year.  The outstanding loan balance under the agreement at October 
31, 1997 was $15,354,000.

                                       14
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Liquidity and Capital Resources - continued

Effective July 1997, this agreement was amended to provide for the factoring 
of substantially all accounts receivable of the Company and for anticipated 
seasonal overadvance requirements for the 1998 fiscal year (see Note D for 
additional information).  The amended agreement is partially secured by 
guarantees aggregating $5,800,000 provided by a corporate affiliate and a 
member of the family holding majority ownership of the Company.

In fiscal year ended July 1997 and September 1997, the Company and its term 
lenders amended the Fifth Amended and Restated Credit Agreement to modify, 
among other things, the principal and interest repayment terms, interest rate 
and financial covenants.  The ability of the Company to meets its foreseeable 
liquidity requirements in the year ahead is contingent upon its ability to 
regain profitability, generate cash flows sufficient to meet its obligations 
and sustain operations and maintain adequate financing with its working 
capital lender and its term lenders.  The Company's accountants have included 
an explanatory paragraph in their 1997 report regarding uncertainties about 
the Company continuing as a going concern.

Recent Events

For the fiscal year ended July 31, 1997, the Company incurred a net loss of 
approximately $6.2 million which was principally attributable to a weak 
retail performance of certain swimwear product lines of the Company which 
resulted in significant inventory liquidation and writedowns.  In addition, 
the Company recorded a $750,000 charge for restructuring in the fourth 
quarter of 1997 relating to the financial and operational restructuring of 
the Company which commenced in May 1997 (see Note H to the condensed 
consolidated financial statements for additional information).  The financial 
restructuring included the renegotiation of the Company's term and working 
capital loans as well as the extension of maturity of its Amended and 
Restated Subordinated Note and waiver of certain redemptions of $8.50 Series 
H Cumulative Redeemable Preferred Stock.  The operational restructuring 
includes a) the discontinuation of certain unprofitable product lines for 
fiscal year July 1998 b) the implementation of an extensive overhead 
reduction program and c) continued growth of low cost offshore production 
sourcing including the expansion of the Company's Mexican production 
subsidiary which commenced operations in May 1997.  It is management's belief 
that this restructuring program will enable the Company to regain 
profitability and provide sufficient cash flow to meet its obligations and 
operational requirements.  However, there can be no assurance that the 
Company will be successful in achieving its plans.

                                       15
<PAGE>


PART II. - OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         a)  Exhibits -- 27 Financial Data Schedule

         b)  Reports on Form 8-K -- none











                                       16


<PAGE>


                                   SIGNATURES



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




                                  Apparel America, Inc.         
                                  ---------------------



Date      December 12, 1997       /s/ Frederick M. D'Amato              
          -----------------       ------------------------
                                  Frederick M. D'Amato, Vice President -
                                  Finance,
                                  both on behalf of the Registrant and as
                                  its Principal Financial Officer








                                       17