<PAGE>





                                      FORM 10-K

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

                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549
                                                              
                        --------------------------------------

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
    SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

    FOR THE FISCAL YEAR ENDED JULY 31, 1996

                                          OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934 [NO FEE REQUIRED]



COMMISSION FILE NUMBER 0-4954                                      

                                APPAREL AMERICA, INC.
                (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


              DELAWARE                         13-2648900
    (STATE OR OTHER JURISDICTION OF         (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)          IDENTIFICATION NO.)

         1175 STATE STREET, NEW HAVEN, CONNECTICUT         06511
         (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)        (ZIP CODE)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 203-777-5531

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                         NONE

             SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                                                  
                        COMMON STOCK, $.05 PAR VALUE PER SHARE
                                   (TITLE OF CLASS)

<PAGE>

         INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.   YES  X     NO     

         INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
RULE 405 OF REGULATION S-K IS NOT CONTAINED HEREIN , AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K.  [  ]

         STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT.  THE AGGREGATE MARKET VALUE SHALL BE COMPUTED
BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND
ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE
DATE OF FILING.


                   COMMON STOCK, $.05 PAR VALUE PER SHARE , AS OF 
                   OCTOBER 10, 1996 - $ 2,743,399                   

                APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                     PROCEEDINGS DURING THE PRECEDING FIVE YEARS:


    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        NO      
   ----      ----

                      (APPLICABLE ONLY TO CORPORATE REGISTRANTS)


    INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:

                     19,762,643 SHARES OF COMMON STOCK, PAR VALUE
                        $.05 PER SHARE, AS OF OCTOBER 22, 1996


                         DOCUMENTS INCORPORATED BY REFERENCE:
                                         NONE
<PAGE>

                                        PART I
                                        ------

ITEM 1.  BUSINESS

INTRODUCTION

         Apparel America, Inc. (the "Company"), was incorporated under the laws
of the State of Delaware on June 14, 1968.  The Company designs, manufactures
and distributes women's swimwear and related sportswear and beachwear. The
Company's products are substantially all manufactured domestically and are
distributed principally within the United States through its Robby Len 
Division.


SALES AND MARKETING; COMPETITION

    The Robby Len Division competes in the misses' swimwear market segment,
which caters to women over 18 years of age.  The Robby Len Division markets its
swimwear primarily under the Robby Len, Roxanne and Coco Reef "branded" labels
to many national and regional department stores, specialty stores and catalogs,
as well as under "private label" programs for many of the nation's leading
retailers.  In addition, the Robby Len Division competes in the discount chain
market under its "Lenee" label.  The "branded" market segment accounts for
approximately $540 million of retail sales, or approximately 49% of the total
$1.1 billion retail women's swimwear industry.  Robby Len is the second largest
misses' swimwear brand and has a market share of approximately 10%.  The top ten
competitors in the branded women's swimwear market, all of which, except for
Robby Len, are privately owned or are subsidiaries of larger companies, account
for an estimated 70% of such sales.  Both the Robby Len and Roxanne labels have
competed well in the misses' swimwear market for over 50 years and the Company
believes that its Robby Len Division offers a high quality product at a
reasonable price.

    Three major customers of the Robby Len Division accounted for an aggregate
of approximately 37% of the Company's total sales for fiscal year ended July
1996.  Shipments to Sears Roebuck & Co. were approximately $5,604,000 (11%) for
the year ended July 31, 1996, $5,301,000 (13%) for the year ended July 31, 1995
and $4,620,000 (13%) for the year ended July 31, 1994. Shipments to Federated
Stores were $7,328,000 (14%) for the year ended July 31, 1996 and less than 10%
of sales for the years ended July 31, 1995 and 1994.  Shipments to May Company
were approximately $6,235,000 (12%) for the year ended July 31, 1996 and less
than 10% of sales for the years ended July 31, 1995 and 1994.


<PAGE>

MANUFACTURING AND DISTRIBUTION

    The Robby Len Division's business is highly seasonal, with peak
manufacturing levels occurring from October through May.  Accordingly, the
largest volume of shipments, representing approximately 80% of its sales, occur
from January through June.  All swimwear is cut and sewn in Robby Len's in-house
manufacturing facilities in New Haven, Connecticut and Hartford, Connecticut or
on a contract basis to the Company's specifications at other domestic outside
facilities and, to a lesser extent, at outside facilities located in Mexico,
Colombia and the Dominican Republic.  Approximately 82% of the fabric cutting
and 33% of the sewing is done at the Company's in-house facilities with the
balance produced at outside contractors.  Approximately 7% of the sewn garments
were produced by off-shore outside contractors.  All finished garments are
shipped to customers from the Company's New Haven, Connecticut manufacturing and
distribution facility.  The Company believes that the use of this combination of
manufacturing facilities enhances the Robby Len Division's manufacturing
flexibility, minimizes quality control problems and insures a relatively low
break-even point.

    The return policy of the Robby Len Division is that a return authorization
must be issued to a customer before merchandise will be accepted at its
facility.  Returns have historically averaged between 3.5% and 4.0% of net
sales.


EMPLOYEES

    During its peak periods during the year ended July 31, 1996, the Robby Len
Division employed approximately 418 employees, including 72 managerial, sales
and clerical employees and 346    employees engaged in the Robby Len Division's
manufacturing operations.  Approximately 298 of the Robby Len Division's
employees are covered by a collective bargaining agreement with the
International Ladies Garment Workers Union (the "ILGWU") and the Company
believes that its employee relations are satisfactory.  The current agreement
with the ILGWU remains in force through May 1997. 

         During the slower manufacturing periods of June through August, the
Robby Len Division employed approximately 175 employees, including 72
managerial, sales and clerical employees and 103  employees engaged in the Robby
Len Division's manufacturing operations, approximately 74 of whom are covered by
the collective bargaining agreement with the ILGWU.


                                         -2-

<PAGE>

PATENTS, TRADEMARKS AND TRADENAMES

    The Company uses a number of trademarks in connection with the business of
the Robby Len Division, including "Robby Len," "Louisa Brooks," "Tall Talk,"
"Shape-Lee," "Fit Zone," "Sport Form," "Longsuit," "Longlines,", "Waterlines,"
"Aquacize" and "Benefit System," each of which is a registered trademark in the
United States for use on women's, misses' and girl's swimwear.  The Company also
uses the trademarks "Roxanne," "Harbour Casual" and the tradename "Coco Reef,"
all of which were acquired in August 1995.  See "Recent Transactions" below.

RAW MATERIALS

    The principal raw materials used by the Company in connection with the
operations of the Robby Len Division are synthetic fabrics, substantially all of
which are a blend of 85% nylon and 15% spandex, commonly referred to as "elastic
fabric".  The Robby Len Division purchases its fabric from major domestic
producers, including Milliken and Company, Darlington Fabrics, Guilford Mills,
Lida, Inc. and Missbrenner, Inc..  The Company expects sufficient supplies of
fabric and other raw material to be available to meet the demands of the Robby
Len Division in the foreseeable future.  The Company is generally able to
purchase its fabric under normal trade credit terms of sixty (60) days.

BACKLOG

    At July 31, 1996 and 1995, the Robby Len Division's backlog of unshipped
customer orders was approximately $2,098,000 and $463,000, respectively. 
Substantially all of the backlog of unshipped orders at July 31, 1996 was filled
by October 25, 1996.

RECENT TRANSACTIONS

    In fiscal 1995, the Company entered into agreements providing for the
exchange of 25,000 shares of its $9.00 Cumulative Preferred Series B Stock and
accrued dividends thereon for 11,650 shares of the Company's $8.50 Cumulative
Preferred Series H Stock ("Series H 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 redemption requirements which commenced on May 1,
1996, with a final redemption on May 1, 2002.

    On August 7, 1995, the Company acquired from Milady Brassiere & Corset Co.,
Inc. ("Milady") the trademarks Roxanne and Harbour Casual as well as the
tradename Coco Reef.  The Company also acquired certain inventory and associated
customer purchase orders.  The purchase price for the trademarks and tradename
is to be determined based on a percentage of net sales of goods bearing the
Roxanne, Harbour Casual and Coco Reef labels over the next seven years.  In
addition, at the Closing (August 7, 1995) the Company 

                                         -3-

<PAGE>

paid an advance against the purchase price of $500,000.  Further, the Company
guaranteed a minimum payment of $1,200,000 (inclusive of the $500,000 advance)
for the first three years and $500,000 for the last four years.

    In related developments, the Company (i) purchased approximately $500,000
of inventory bearing the purchased tradenames as well as assumed matching
customer purchase orders against this inventory and (ii) entered into one year
and two year employment agreements, respectively, with two of the principals of
Milady.  All funds used in the acquisition came from the Company's  internally
generated capital.

    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.  The
amended and restated note is due on June 30, 1998.  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.  The
amended and restated note is subordinate to payment in full of all senior debt.

    During fiscal year 1996, the Company and its senior debt lenders negotiated
three amendments to their credit agreement.  These amendments, among other
things, authorized the establishment of a foreign subsidiary, deferred a portion
of the scheduled June 1996 principal payment, permitted the payment of dividends
and redemption of a portion of Series H Preferred Stock and revised certain
financial covenants.

    In July 1996, outstanding warrants to purchase 3,876,140 shares of the
Company's common stock at a price of $.10 per share were exercised.  The
warrants, which were issued in connection with the conversion of certain debt to
Series F Preferred Stock, were held primarily by affiliates of the Company.

    Effective July 30, 1996, the Company entered into agreements for the
exchange of all outstanding Series E, F and G Preferred Stock for 8,096,940
shares of common stock.  The Series E, F and G Preferred Stock was held
principally by affiliates of the Company or members of the family holding
majority ownership of the Company.

    In September 1996, the Company incorporated a subsidiary in Mexico, Trajes
de Bano Morelos, S.A. de C.V. ("TBM"), for the purpose of establishing a
manufacturing facility in Mexico.  At the present time, it is anticipated that
this facility will begin operations in the spring of 1997.  TBM is projected to
produce approximately 15% of the Company's swimwear within two years of
commencement of operations.

                                         -4-

<PAGE>

ITEM 2.  PROPERTIES

         The Company's principal administrative offices are located at 1175
State Street, New Haven, Connecticut.  In connection with the operation of its
Robby Len Division, the Company leases showroom facilities in New York, Florida
and California, and manufacturing and distribution facilities in Connecticut. 

         The following table sets forth the Company's leased facilities:
                        Type of             Approximate    Expiration
Location                Facility            Square Feet    of Lease  
--------                --------            -----------    ----------

1175 State Street       Manufacturing/         182,500         1999
New Haven, CT            Distribution

1429 Park Street        Manufacturing           38,625         2000
Hartford, CT

1411 Broadway           Showroom                 5,814         2000
30th Floor
New York, NY

110 East 9th Street     Showroom                   880         1997
Los Angeles, CA

777 Northwest           Showroom                   600         1999
72nd Avenue
Miami, FL

1411 Broadway           Showroom                 3,296         2000
30th Floor
New York, NY (1)

777 Northwest           Showroom                   450         1999
72nd Avenue
Miami, FL (1)

110 East 9th Street     Showroom                 1,302         1997
Los Angeles, CA (1)


(1) leased in connection with the acquisition of the Roxanne, Harbour Casual 
and Coco Reef tradenames (See - Recent Transactions)

                                         -5-

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

         The Company is a party to certain litigation arising in the ordinary
course of business.  While the outcome of any litigation has an element of
uncertainty, the Company believes, based in part on the opinions of counsel,
that such litigation is either without merit, or that the Company has
meritorious defenses, or that the outcome of such litigation will not have a
material adverse effect on its financial position.

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

         None

                                       PART II
                                       -------


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

           During the fiscal years ended July 31, 1996 and July 31 1995, the
Company's Common Stock has been traded on the OTC Electronic Bulletin Board. 
The high and low bid quotations for the fiscal years ended July 31, 1996 and
July 31, 1995 according to the National Quotations Bureau, Inc. is as follows:


                                    Fiscal Year         Fiscal Year 
                                   July 31,1996        July 31,1995 
                                  --------------      --------------
                                   High      Low       High      Low
                                  -----     ----      -----     ----

August 1 - October 31             $1.000   $.0625     $.0625   $.0625
November 1 - January 31           $.8750   $.1250     $.0625   $.0625
February 1 - April 30             $.5625   $.1875     $.0700   $.0625
May 1 - July 31                   $.5938   $.4375     $.1250   $.0625

         The Company had approximately 5,007 holders of record of its Common
Stock as of October 22, 1996.

         No dividends were paid by the Company on its Common Stock during the
fiscal years ended July 31, 1996, 1995 and 1994.  It is not anticipated that any
dividends will be paid by the Company on its Common Stock in the foreseeable
future.

                                         -6-

<PAGE>

 
ITEM 6.  SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>

                                                         Six Months Ended
                               Year Ended July 31,            July 31,       Year Ended January 31,
                           ---------------------------   -----------------   ----------------------
                           1996      1995      1994      1993      1992           1993      1992
                           ----      ----      ----      ----      ----           ----      ----
                                               (In thousands, except per share data)

<S>                       <C>       <C>       <C>       <C>       <C>            <C>       <C>
Income Statement Data(1)

Net sales                  $49,876   $38,964   $34,273   $19,339   $22,529        $33,608   $30,926


Operating income               642     2,849     1,575       504     2,459          1,888     1,661

Interest and
 financing costs             1,265       779     1,804     1,088     1,418          2,394     2,769

Income (loss) from
 continuing
 operations
 before income taxes          (387)    1,691       162      (584)    1,041           (506)     (905)

Income (loss) from
 continuing operations        (407)    1,671       142      (594)      638           (532)     (929)

Income (loss) from
 discontinued 
 operations                     --        --        --        99       201         (7,537)   (3,096)

Extraordinary
 Income                        550        --     4,165        --       395             --        --

Net income (loss)              143     1,671     4,307      (495)    1,234         (8,069)   (4,025)

Preferred stock
 dividends                     504       718       540       270       270            540       540

Net income (loss)
 applicable to common
 stockholders                 (361)      953     3,767      (765)      964         (8,609)   (4,565)

Net income (loss) per
 common share:

 Income (loss) from
 continuing operations       $(.12)    $.13     $ (.05)   $ (.11)    $ .05         $ (.14)    $(.20)
 Income (loss) from
 discontinued 
 operations                     --        --        --    $  .01     $ .03        $ (1.02)    $(.42)
 Extraordinary income         $.07        --     $ .56        --       .05             --        --
 Net income (loss)           $(.05)     $.13     $ .51    $ (.10)    $ .13        $ (1.16)    $(.62)

Weighted average 
 number of common shares
 outstanding                 7,760     7,390     7,390     7,390     7,390          7,390     7,390
</TABLE>


                                                 -7-

<PAGE>


 

<TABLE>
<CAPTION>

                                         July 31,                      January 31,      
                            -----------------------------------    ---------------------
                            1996      1995      1994      1993(1)   1993(1)        1992 
                            ----      ----      ----      ----      -------        ----
                                                  (Thousands of dollars)
<S>                       <C>       <C>       <C>       <C>       <C>            <C>

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

Total assets               $20,408   $15,095   $14,664   $14,977   $19,388        $41,142

Working capital
 (deficit)                   1,407     3,288     3,947   (12,434)  (11,905)       (10,334)

Long-term debt(2)
(excluding current 
 portion)                    8,616     8,523    10,940        --        --             --

Subordinated notes
 payable(3)                    468     1,000     1,000     1,000     1,000          1,000

Cumulative redeemable
 preferred stock(4)          4,568     4,537     5,583     5,412     5,329          5,166

$12 Preferred series 
E stock(5)                      --    16,383    16,383    14,383    14,383         14,383

$12 Preferred series 
F stock(5)                      --     7,022     7,022     7,022     7,022          7,022

$10 Preferred series 
G stock(5)                      --    17,079    17,079    17,079    17,079         17,079

</TABLE>
______________________________

(1) Reflects reclassification of the discontinued Mayfair Division accounts and
    results of operations.

(2) See Note 4 to the Financial Statements.

(3) See Note 5 to the Financial Statements.

(4) See Note 6 to the Financial Statements.

(5) See Note 7 to the Financial Statements.

                                         -8-

<PAGE>

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

RESULTS OF CONTINUING OPERATIONS
--------------------------------



         The following table sets forth, for the periods indicated, certain
items expressed as a percentage of net sales:

                        Year Ended       Year Ended     Year Ended 
                      July 31, 1996    July 31, 1995  July 31, 1994
                      -------------    -------------  -------------

Net sales                100.0%           100.0%         100.0%
                         ------           ------         ------

Cost of goods sold        78.6             72.4           74.0
Operating expenses        20.1             20.3           21.4
Interest and financing
  costs                    2.5              2.0            5.3
Other, net                (0.4)             1.0           (1.1)
                         ------            -----          -----

                         100.8             95.7           99.6
                         ------           ------          -----

Income (loss) before
  provision for
  income taxes and 
  extraordinary income    (0.8)             4.3            0.4
Provision for income
  taxes                     -                -              - 
                           ---              ---            ---

Income (loss) before
  extraordinary income    (0.8)             4.3            0.4

Extraordinary income       1.1               -            12.2
                          -----             ---          ------
Net income                 0.3              4.3           12.6
                          -----            -----         ------
                          -----            -----         ------

                                         -9-

<PAGE>

Year Ended July 31, 1996 Compared
to Year Ended July 31, 1995      
---------------------------------

     Net sales increased by $10,912,000, or 28.0%, to $49,876,000 for the 
year ended July 31, 1996 as compared to $38,964,000 for the year ended July 
31, 1995. This increase is due principally to an increase in unit sales 
volume as unit selling prices rose by approximately 4% compared to the prior 
year.  Sales of goods relating to the August 1995 acquisition of the Roxanne, 
Harbour Casual and Coco Reef labels (see Item 1 - Recent Transactions for 
further information) represented approximately 75% of the sales increase.  
The balance of the increase is primarily attributable to increased sales of 
"Sand Dollars" swimwear cover-ups and sportswear and increased sales of 
non-branded, or "private label", swimwear.

     Gross profit as a percentage of net sales declined to 21.4% for the year
ended July 31, 1996 as compared to 27.6% for the year ended July 31, 1995.  This
decline is due principally to a) increased manufacturing and product development
costs relating to goods produced under the newly acquired Roxanne, Harbour
Casuals and Coco Reef labels b) a change in product mix related to increased
sales of non-branded "private label" swimwear and c) a poor retail selling
environment which led to increased promotional sales and liquidation of certain
unsold inventory.

     Operating expenses increased by $2,150,000, or 27.2%, to $10,042,000 for
the year ended July 31, 1996 as compared to $7,892,000 for the year ended July
31, 1995.  The increase in selling, design and promotion expenses of $1,552,000
is composed principally of Roxanne and Harbour Casual sales salaries,
commissions, showroom rent and related overhead expenses.  Shipping expenses
increased by $619,000 primarily due to staff additions, additional shipping
supplies and maintenance costs and increases in freight costs necessary to
warehouse and ship Roxanne and Harbour Casual product along with certain
variable shipping costs associated with increased sales volume.  Certain
inflationary increases in salaries, supplies and other operating overhead costs
also contributed to this increase.

     The above activities resulted in a decline in operating income of
$2,207,000, or 77.5%, to $642,000 for the year ended July 31, 1996 as compared
to operating income of $2,849,000 for the year end July 31, 1995.

     Interest and financing costs increased by $486,000, or 62.4%, to $1,265,000
for the year ended July 31, 1996 as compared to $779,000 for the year ended July
31, 1995.  This increase is principally related to increased borrowings under
the Company's working capital line of credit necessary to fund the acquisition
and development of the Roxanne, Harbour Casuals and Coco Reef product lines and,
to a lesser extent, the growth of the Company's Robby Len business.

     Other income of $236,000 for the year ended July 31, 1996 is primarily
related to the recognition of a net settlement gain in connection with the
termination of the Company's defined benefit pension plan.  See Note 8 to the
Financial Statements for additional information.

                                         -10-

<PAGE>

     The aggregate effect of the above activities resulted in a loss before
provision for income taxes and extraordinary income of $387,000 for the year
ended July 31, 1996 as compared to income before provision for income taxes and
extraordinary income of $1,691,000 for the year ended July 31, 1995.

     Extraordinary income of $550,000 for the year ended July 31, 1996 is a
result of the restructuring of the Subordinated Note described in Note 5 to the
Financial Statements.


Year Ended July 31, 1995 Compared
to Year Ended July 31, 1994      
---------------------------------

     Net sales increased by $4,691,000, or 13.7%, to $38,964,000 for the year 
ended July 31, 1995 as compared to $34,273,000 for the year ended July 31, 
1994. This increase is principally related to an increase in unit volume of 
approximately 11% coupled with an approximate 3% increase in unit selling 
prices.  The increase in unit volume is primarily attributable to the 
introduction of two new swimwear lines:  1) the "Sand Dollar" cover-up and 
beachwear line and 2) the "Lenee" swimwear line, which is sold primarily to 
national and regional discount chain stores.  Net sales of "Lenee" 
represented approximately $3,000,000 of the increase in sales while "Sand 
Dollar" sales approximated $1,600,000 of such increase.

     Gross profit as a percentage of net sales increased to 27.6% for the year
ended July 31, 1995 as compared to 26.0% for the year ended July 31, 1994.  This
increase is primarily attributable to the increased absorption of manufacturing
and operating overhead costs as a result of increased production requirements
due to higher levels of sales orders and commitments as compared to the prior
year.  This increase was partially offset by a change in product mix due to the
sales increases attributable to the "Lenee" and "Sand Dollar" lines, both of
which are sold at lower gross profit margins than Robby Len "branded" swimwear.

     Operating expenses increased by $568,000, or 7.8%, to $7,892,000 for the
year ended July 31, 1995 as compared to $7,324,000 for the year ended July 31,
1994.  This increase is principally related to increased variable selling,
shipping and administrative expenses resulting from increased sales volume. 
Certain inflationary increases in salaries, supplies and other operating costs
also contributed to the increase in operating expenses.  A reduction in
consulting fees of approximately $140,000 partially offset the increase in
operating expenses.

     The above activities resulted in an increase in operating income of
$1,274,000, or 80.9%, to $2,849,000 for the year ended July 31, 1995  as
compared to $1,575,000 in the prior year period.

     Interest and financing costs decreased to $779,000 for the year ended July
31, 1995 from $1,804,000 for the year ended July 31, 1994, a 56.8% decline. 
This decrease is principally related to reduced term debt borrowing levels as a
result of debt forgiveness associated with the Fifth Amended and 

                                         -11-

<PAGE>

Restated Credit Agreement and the accounting for future estimated interest
payments under such agreement.  This decline was partially offset by a $250,000
increase in working capital loan interest due to higher borrowing levels
(necessary to fund the growth in sales) and increased interest rates.

     Litigation settlement expense of $412,000 for the year ended July 31, 1995
is attributable to the settlement of certain litigation described in Note 4 to
the Financial Statements.

     Included in other income of $391,000 for the year ended July 31, 1994 is a
gain of approximately $340,000 on the curtailment of the Company's defined
benefit pension plan.  Refer to Note 8 to the Financial Statements for
additional information.

     The aggregate effect of the above activities resulted in income before
provision for income taxes and extraordinary income of $1,691,000 for the year
ended July 31, 1995 as compared to income before provision for income taxes and
extraordinary income of $162,000 for the year ended July 31, 1994.

LIQUIDITY AND CAPITAL RESOURCES

     The ratio of current assets to current liabilities was 1.13 to 1.00 at July
31, 1996 as compared to 1.59 to 1.00 at July 31, 1995.  Working capital declined
by $1,881,000 to $1,407,000 at July 31, 1996 as compared to $3,288,000 at July
31, 1995.  This decrease in working capital is primarily attributable to the net
loss for the period (before extraordinary income) along with a $500,000 payment
in connection with the purchase of the Roxanne and Harbour Casual trademarks and
Coco Reef tradename and capital expenditures of approximately $574,000.

     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, Harbour Casual, Roxanne,
and Coco Reef labels, among others.  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 $2,213,000 increase in inventory is due primarily to the addition
of the Roxanne, Harbour Casual and Coco Reef product lines and, to a lesser
extent, to anticipated sales increases in the first quarter of fiscal year 1997
as compared to the prior year period.  The $647,000 increase in accounts payable
and accrued expenses and the $5,488,000 increase in the revolving loan balance
are attributable primarily to the increase in inventory.  In addition, the
increases in the accounts receivable and revolving loan balance as well as the
decrease in the due from factor balance is related to the September 1995
replacement of the Company's factoring agreement with a revolving loan agreement
(see Note 4 to the Financial Statements).  The $6,412,000 of net cash used in
operating activities for the year ended July 31, 1996 is primarily reflected in
the increases in inventory, accounts receivable and accounts payable along with
the net loss before extraordinary income (adjusted for non-cash items) and the
elimination of the Company's factoring agreement.

                                         -12-

<PAGE>

     The Company's investing activities consist primarily of purchases of
machinery and equipment as well as leasehold improvements.  During fiscal years
1995 and 1996, the Company purchased certain production and pattern making
equipment financed primarily through long-term arrangements (see Note 4 to the
Financial Statements for further information).  The balance of capital
expenditures were financed through the Company's working capital line of credit
and internally generated funds.  The Company expects to finance its capital
expenditures in the next twelve months through a combination of internally
generated funds and long-term borrowings.

     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).  In
addition, the Company is also planning for fiscal year 1997 capital expenditures
amounting to approximately $700,000 for certain sewing equipment required by its
Mexican subsidiary and leasehold improvements for its New Haven, CT facility. 
The three present sources for the Company's liquidity needs are internally
generated funds, long-term capital expenditure borrowings and short-term
borrowings available under its revolving loan agreement (see Note 4 to the
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.  Under
the terms of this agreement which expires August 31, 1997, the Company can
borrow up to 85% against eligible receivables and 50% of eligible inventories
along with specified seasonal overadvances.  The outstanding loan balance under
the agreement at July 31, 1996 was $5,488,000.  In January 1996, the maximum
loan balance under the revolving credit facility was increased from $15,000,000
to $23,000,000 in order to support increased borrowing requirements (including
certain seasonal overadvances) principally related to the acquisition,
development and production of goods under the newly acquired Roxanne, Harbour
Casual and Coco Reef product lines.

     Management believes that the current financial resources available to the
Company (short-term borrowings under revolving credit facility, certain
long-term capital expenditure borrowings and funds from operations) are expected
to be adequate to meed its foreseeable liquidity requirements, including
scheduled repayments of term indebtedness along with dividends and redemption of
Series H Preferred Stock, in the twelve months.


INFLATION

          The Company's Robby Len Division has historically been able to
increase selling prices to the extent permitted by competition as the costs of
merchandise and related operating expenses have increased and, therefore,
inflation has not had a significant effect on the operations.

                                         -13-

<PAGE>

FUTURE TRENDS

          In August 1995, the Company acquired the trademarks Roxanne and
Harbour Casual and the tradename Coco Reef from Milady Brassiere & Corset Co.,
Inc. (see Item 1 - Recent Transactions for further discussion of the
acquisition).  As discussed above, 75% of the Company's approximate $11,000,000
sales increase for the year ended July 31, 1996 was attributable to sales of
goods bearing these trademarks and tradename.  In addition, this acquisition was
a principal factor in the decline in gross profit and increase in operating
expenses for fiscal year 1996.  It is the belief of management that there is
potential for significant growth in sales volume as a result of this acquisition
over the next several years.  It is also the belief of management that both
gross profit and operating expenses as a percentage of sales should improve over
fiscal year 1996 levels as certain start-up and fixed costs associated with the
Roxanne acquisition will be reduced or remain relatively constant in concert
with anticipated increases in sales volume. 
     
          In an effort to lower its overall production costs and obtain
additional production capacity necessary to meet its current and anticipated
future growth, the Company is engaged in contract manufacturing programs in
Mexico and the Dominican Republic.  Currently, approximately 7% of the Company's
production requirements are sourced from these areas, with additional growth
planned for the future.  These plans include the establishment of a contract
manufacturing program in Columbia for the upcoming fiscal year.  In addition, in
September 1996 the Company established a subsidiary in Mexico, Trajes de Bano
Morelos, S.A. de C.V..  This subsidiary will operate a swimwear manufacturing
facility in Cuernavaca, Mexico.  The production facility is scheduled to open in
the spring of 1997 and it is anticipated that approximately 15% of the Company's
production requirements will be fulfilled by this operation.  It is management's
belief that the acquisition of sources of lower manufacturing costs will be an
important factor in the ability of the Company to continue to compete in its
market and enhance profitability.

          While the Company is aggressively pursuing its plans for business
growth and reduced production costs, there can be no assurance that it will be
successful in its efforts in these areas.

                                         -14-

<PAGE>

RECENT ACCOUNTING STANDARDS

     In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," which
requires that certain long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable.  The adoption of this pronouncement is not expected to have a
significant effect on the Company's financial statements.

     In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which allows the choice of
either the intrinsic value method or the fair value method of accounting for
employee stock options.  The Company has selected the option to continue the use
of the current intrinsic value method.

     Both of these statements are effective for fiscal years beginning after
December 15, 1995.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The financial statements required to be submitted in response to this
Item 8 are set forth in Part IV, Item 14 of the report.


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

          None

                                         -15-

<PAGE>

                                       PART III
                                       --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          Set forth below is a list of the directors, executive officers and key
employees of the Company and their respective ages as of July 31, 1996:

       Name                   Age                 Capacity
       ----                   ---                 --------

Burton I. Koffman(3)          70             Chairman of the Board
                                             and Chief Executive 
                                             Officer of the Company

Richard E. Koffman(2)         63             Vice Chairman of the
                                             Board, Executive Vice
                                             President and Secretary
                                             of the Company

Arthur G. Cohen(2)(3)         66             Director of the Company 

Jeffrey P. Koffman(1)(3)      31             Director and President of 
                                             the Company

Eric T. Weitz                 52             Director and Executive Vice
                                             President of the Company, 
                                             President of the Robby Len 
                                             Division

Bernard Tessler(2)            45             Director of the Company

David L. Koffman              37             Vice President and 
                                             Assistant Secretary of
                                             the Company

Mark D. Greenberg             44             Vice President of the  Company,
                                             Vice President - Operations of the
                                             Robby Len Division

Murray Merl                   59             Vice President -
                                             Manufacturing of the
                                             Robby Len Division

Frederick M. D'Amato          42             Vice President - Finance
                                             of the Company and the 
                                             Robby Len Division

                                         -16-

<PAGE>

---------------
(1) Elected President of the Company in February 1996
(2) Member of the Audit Committee
(3) Member of the Compensation Committee

          Burton I. Koffman has served as Chairman of the Board of the Company
since January 1989 and as Chief Executive Officer of the Company since October
1989.  Mr. Koffman served as President of the Company from January 1989 until
October 1989 and from June 1995 to February 1996.

          Richard E. Koffman has served as Vice Chairman of the Board of the
Company since October 1989 and as a Director, Executive Vice President and
Secretary of the Company since January 1989.   Mr. Koffman is also Treasurer,
Vice President, Secretary and a director of Empire Industries, Inc. and
Executive Vice President and Secretary of Public Loan Company, Inc. 
                    
          Arthur G. Cohen has served as a Director of the Company since July 25,
1989.  Mr. Cohen is a self-employed real estate developer and investor.  Among
other positions, he serves as Chairman of the Board of The Arlen Corporation.

          Jeffrey P. Koffman has served as a Director of the Company since June
1995 and Executive Vice President from June 1994 to February 1996.  Mr. Koffman
was appointed President of the Company in February 1996.  Mr. Koffman served as
a financial analyst with Security Pacific from 1987 to 1989.  In 1989, Mr.
Koffman became Vice President of Pilgrim Industries and in 1990, he became the
President of that Company.  From 1994 to present, Mr. Koffman has served in an
executive capacity with Tech Aerofoam Products. 

          Eric T. Weitz has served as a Director of the Company since January
1995 and as President of the Robby Len Division since January 1994.  Mr. Weitz
was appointed Executive Vice President of the Company in February 1996.  Mr.
Weitz served as Vice President-Marketing for Robby Len Fashions from 1983 until
it was acquired by the Company in January  1989 and continued in that capacity
for the Company's Robby Len Division until January 1994.  Previously, Mr. Weitz
served in various sales and executive capacities in the apparel industry.

          Bernard Tessler was elected a Director of the Company in February
1996.  Mr. Tessler is Chairman, President, and Chief Executive Officer of LFS
Acquisition, Inc., a Company which owns a chain of children's specialty apparel
stores, a position he assumed in June 1995.  From 1987 until 1991, Mr. Tessler
was President and CEO of Children's Creative Workshop, Ltd.

                                         -17-

<PAGE>

          David L. Koffman has served as Vice President of the Company since
January 1989.  From January 1989 until October 1989, he was a Director of the
Company and from 1984 until January 1989 he served as Chairman of the Board of
the Company.  In addition, Mr. Koffman served as Secretary of the Company from
October 1985 until January 1989.  For the past five years, Mr. Koffman has
served as President of Jayark Corporation.

          Mark D. Greenberg was employed in various capacities by Robby Len
Fashions from 1979 until it was acquired by the Company in January 1989.  From
1979 to 1981, Mr. Greenberg served as a senior accountant and from 1981 to 1985
he was the controller of Robby Len Fashions.  In 1985, Mr. Greenberg became Vice
President of Finance and Administration of Robby Len Fashions, a position he
held until January 1993, when he undertook his present position.

          Murray Merl was employed in various capacities by Robby Len Fashions
from January 1987 until it was acquired by the Company in January 1989.  From
January 1987 to September 1988, Mr. Merl served as Assistant Vice President and
in September 1988 he became Vice President-Manufacturing of Robby Len Fashions,
a position he currently holds with the Company's Robby Len Division.  In
addition, Mr. Merl has served as President of Tarrytown Garment Company from
1984 to the present.

          Frederick M. D'Amato was employed by Mayfair in various capacities for
more than five years prior to the acquisition of Mayfair by the Company in May
1989.  Mr. D'Amato served as Assistant Secretary of Mayfair from July 1987 until
May 1989 and as Vice President-Finance of Mayfair, a position he held through
January 1993 whereupon he assumed his present position.

          Messrs. Burton I. Koffman and Richard E. Koffman are brothers.  Burton
I. Koffman is the father of David L. Koffman and Jeffrey P. Koffman .  Messrs.
David L. Koffman and Jeffrey P. Koffman are brothers.

          The Board of Directors held two meetings during the year ended July
31, 1996.  All other actions of the Board of Directors during the year ended
July 31, 1996 were taken by unanimous written consent.  There are two committees
of the Board of Directors, an Audit Committee and an Executive Compensation
Committee.  The Company has no standing nominating committee of the Board of
Directors or committee performing a similar function.  Officers are elected by,
and serve at the discretion of, the Board of Directors.

                                         -18-

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

          The following table sets forth all compensation paid or accrued by the
Company for the years ended July 31, 1996, July 31, 1995 and July 31, 1994 to or
for the chief executive officer and the remaining four most highly compensated
executive officers and key employees of the Company.

                              Summary Compensation Table
                              --------------------------

                               Annual Compensation     All Other
Name and                       -------------------
Principal Position       Year  Salary($)  Bonus($) Compensation ($)
------------------       ----  ---------  -------- ----------------
     
Burton I. Koffman        1996      -          -        40,000
  Chairman of the Board, 1995      -          -        40,000
  Chief Executive        1994      -          -        40,000
  Officer of the Company

Eric T. Weitz            1996   240,000     33,240      3,840
  Executive Vice Pres-   1995   240,000    144,600      4,800
  ident of the Company,  1994   192,000    100,000        -
  President of the       
  Robby Len Division

Mark D. Greenberg        1996   150,000     16,620      3,696
  V.P. of the Company,   1995   150,000     72,300      3,000
  V.P. - Operations      1994   150,000     50,000        -
  of the Robby Len
  Division                          

Murray Merl              1996   136,500     16,620      3,347
  V.P. - Manufacturing   1995   130,000     54,225      2,600
  of the Robby Len       1994   130,000     37,500        -
  Division     

Frederick M. D'Amato     1996   110,300     16,620      3,770
  Vice President-        1995   105,000     54,225      2,100
  Finance                1994   100,000     25,000        -


     Directors who are not officers or employees of the Company receive an
annual fee of $5,000 and $500 per meeting attended for their services as
directors.  The Board of Directors held two meetings during the year ended July
31, 1996.

     Mr. Burton I. Koffman and Mr. Richard E. Koffman receive an annual
consulting fee of $40,000 (as disclosed above) and $60,000, respectively.  Mr.
Jeffrey P. Koffman receives an annual salary of $36,000.

                                         -19-

<PAGE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

GENERAL   

          The Compensation Committee was established in 1989 when the Company
acquired the existing Robby Len Division and the now discontinued Mayfair
Division.  At the time of the 1989 acquisitions, the Company's Compensation
Committee reviewed the compensation level of the executive officers of Robby Len
and Mayfair and adopted their existing compensation plans.

COMPENSATION PHILOSOPHY  

          The Compensation Committee's executive compensation philosophy is to
provide competitive levels of compensation, integrate executive officer's pay
with the achievement of the Company's annual and long-term performance goals,
reward above average corporate performance, recognize individual initiative and
achievement, and assist the Company in attracting and retaining qualified
executive officers.  Executive officer compensation is intended to be set at
levels that the Compensation Committee believes are consistent with others in
the Company's industry and gives emphasis to the need for the best creative
talent available in product related positions.

          The Compensation Committee plans to further review the Company's
existing executive officer compensation plans in 1996 and intends to modify such
plans as required to fit within the announced philosophy of the Committee.

BASE SALARIES  

          Base salaries for new executive officers are determined initially by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for managerial and
creative talent.  Annual salary adjustments are determined by evaluating the
competitive marketplace, the performance of the Company, the performance of the
executive and any increased responsibilities assumed by the executive.  Salary
adjustments are determined and normally made on an annual basis.

          Salaries for the year ended July 31, 1996 for Messrs. Merl and D'Amato
were based on levels established and approved by the Company's Board of
Directors in August 1995.  Mr. Greenberg's salary for the year ended July 31,
1996 was based on a level established and approved by the Company's Board of
Directors in August 1992.  Mr. Weitz's salary for the year ended July 31, 1996
was based on a level established and approved by the Company's Board of
Directors in August 1994.  Mr. Burton I. Koffman's compensation is based on a
consulting arrangement.

                                         -20-

<PAGE>

ANNUAL BONUSES  

          The Company has a bonus incentive program for its executive officers. 
The bonuses, if any, awarded are based upon minimum levels of profitability, as
defined.  Based on the performance of the Robby Len Division, bonuses were
awarded for the year ended July 31, 1996 to Messrs. Weitz, Greenberg, Merl and
D'Amato.


PERFORMANCE GRAPH

          The following graph compares the yearly percentage change in the
Company's cumulative total stockholder return on Common Stock with (i) the
cumulative total return of the NASDAQ market index and (ii) the cumulative total
return of companies with the standard industrial code (SIC) Code 2339 over the
period from August 1, 1991 through July 31, 1996.  The component entities of SIC
Code 2339 were generated by Media General Financial Service, Inc.  All the
entities in SIC Code 2339 were incorporated into the peer group.






                               [GRAPH]


----------------------------Fiscal Year Ending --------------------------------

<TABLE>

<CAPTION>

                      1991       1992      1993      1994      1995     1996
                      ----       ----      ----      ----      ----     ----
<S>                  <C>        <C>       <C>        <C>       <C>

Apparel America Inc. 100.00     100.00    100.00     100.00    200.00   900.00

Industry Index       100.00      68.87     39.75      41.32     52.94    55.75
(SIC Code 2339)

Broad Market Index   100.00     102.46    127.27     138.88    170.19   185.53
(NASDAQ Market)

</TABLE>

Assumes $100 invested on August 1, 1991.  Assumes dividends reinvested
through fiscal year ended July 31, 1996.

                                         -21-

<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 
          OWNERS AND MANAGEMENT

          The following table sets forth the holdings, as of October 25, 1996,
of the Company's Common Stock by (i) each person who held of record more than 5%
of the Company's Common Stock, (ii) each of the directors of the Company and
(iii) all directors and officers as a group:
                                                Shares
                            Title of            Beneficially        Percent
Name and Address            Class               Owned               of Class
----------------            --------            ------------        --------

PLC, Inc.                   Common Stock          4,211,400(1)       21.31%
300 Plaza Drive             $.05 par value
Vestal, New York

Mayfair Industries, Inc.    Common Stock          3,563,640(1)       18.03%
300 Plaza Drive             $.05 par value
Vestal, New York

Burton I. Koffman           Common Stock          2,124,456(2)       10.75%
300 Plaza Drive             $.05 par value
Vestal , New York 

REK Corp.                   Common Stock          1,901,677(1)        9.62%
300 Plaza Drive             $.05 par value
Vestal, New York
                                           
Richard E. Koffman          Common Stock          1,074,037(2)        5.43%
300 Plaza Drive             $.05 par value
Vestal, New York 

Arthur G. Cohen             Common Stock            884,000(3)        4.47%
1501 Broadway               $.05 par value
New York, New York 

Jeffrey P. Koffman          Common Stock            600,000           3.04%
300 Plaza Drive             $.05 par value
Vestal, New York

All Directors and           Common Stock          5,187,599(4)       26.25%
Officers as a Group         $.05 par value   
 (5 persons) 

The Koffman Group           Common Stock         15,220,778(5)       77.02%
 (13 persons)               $.05 par value
300 Plaza Drive
Vestal, New York 

______________________________

(1)  PLC, Inc., Mayfair Industries, Inc. and REK Corp. are substantially all
     owned, directly or indirectly, by members of the Koffman family.  See
     Footnote (5) below.

                                         -22-

<PAGE>

(2)  The number of shares of Common Stock set forth herein includes 943 shares
     of Common Stock jointly held by Messrs. Burton I. Koffman and Richard E.
     Koffman, of which each owns an undivided 50% interest, and 645,817 in the
     case of Mr. Burton I. Koffman and 601,347 in the case of Mr. Richard E.
     Koffman of the shares held by Empire Industries, Inc. and Public Loan
     Company, Inc., all of the stock of which is owned directly or indirectly by
     them and members of their families.

(3)  Mr. Arthur G. Cohen holds the shares of Common Stock set forth herein for
     the benefit of Ben Arnold Company, Inc., a corporation owned 50% by members
     of Mr. Cohen's immediate family, the beneficial ownership of which Mr.
     Cohen disclaims, and 50% by members of Messrs. Burton I. Koffman and
     Richard E. Koffman's immediate families, the beneficial ownership of which
     each disclaims.  Mr. Cohen also disclaims beneficial ownership of 194,720
     shares of Common Stock owned by Karen Cohen, his wife.

(4)  The number of shares of Common Stock set forth herein includes the shares
     of Common Stock reported above for Messrs. Burton I. Koffman, Richard E.
     Koffman, Arthur C. Cohen and Jeffrey P. Koffman.  Also included herein are
     505,106 shares of Common Stock beneficially owned by Mr. David L. Koffman,
     a Vice President and Assistant Secretary of the Company and the son of
     Burton I. Koffman and brother of Jeffrey P. Koffman.

(5)  The members of this reporting group include Messrs. Burton I. Koffman,
     Richard E. Koffman, Jeffrey P. Koffman, David L. Koffman and members of
     their immediate families, as well as entities controlled by members of the
     Koffman family.  The number of shares of Common Stock set forth herein
     includes the shares of Common Stock reported above for Messrs. Burton I.
     Koffman, Richard E. Koffman, Jeffrey P. Koffman and David L. Koffman.

                                         -23-

<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     During the fiscal year ended July 31, 1995 the Company purchased $193,000
of computerized pattern making and grading equipment.  This was financed
primarily through a loan by the wife of the Chairman of the Board of the Company
on terms and conditions similar to those of the Company's working capital
lender.

     Certain of the Company's swimwear products are manufactured on a contract
basis by companies owned by certain officers of the Robby Len Division.  See
Note 9 to the Financial Statements for further information.

     The Company leases a warehouse and production facility from an affiliate. 
Rental amounts paid by the Company to this affiliate were approximately
$227,000, $214,000 and $164,000 for the years ended July 31, 1996, 1995 and
1994, respectively.


                                       PART IV
                                       -------


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

     (a)  Financial Statements and Financial Statement Schedules

          See the accompanying Financial Statements and Financial Statement
          Schedules filed herewith. 

     (b)  Reports on Form 8-K

          Refer to Form 8-K dated August 16, 1995 and related Form 8-K/A dated
          September 27, 1995 disclosing the acquisition of the Roxanne, Harbour
          Casual and Coco Reef tradenames by the Company.

     (c)  Exhibits

          See the accompanying Exhibit Index.

                                         -24-

<PAGE>

                                      SIGNATURES

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


                                             APPAREL AMERICA, INC.


Date: October 25, 1996                       By:Burton I. Koffman         
                                                --------------------------
                                                Burton I. Koffman
                                                Chairman of the Board
                                                and Chief Executive 
                                                Officer


                                             By:Frederick M. D'Amato      
                                                --------------------------
                                                Frederick M. D'Amato
                                                Vice President-Finance

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated below.
                                                                 DATE

Burton I. Koffman             Chairman of the Board         October 25, 1996
--------------------------
Burton I. Koffman


Richard E. Koffman            Vice Chairman of the          October 25, 1996
--------------------------
Richard E. Koffman            Board, Executive Vice
                              President and Secretary

Jeffrey P. Koffman            Director and                  October 25, 1996
--------------------------
Jeffrey P. Koffman            President of the Company

Arthur G. Cohen               Director                      October 25, 1996
--------------------------
Arthur G. Cohen 

Eric T. Weitz                 Director and Executive Vice   October 25, 1996
--------------------------
Eric T. Weitz                 President of the Company       

Bernard Tessler               Director                      October 25,1996
--------------------------
Bernard Tessler

                                         -25-

<PAGE>

                                    EXHIBIT INDEX

Number                               Description


2.1                                  Joint Plan of Reorganization dated 
                                     July 7, 1987 (filed as Exhibit 2.1 
                                     to the Company's Annual Report on  
                                     Form 10-K for the fiscal year ended
                                     January 31, 1988 and incorporated  
                                     herein by reference.)              



2.2                                  Amended Joint Plan of Reorganization
                                     dated September 29, 1987 (filed as  
                                     Exhibit 2.2 to the Company's Annual 
                                     Report on Form 10-K for the fiscal  
                                     year ended January 31, 1988 and     
                                     incorporated herein by reference.)  


3.1                                  Articles of Incorporation of Apparel
                                     America, Inc. (filed as Exhibit 3(i)
                                     to the Company's Current Report on  
                                     Form 8-K dated January 26, 1989 and 
                                     incorporated herein by reference.)  



3.2                                  By-Laws of Apparel America, Inc.    
                                     (filed as Exhibit 3(i) to the       
                                     Company's Annual Report on Form 10-K
                                     for the fiscal year ended January   
                                     31, 1988 and incorporated herein by 
                                     reference.)                         



4.1                                  Specimen Certificate of Common Stock
                                     of Apparel America, Inc. (filed as  
                                     Exhibit 4.1 to the Company's Annual 
                                     Report on Form 10-K for the fiscal  
                                     year ended January 31, 1989 and     
                                     incorporated herein by reference.)  



4.2                                  Certificate of Designation,        
                                     References and Rights of $12       
                                     Cumulative Preferred Stock of      
                                     Apparel America, Inc. (filed as    
                                     Exhibit 4.2 to the Company's Annual
                                     Report on Form 10-K for the fiscal 
                                     year ended January 31, 1989 and    
                                     incorporated herein by reference.) 


4.3                                  Specimen Certificate of $12        
                                     Cumulative Preferred Stock of      
                                     Apparel America, Inc. (filed as    
                                     Exhibit 4.3 to the Company's Annual
                                     Report on Form 10-K for the fiscal 
                                     year ended January 31, 1989 and    
                                     incorporated herein by reference.) 



                                         -26-

<PAGE>


4.4                                  Form of Registration Rights          
                                     Agreement Relating to Apparel        
                                     America, Inc. Common Stock (filed as 
                                     Exhibit (4)(i) to the Company's      
                                     Current Report on Form 8-K dated May 
                                     29, 1989 and incorporated herein by  
                                     reference.)                          



4.5                                  Certificate of Designation,          
                                     Preferences and Rights of $9         
                                     Cumulative Preferred Series B Stock  
                                     of Apparel America, Inc. (filed as   
                                     Exhibit (4)(ii) to the Company's     
                                     Current Report on Form 8-K dated May 
                                     29, 1989 and incorporated herein by  
                                     reference.)                          



4.6                                  Specimen Certificate of $9         
                                     Cumulative Preferred Series B Stock
                                     of Apparel America, Inc.  (Filed as
                                     Exhibit 4.6 to the Company's Annual
                                     Report on Form 10-K for the fiscal 
                                     year ended January 31, 1990 and    
                                     incorporated herein by reference.) 



4.7                                  Certificate of Designation,          
                                     Preferences and Rights of $12        
                                     Cumulative Preferred Series C Stock  
                                     of Apparel America, Inc. (filed as   
                                     Exhibit (4)(iii) to the Company's    
                                     Current Report on Form 8-K dated May 
                                     29, 1989 and incorporated herein by  
                                     reference.)                          



4.8                                  Specimen Certificate of $12        
                                     Cumulative Preferred Series C Stock
                                     of Apparel America, Inc.  (Filed as
                                     Exhibit 4.8 to the Company's Annual
                                     Report on Form 10-K for the fiscal 
                                     year ended January 31, 1990 and    
                                     incorporated herein by reference.) 



4.9                                  Form of 9% Subordinated Note due
                                     December 31, 1993 of Apparel    
                                     America, Inc. (filed as Exhibit 
                                     (4)(iv) to the Company's Current
                                     Report on Form 8-K dated May 29,
                                     1989 and incorporated herein by 
                                     reference.)                     



4.10                                 Form of 11% Subordinated Notes due
                                     December 31, 1994 of Apparel      
                                     America, Inc. (filed as Exhibit   
                                     (4)(v) to the Company's Current   
                                     Report on Form 8-K dated May 29,  
                                     1989 and incorporated herein by   
                                     reference.)                       


                                         -27-

<PAGE>


4.11                                 Form of 12% Subordinated Notes due   
                                     December 31, 1998 of Apparel         
                                     America, Inc. (included as Exhibit B 
                                     to the Asset Purchase Agreement      
                                     filed as Exhibit 2 to the Company's  
                                     Current Report on Form 8-K dated May 
                                     29, 1989 and incorporated herein by  
                                     reference.)                          



4.12                                 Certificate of Amendment of         
                                     Certificate of Designation,         
                                     Preferences and Rights of $12       
                                     Cumulative Preferred Stock of       
                                     Apparel America, Inc.  (Filed as    
                                     Exhibit 4.12 to the Company's Annual
                                     Report on Form 10-K for the fiscal  
                                     year ended January 31, 1990 and     
                                     incorporated herein by reference.)  



4.13                                 Certificate of Amendment of          
                                     Certificate of Designation,          
                                     Preferences and Rights of $12        
                                     Cumulative Preferred Series C Stock  
                                     of Apparel America, Inc.  (Filed as  
                                     Exhibit 4.13 to the Company's Annual 
                                     Report on Form 10-K for the fiscal   
                                     year ended January 31, 1990 and      
                                     incorporated herein by reference.)   



4.14                                 Certificate of Designation, Rights 
                                     and Preferences of $10 Cumulative  
                                     Preferred Series D Stock of Apparel
                                     America, Inc.  (Filed as Exhibit   
                                     4.14 to the Company's Annual Report
                                     on Form 10-K for the fiscal year   
                                     ended January 31, 1990 and         
                                     incorporated herein by reference.) 



4.15                                 Specimen Certificate of $10         
                                     Cumulative Preferred Series D Stock 
                                     of Apparel America, Inc.  (Filed as 
                                     Exhibit 4.15 to the Company's Annual
                                     Report on Form 10-K for the fiscal  
                                     year ended January 31, 1990 and     
                                     incorporated herein by reference.)  



4.16                                 Certificate of Designation, Rights  
                                     and Preferences of $12 Preferred    
                                     Series E Stock of Apparel America,  
                                     Inc.  (Filed as Exhibit 4.16 to the 
                                     Company's Annual Report on Form 10-K
                                     for the fiscal year ended           
                                     January 31, 1990 and incorporated   
                                     herein by reference.)               


                                         -28-

<PAGE>

4.17                                 Specimen Certificate of $12        
                                     Preferred Series E Stock of Apparel
                                     America, Inc.  (Filed as Exhibit   
                                     4.17 to the Company's Annual Report
                                     on Form 10-K for the fiscal year   
                                     ended January 31, 1990 and         
                                     incorporated herein by reference.) 



4.18                                 Certificate of Designation, Rights
                                     and Preferences of $12 Preferred  
                                     Series F Stock of Apparel America,
                                     Inc. (Previously filed)           



4.19                                 Specimen Certificate of $12        
                                     Preferred Series F Stock of Apparel
                                     America, Inc. (Previously filed)   



4.20                                 Certificate of Designation, Rights
                                     and Preferences of $10 Preferred  
                                     Series G Stock of Apparel America,
                                     Inc. (Previously filed)           



4.21                                 Specimen Certificate of $10        
                                     Preferred Series G Stock of Apparel
                                     America, Inc. (Previously filed)   



4.22                                 Certificate of Designation, Rights 
                                     and Preferences of $8.50 Cumulative
                                     Preferred Series H Stock of Apparel
                                     America, Inc. (previously filed)   


4.23                                 Specimen Certificate of $8.50       
                                     Cumulative Preferred Series H Stock 
                                     of Apparel America, Inc. (previously
                                     filed)                              

4.24                                 Form of Amended and Restated        
                                     Subordinated Note dated November 1, 
                                     1995 by Apparel America, Inc. (filed
                                     herewith)                           

                                         -29-

<PAGE>

10.1                                 Form of Promissory Note from Miller 
                                     Shoe Industries, Inc. to affiliates 
                                     of certain stockholders (filed as   
                                     Exhibit 10.1 to the Company's Annual
                                     Report on Form 10-K for the fiscal  
                                     year ended January 31, 1988 and     
                                     incorporated herein by reference.)  



10.2                                 Stock Acquisition Agreement dated  
                                     January 3, 1989 between Apparel    
                                     America, Inc. and Great American   
                                     Industries, Inc. (filed as Exhibit 
                                     10.2 to the Company's Annual Report
                                     on Form 10-K for the fiscal year   
                                     ended January 31, 1989 and         
                                     incorporated herein by reference.) 



10.3                                 12% Subordinated Promissory Note    
                                     dated January 13, 1989 from Apparel 
                                     America, Inc. to Great American     
                                     Industries, Inc. in the original    
                                     principal amount of $1,650,000      
                                     (filed as Exhibit 10.3 to the       
                                     Company's Annual Report on Form 10-K
                                     for the fiscal year ended           
                                     January 31, 1989 and incorporated   
                                     herein by reference.)               



10.4                                 Asset Purchase Agreement dated as of
                                     April 27, 1989 by and between       
                                     Apparel America, Inc. and Mayfair   
                                     Industries, Inc. (filed as Exhibit 2
                                     to the Company's Current Report on  
                                     Form 8-K dated May 29, 1989 and     
                                     incorporated herein by reference.)  



10.5                                 Amended and Restated Credit         
                                     Agreement dated as of May 12, 1989  
                                     among Apparel America, Inc., Norstar
                                     Bank, Manufacturers Hanover Trust   
                                     Company and Norstar Bank, as Agent  
                                     (filed as Exhibit (10)(i) to the    
                                     Company's Current Report on Form 8-K
                                     dated May 29, 1989 and incorporated 
                                     herein by reference.)               



10.6                                 Form of Purchase Agreement for      
                                     60,000 Units consisting of 60,000   
                                     Shares of $9 Cumulative Preferred   
                                     Series B Stock and 498,000 Shares of
                                     Common Stock of Apparel America,    
                                     Inc. (filed as Exhibit (10)(ii) to  
                                     the Company's Current Report on Form
                                     8-K dated May 29, 1989 and          
                                     incorporated herein by reference.)  



                                         -30-

<PAGE>

10.7                                 Form of Purchase Agreement for     
                                     $5,000,000 Subordinated C Notes due
                                     December 31, 1994 of Apparel       
                                     America, Inc. (filed as Exhibit    
                                     (10)(iii) to the Company's Current 
                                     Report on Form 8-K dated May 29,   
                                     1989 and incorporated herein by    
                                     reference.)                        



10.8                                 Form of Purchase Agreement for      
                                     $1,000,000 Subordinated B Note due  
                                     December 31, 1993 Apparel America,  
                                     Inc. (filed as Exhibit (10)(iv) to  
                                     the Company's Current Report on Form
                                     8-K dated May 29, 1989 and          
                                     incorporated herein by reference.)  


10.9                                 Amendment dated as of December 21,  
                                     1989 to Amended and Restated Credit 
                                     Agreement dated as of May 12, 1989  
                                     among Apparel America, Inc., Norstar
                                     Bank, Manufacturers Hanover Trust   
                                     Company and Norstar Bank, as Agent. 
                                     (Filed as Exhibit 10.8 to the       
                                     Company's Annual Report on Form 10-K
                                     for the fiscal year ended           
                                     January 31, 1990 and incorporated   
                                     herein by reference.)               



10.10                                Preferred Stock and Warrant Purchase
                                     Agreement dated as of January 29,   
                                     1990 between Mayfair Industries,    
                                     Inc. and Apparel America, Inc.      
                                     (Filed as Exhibit 10.9 to the       
                                     Company's Annual Report on Form 10-K
                                     for the fiscal year ended           
                                     January 31, 1990 and incorporated   
                                     herein by reference.)               
 


10.11                                Preferred Stock and Warrant Purchase
                                     Agreement dated as of January 29,   
                                     1990 between Great American         
                                     Industries, Inc. and Apparel        
                                     America, Inc.  (Filed as Exhibit    
                                     10.10 to the Company's Annual Report
                                     on Form 10-K for the fiscal year    
                                     ended January 31, 1990 and          
                                     incorporated herein by reference.)  


                                         -31-

<PAGE>


10.12                                Agreement to Extend Payment Dates   
                                     dated as of January 29, 1990 between
                                     Mayfair Industries, Inc. and Apparel
                                     America, Inc.  (Filed as Exhibit    
                                     10.11 to the Company's Annual Report
                                     on Form 10-K for the fiscal year    
                                     ended January 31, 1990 and          
                                     incorporated herein by reference.)  



10.13                                Agreement to Extend Payment Dates   
                                     dated as of January 29, 1990 between
                                     Great American Industries, Inc. and 
                                     Apparel America, Inc.  (Filed as    
                                     Exhibit 10.12 to the Company's      
                                     Annual Report on Form 10-K for the  
                                     fiscal year ended January 31, 1990  
                                     and incorporated herein by          
                                     reference.)                         



10.14                                Letter Agreement dated January 29, 
                                     1990 from Burton I. Koffman to     
                                     Apparel America, Inc. re 11%       
                                     Subordinated Note Due December 31, 
                                     1994.  (Filed as Exhibit 10.13 to  
                                     the Company's Annual Report on Form
                                     10-K for the fiscal year ended     
                                     January 31, 1990 and incorporated  
                                     herein by reference.)              



10.15                                Letter Agreement dated February 1,  
                                     1990 from REK Corp. to Apparel      
                                     America, Inc. re 11% Subordinated   
                                     Notes Due December 31, 1994  (Filed 
                                     as Exhibit 10.14 to the Company's   
                                     Annual Report on Form 10-K for the  
                                     fiscal year ended January 31, 1990  
                                     and incorporated herein by          
                                     reference.)                         



10.16                                Forms of Warrants dated as of       
                                     January 29, 1990 issued by Apparel  
                                     America, Inc. to Mayfair Industries,
                                     Inc. and Great America Industries,  
                                     Inc.  (Filed as Exhibit 10.15 to the
                                     Company's Annual Report on Form 10-K
                                     for the fiscal year ended           
                                     January 31, 1990 and incorporated   
                                     herein by reference.)               


                                         -32-

<PAGE>


10.17                                Amendment dated as of April 27, 1990
                                     to Amended and Restated Credit      
                                     Agreement dated as of May 12, 1989  
                                     among Apparel America, Inc., Norstar
                                     Bank, Manufacturers Hanover Trust   
                                     Company and Norstar Bank, as Agent. 
                                     (Filed as Exhibit 10.16 to the      
                                     Company's Annual Report on Form 10-K
                                     for the fiscal year ended           
                                     January 31, 1990 and incorporated   
                                     herein by reference.)               
 


10.18                                Preferred Stock and Warrant         
                                     Assignment dated as of January 31,  
                                     1990 from Great American Industries,
                                     Inc. to REK Corp.  (Filed as Exhibit
                                     10.17 to the Company's Annual Report
                                     on Form 10-K for the fiscal year    
                                     ended January 31, 1990 and          
                                     incorporated herein by reference.)  



10.19                                Preferred Stock Exchange Agreement  
                                     dated as of April 19, 1990 between  
                                     Mayfair Industries, Inc. and Apparel
                                     America, Inc.  (Filed as Exhibit    
                                     10.18 to the Company's Annual Report
                                     on Form 10-K for the fiscal year    
                                     ended January 31, 1990 and          
                                     incorporated herein by reference.)  



10.20                                Preferred Stock Exchange Agreement
                                     dated as of April 19, 1990 between
                                     Great America Industries, Inc. and
                                     Apparel America, Inc.  (Filed as  
                                     Exhibit 10.19 to the Company's    
                                     Annual Report on Form 10-K for the
                                     fiscal year ended January 31, 1990
                                     and incorporated herein by        
                                     reference.)                       



10.21                                Preferred Stock Exchange Agreement  
                                     dated as of April 19, 1990 between  
                                     REK Corp. and Apparel America, Inc. 
                                     (Filed as Exhibit 10.20 to the      
                                     Company's Annual Report on Form 10-K
                                     for the fiscal year ended           
                                     January 31, 1990 and incorporated   
                                     herein by reference.)               


                                         -33-

<PAGE>

10.22                                Second Amended and Restated Credit 
                                     Agreement dated as of October 1,   
                                     1991 among Apparel America, Inc.,  
                                     Norstar Bank, Manufacturers Hanover
                                     Trust Company and Norstar Bank, as 
                                     Agent. (Previously filed)          



10.23                                First Amendment to Second Amended  
                                     and Restated Credit Agreement dated
                                     as of October 1, 1991 by and among 
                                     Apparel America, Inc., Norstar Bank
                                     and Manufacturers Hanover Trust    
                                     Company. (Previously filed)        



10.24                                Preferred Stock Exchange Agreement  
                                     dated November 4, 1991 and effective
                                     as of February 1, 1991 between Great
                                     American Industries, Inc. and       
                                     Apparel America, Inc. (Previously   
                                     filed)                              


10.25                                Preferred Stock Exchange Agreement  
                                     dated November 4, 1991 and effective
                                     as of February 1, 1991 between      
                                     Mayfair Industries, Inc. and Apparel
                                     America, Inc. (Previously filed)    



10.26                                Preferred Stock Exchange Agreement  
                                     dated November 4, 1991 and effective
                                     as of February 1, 1991 between REK  
                                     Corp. and Apparel America, Inc.     
                                     (Previously filed)                  



10.27                                Preferred Stock Exchange Agreement  
                                     dated November 4, 1991 and effective
                                     as of February 1, 1991 between Ben  
                                     Arnold Company, Inc. and Apparel    
                                     America, Inc. (Previously filed)    



10.28                                Preferred Stock Exchange Agreement  
                                     dated November 4, 1991 and effective
                                     as of October 1, 1991 between       
                                     Mayfair Industries, Inc. and Apparel
                                     America, Inc. (Previously filed)    



10.29                                Preferred Stock Exchange Agreement
                                     dated November 4, 1991 between    
                                     Burton I. Koffman and Apparel     
                                     America, Inc. (Previously filed)  


                                         -34-

<PAGE>


10.30                                Fifth Amended and Restated Credit  
                                     Agreement dated as of July 31, 1994
                                     among  Apparel America, Inc.,      
                                     Connecticut Development Authority, 
                                     Binghamton Savings Bank, A.I.      
                                     Associates, Inc. and Binghamton    
                                     Savings Bank, as Agent. (Previously
                                     filed)                             



10.31                                First Amendment dated January 12,  
                                     1996 to the Fifth Amended and      
                                     Restated Credit Agreement dated as 
                                     of July 31, 1994 among Apparel     
                                     America, Inc., Connecticut         
                                     Development Authority, Binghamton  
                                     Savings Bank, A.I. Associates, Inc.
                                     and Binghamton Savings Bank, as    
                                     Agent. (filed herewith)            

10.32                                Second Amendment dated June 1, 1996 
                                     to the Fifth Amended and Restated   
                                     Credit Agreement dated as of July   
                                     31, 1994 among Apparel America,     
                                     Inc., Connecticut Development       
                                     Authority, Binghamton Savings Bank, 
                                     A.I. Associates, Inc. and Binghamton
                                     Savings Bank, as Agent. (filed      
                                     herewith)                           

10.33                                Third Amendment dated October 15,  
                                     1996 to the Fifth Amended and      
                                     Restated Credit Agreement dated as 
                                     of July 31, 1994 among Apparel     
                                     America, Inc., Connecticut         
                                     Development Authority, Binghamton  
                                     Savings Bank, A.I. Associates, Inc.
                                     and Binghamton Savings Bank, as    
                                     Agent. (filed herewith)            


22                                   Subsidiaries of Apparel America,
                                     Inc. (filed herewith)

28.1                                 Bankruptcy Court Order dated
                                     November 25, 1987 Confirming Joint
                                     Plan of Reorganization (filed as     
                                     Exhibit 28.1 to the Company's Annual 
                                     Report on Form 10-K for the fiscal   
                                     year ended January 31, 1988 and      
                                     incorporated herein by reference.)   



                                         -35-


<PAGE>


                              APPAREL AMERICA, INC.








                                                            FINANCIAL STATEMENTS
                                        YEARS ENDED JULY 31, 1996, 1995 AND 1994


<PAGE>

                                                         APPAREL AMERICA, INC.

                                            INDEX OF FINANCIAL STATEMENTS AND
                                                 FINANCIAL STATEMENT SCHEDULE
--------------------------------------------------------------------------------
The following financial statements of Apparel America, Inc.
     are included in Item 8:
          Report of independent certified public accountants              F-2
          Balance sheets as of July 31, 1996 and 1995               F-3 - F-4
          Statements of operations for the years ended July 31,
               1996, 1995 and 1994                                        F-5
          Statements of stockholders' deficit for the years
               ended July 31, 1996, 1995 and 1994                         F-6
          Statements of cash flows for the years ended July 31,
               1996, 1995 and 1994                                        F-7
          Notes to financial statements                            F-8 - F-22

The following schedule of Apparel America, Inc.
     is included in Item 14(d):
          Report of independent certified public accountants              S-1
          Schedule II Valuation and qualifying accounts                   S-2


                                                                          F-1

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Apparel America, Inc.
New Haven, Connecticut

We have audited the accompanying balance sheets of Apparel America, Inc.
(the "Company") as of July 31, 1996 and 1995, and the related statements of
operations, stockholders' deficit, and cash flows for each of the three years in
the period ended July 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to report 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 financial position of Apparel America, Inc. at
July 31, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended July 31, 1996 in conformity with
generally accepted accounting principles.




BDO Seidman, LLP



New York, New York

September 23, 1996


                                                                             F-2

<PAGE>

                                                           APPAREL AMERICA, INC.


                                                                  BALANCE SHEETS
                                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------

JULY 31,                                                       1996       1995
--------------------------------------------------------------------------------
ASSETS (NOTE 4)
CURRENT:
  Cash and cash equivalents (Note 1)                        $    41    $    29
  Accounts receivable                                         4,187        463
  Due from factor (Note 4)                                        -      2,249
  Inventories (Notes 1 and 3)                                 7,730      5,517
  Due from affiliates                                           185        256
  Prepaid expenses and other current assets                     477        307
--------------------------------------------------------------------------------

          TOTAL CURRENT ASSETS                               12,620      8,821
--------------------------------------------------------------------------------


PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTE 1):
  Machinery and equipment                                     4,765      4,320
  Leasehold improvements                                      2,549      2,420
--------------------------------------------------------------------------------
                                                              7,314      6,740
  Less:  Accumulated depreciation and amortization            5,613      5,123
--------------------------------------------------------------------------------

                                                              1,701      1,617
--------------------------------------------------------------------------------

INTANGIBLES AND OTHER ASSETS:
  Trademarks, net of accumulated amortization of
   $113 (Notes 1 and 2)                                       1,587          -
  Cost in excess of net assets acquired, less
   accumulated amortization of $1,196 and $1,037
   (Note 1)                                                   4,488      4,647
  Other assets                                                   12         10
--------------------------------------------------------------------------------

                                                              6,087      4,657
--------------------------------------------------------------------------------

                                                            $20,408    $15,095
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


                                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                                                                             F-3
<PAGE>

                                                           APPAREL AMERICA, INC.


                                                                  BALANCE SHEETS
                                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------

JULY 31,                                                       1996       1995
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT:
  Current portion of long-term debt (Note 4)                 $1,649     $1,520
  Current portion of deferred interest (Note 4)                 452        573
  Current portion of subordinated note payable (Note 5)         100          -
  Loan payable - revolver (Note 4)                            5,488          -
  Accounts payable                                            2,062      1,366
  Accrued expenses                                              908        690
  Accrued compensation                                          554        859
  Due to affiliates                                               -        525
--------------------------------------------------------------------------------
          TOTAL CURRENT LIABILITIES                          11,213      5,533
LONG-TERM DEBT, LESS CURRENT PORTION (NOTE 4)                 5,032      6,002
ACCRUED PURCHASE PRICE - TRADEMARK (NOTE 2)                   1,200          -
DEFERRED INTEREST - LONG-TERM PORTION (NOTE 4)                  730      1,182
DIVIDENDS PAYABLE (NOTE 6)                                    1,654      1,339
SUBORDINATED NOTE PAYABLE (NOTE 5)                              468      1,000
--------------------------------------------------------------------------------
          TOTAL LIABILITIES                                  20,297     15,056
--------------------------------------------------------------------------------
$9 CUMULATIVE REDEEMABLE PREFERRED STOCK, NET OF
 DISCOUNT OF $50 AND $128 (NOTE 6)                            3,450      3,372
--------------------------------------------------------------------------------
$8.50 CUMULATIVE REDEEMABLE PREFERRED STOCK (NOTE 6)          1,118      1,165
--------------------------------------------------------------------------------
COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS
 (NOTES 2, 8, 11, 12 AND 13)
STOCKHOLDERS' DEFICIT (NOTES 6 AND 7):
  $12 preferred stock, Series E (Note 4)                          -     16,383
  $12 preferred stock, Series F                                   -      7,022
  $10 preferred stock, Series G                                   -     17,079
  Common stock, $.05 par value - shares authorized
   30,000,000 at July 31, 1996 and 15,000,000 at
   July 31, 1995; issued 19,783,308 at July 31, 1996
   and 7,410,223 at July 31, 1995                               989        371
  Additional paid-in capital                                 64,071     23,803
  Deficit                                                   (41,556)   (41,195)
  Less:
    Treasury stock, at cost - 20,665 shares                    (129)      (129)
    Acquisition costs in excess of historical basis
     of net assets acquired from affiliates (Note 1)        (27,832)   (27,832)
--------------------------------------------------------------------------------
          TOTAL STOCKHOLDERS' DEFICIT                        (4,457)    (4,498)
--------------------------------------------------------------------------------
                                                            $20,408    $15,095
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


                                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                                                                             F-4
<PAGE>

                                                           APPAREL AMERICA, INC.


                                                        STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

YEAR ENDED JULY 31,                                                                        1996           1995           1994
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>            <C>

NET SALES (NOTE 13)                                                                  $   49,876     $   38,964     $   34,273
COST OF GOODS SOLD (NOTE 9)                                                              39,192         28,223         25,374
--------------------------------------------------------------------------------------------------------------------------------
       GROSS PROFIT                                                                      10,684         10,741          8,899
--------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
  Selling, design and promotion                                                           4,659          3,107          2,777
  Shipping and warehousing                                                                1,684          1,065            951
  General and administrative                                                              3,699          3,720          3,596
--------------------------------------------------------------------------------------------------------------------------------
       TOTAL OPERATING EXPENSES                                                          10,042          7,892          7,324
--------------------------------------------------------------------------------------------------------------------------------
       OPERATING INCOME                                                                     642          2,849          1,575
--------------------------------------------------------------------------------------------------------------------------------
NONOPERATING CHARGES (INCOME):
  Interest and financing costs                                                            1,265            779          1,804
  Litigation settlement (Note 4)                                                              -            412              -
  Other income (Note 8)                                                                    (236)           (33)          (391)
--------------------------------------------------------------------------------------------------------------------------------
                                                                                          1,029          1,158          1,413
--------------------------------------------------------------------------------------------------------------------------------
       INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND
        EXTRAORDINARY INCOME                                                               (387)         1,691            162
PROVISION FOR INCOME TAXES (NOTES 1 AND 10)                                                  20             20             20
--------------------------------------------------------------------------------------------------------------------------------
       INCOME (LOSS) BEFORE EXTRAORDINARY INCOME                                           (407)         1,671            142
EXTRAORDINARY INCOME:
  Gain on debt restructuring (Notes 4 and 5)                                                550              -          4,165
--------------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                                                  143          1,671          4,307
PREFERRED STOCK DIVIDENDS AND ACCRETION OF REDEEMABLE PREFERRED STOCK
 (NOTE 6)                                                                                   504            718            540
--------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS                                  $     (361)    $      953     $    3,767
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE (NOTE 1):
  Income (loss) before extraordinary income                                          $     (.12)    $      .13     $     (.05)
  Extraordinary income                                                                      .07              -             56
--------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                                                    $     (.05)    $      .13     $      .51
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                                  7,760,154      7,389,552      7,389,542
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                                                                             F-5
<PAGE>

                                                           APPAREL AMERICA, INC.


                                              STATEMENTS OF STOCKHOLDERS DEFICIT
                                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                              Preferred stock                                 Common stock
                                         ------------------------      -------------------------------------------------------
                                                  Issued                        Issued                       In treasury
                                         ------------------------      -------------------------        ----------------------
                                           Shares          Amount        Shares           Amount        Shares          Amount
--------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>          <C>                  <C>          <C>             <C>

BALANCE, AUGUST 1, 1993                    384,847       $ 38,484      7,410,203           $371         20,665          $(129)
Net income                                       -              -              -              -              -              -
Fractional shares                                -              -             10              -              -              -
Issuance of Series E Preferred
 Stock (Note 4)                             20,000          2,000              -              -              -              -
Dividends on $9 cumulative
 redeemable preferred stock                      -              -              -              -              -              -
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1994                     404,847         40,484      7,410,213            371         20,665           (129)
Net income                                       -              -              -              -              -              -
Fractional shares                                -              -             10              -              -              -
Exchange of redeemable preferred
 stock (Note 6)                                  -              -              -              -              -              -
Dividends on cumulative redeemable
 preferred stock                                 -              -              -              -              -              -
Accretion on cumulative redeemable
 preferred stock                                 -              -              -              -              -              -
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1995                     404,847         40,484      7,410,223            371         20,665           (129)
Net income                                       -              -              -              -              -              -
Fractional shares                                -              -              5              -              -              -
Exchange of preferred stock               (404,847)       (40,484)     8,096,940            405              -              -
Dividends on cumulative redeemable
 preferred stock                                 -              -              -              -              -              -
Accretion on cumulative redeemable
 preferred stock                                 -              -              -              -              -              -
Issuance of common stock                         -              -        400,000             20              -              -
Exercise of common stock purchase
 warrants (Note 7)                               -              -      3,876,140            193              -              -
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1996                           -       $      -     19,783,308           $989         20,665          $(129)
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------

<CAPTION>

                                                                                             Acquisition costs
                                                                                               in excess of
                                                                                            historical basis of
                                                             Additional                         net assets             Total
                                                               paid-in                         acquired from       stockholders'
                                                               capital        Deficit           affiliates            deficit
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>           <C>            <C>                    <C>

BALANCE, AUGUST 1, 1993                                        $23,406       $(45,915)           $(27,832)           $(11,615)
Net income                                                           -          4,307                   -               4,307
Fractional shares                                                    -              -                   -                   -
Issuance of Series E Preferred
 Stock (Note 4)                                                 (1,700)             -                   -                 300
Dividends on $9 cumulative
 redeemable preferred stock                                          -           (540)                  -                (540)
------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1994                                          21,706        (42,148)            (27,832)             (7,548)
Net income                                                           -          1,671                   -               1,671
Fractional shares                                                    -              -                   -                   -
Exchange of redeemable preferred
 stock (Note 6)                                                  2,097              -                   -               2,097
Dividends on cumulative redeemable
 preferred stock                                                     -           (521)                  -                (521)
Accretion on cumulative redeemable
 preferred stock                                                     -           (197)                  -                (197)
------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1995                                          23,803        (41,195)            (27,832)             (4,498)
Net income                                                           -            143                   -                 143
Fractional shares                                                    -              -                   -                   -
Exchange of preferred stock                                     40,079              -                   -                   -
Dividends on cumulative redeemable
 preferred stock                                                     -           (426)                  -                (426)
Accretion on cumulative redeemable
 preferred stock                                                     -            (78)                  -                 (78)
Issuance of common stock                                            (5)             -                   -                  15
Exercise of common stock purchase
 warrants (Note 7)                                                 194              -                   -                 387
------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1996                                         $64,071       $(41,556)           $(27,832)           $ (4,457)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


F-6
<PAGE>

                                                           APPAREL AMERICA, INC.


                                                        STATEMENTS OF CASH FLOWS
                                                                  (IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

YEAR ENDED JULY 31,                                                                                  1996      1995      1994
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>       <C>       <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                                      $   143   $ 1,671   $ 4,307
  Adjustments to reconcile net income to net cash provided by (used in) operating activities:
        Extraordinary gain on debt restructuring                                                     (550)        -    (4,165)
        Amortization of deferred interest                                                            (573)     (685)     (231)
        Write-off of interest expense                                                                   -         -       324
        Depreciation and amortization                                                                 490       372       314
        Other amortization                                                                            290       160       331
        Provision for possible losses on accounts receivable                                          158       229       100
        Litigation settlement                                                                           -       412         -
        Decrease (increase) in:
           Accounts receivable                                                                     (4,309)     (243)     (187)
           Inventories                                                                             (2,213)   (2,536)    1,041
           Due from affiliates                                                                         71        54         -
           Prepaid expenses and other current assets                                                 (169)      (14)       62
           Other assets                                                                                (2)        2        (5)
           Net assets of discontinued operations                                                        -       334        31
        Increase (decrease) in:
           Accounts payable and accrued expenses                                                      647       692       414
           Accrued loss on discontinued operations                                                      -         -      (183)
           Due to affiliates                                                                         (395)       78        50
------------------------------------------------------------------------------------------------------------------------------
               NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                 (6,412)      526     2,203
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment                                                         (574)     (780)     (266)
  Purchase of trademark (Note 2)                                                                     (500)        -         -
------------------------------------------------------------------------------------------------------------------------------
               NET CASH USED IN INVESTING ACTIVITIES                                               (1,074)     (780)     (266)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from revolving debt                                                                      5,488         -         -
  Proceeds from equipment loans                                                                       166         -         -
  Proceeds from the issuance of common stock                                                          402         -         -
  Payments on subordinated debt                                                                       (50)        -         -
  Preferred stock dividends and redemption                                                           (158)        -         -
  Due from factor                                                                                   2,675     1,940    (2,508)
  Payments on long-term debt                                                                         (925)   (1,452)   (1,000)
  Payment for the exchange of preferred stock                                                           -       (85)        -
  Litigation settlement payments                                                                     (100)     (200)        -
------------------------------------------------------------------------------------------------------------------------------
               NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                  7,498       203    (3,508)
------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                   12       (51)   (1,571)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                                           29        80     1,651
------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                                                $41       $29       $80
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for:
     Interest                                                                                     $ 2,001   $ 1,394   $ 1,601
     Income taxes                                                                                      72        12        11
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
     Unpaid dividends                                                                                 315       521       540
     Issuance of preferred stock for debt                                                               -         -       300
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                                                                             F-7
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.   SIGNIFICANT ACCOUNTING POLICIES

     BUSINESS

     The operations of Apparel America, Inc. (the "Company") consist of the
     design, manufacture and distribution of apparel, primarily women's
     swimwear. The Company's products are substantially manufactured and
     distributed within the United States by its Robby Len division
     ("Robby Len").

     INVENTORIES

     Inventories are valued at the lower of cost (first-in, first-out) or
     market.

     PROPERTY, PLANT AND EQUIPMENT

     Depreciation and amortization are computed by the straight-line method over
     the estimated useful lives of the assets for financial reporting purposes.

     CASH EQUIVALENTS

     The Company's policy is to invest cash in excess of operating requirements
     in income-producing investments. Cash equivalents consist of certain highly
     liquid investments with an original maturity of less than three months. The
     Company has substantially all of its cash and cash equivalents in one
     financial institution.

     COSTS IN EXCESS OF NET ASSETS ACQUIRED

     Costs in excess of net assets acquired are being amortized by the straight-
     line method over 40 years. Amortization expense amounted to approximately
     $160,000 for all of the years presented. The Company periodically
     reevaluates the carrying amount of the costs in excess of net assets
     acquired. Based on the Company's projections, and the estimated
     undiscounted future operating profits and cash flows of Robby Len, the
     Company expects to recover the remaining amount of the costs in excess of
     net assets acquired over the remaining estimated useful life of the asset.


                                                                             F-8
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     ACQUISITION COSTS IN EXCESS OF HISTORICAL BASIS OF NET ASSETS ACQUIRED FROM
     AFFILIATES

     The Company purchased the net assets and outstanding common stock of
     various companies in a series of transactions with affiliates. The
     acquisitions have been accounted for as combinations of companies under
     common control, with the net assets acquired (including costs in excess of
     net assets acquired arising from prior acquisitions by the affiliates)
     recorded at their historical cost, comparable to a pooling of interests.
     The acquisition costs in excess of the historical basis of the net assets
     acquired have been recorded as a charge to stockholders' equity.

     TRADEMARKS

     Trademarks are amortized on the straight-line method over their estimated
     useful lives (15 years). Amortization expense amounted to approximately
     $113,000 for the year ended July 31, 1996.

     REVENUE RECOGNITION

     Sales are recognized when products are shipped. Provision for estimated
     sales returns and allowances and losses are accrued at the time revenue is
     recognized.

     NET INCOME (LOSS) PER COMMON SHARE

     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 outstanding during each of the respective
     years. In each year, common share equivalents relating to warrants were
     anti-dilutive and, therefore, not included in the computation.


                                                                             F-9
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     INCOME TAXES

     Income taxes are calculated using the liability method specified by
     Statement of Financial Accounting Standards No. 109, "Accounting for Income
     Taxes" ("SFAS 109"). SFAS 109 requires a company to recognize deferred tax
     liabilities and assets for the expected future tax consequences of events
     that have been recognized in a company's financial statements or tax
     returns. Under this method, deferred tax liabilities and assets are
     determined based on the difference between the financial statement carrying
     amounts and tax basis of assets and liabilities using enacted tax rates in
     effect in the years in which the differences are expected to reverse.
     Deferred tax assets have been reduced by a valuation allowance since
     realization is uncertain.

     USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts of cash and cash equivalents, accounts receivable,
     prepaid expenses, accounts payable, accrued compensation and other expenses
     approximate fair value because of the short maturity of these items. The
     carrying amounts of the revolving loan and long-term debt approximate fair
     value because the underlying instruments are at terms which reflect
     prevailing market conditions.


                                                                            F-10
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     RECENT ACCOUNTING STANDARDS

     SFAS No. 121 - In March 1995, the Financial Accounting Standards Board
     issued Statement of Financial Accounting Standards ("SFAS") No. 121,
     "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets To Be Disposed Of," which requires that certain long-lived assets be
     reviewed for impairment whenever events or changes in circumstances
     indicate that the carrying amount may not be recoverable. The adoption of
     this pronouncement is not expected to have a significant effect on the
     Company's financial statements.

     SFAS No. 123 - In October 1995, the Financial Accounting Standards Board
     issued SFAS No. 123, "Accounting for Stock-Based Compensation," which
     allows the choice of either the intrinsic value method or the fair value
     method of accounting for employee stock options. The Company has selected
     the option to continue the use of the current intrinsic value method.

     Both of these statements are effective for fiscal years beginning after
     December 15, 1995.

2.   ACQUISITION

     On August 7, 1995, the Company acquired from Milady Brassiere & Corset Co.,
     Inc. ("Milady") the tradenames Roxanne, Harbour Casual and Coco Reef. The
     purchase price for the tradenames is to be determined based on a percentage
     of net sales of goods bearing the tradenames Roxanne and Harbour Casual
     over the next seven years, with a minimum guaranteed purchase price of
     $1,700,000. The Company paid $500,000 of the purchase price at the closing,
     with the balance payable based on a percentage of net sales, as defined.
     The Company also purchased approximately $500,000 of inventory bearing the
     purchased tradenames as well as assumed matching customer purchase orders
     against this inventory.

     The pro forma effects on the results of operations as if the acquisition
     had occurred at August 1, 1994 are not presented since they would not have
     been material.


                                                                            F-11
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

3.   INVENTORIES

     Inventories consist of the following:


JULY 31,                                                1996           1995
--------------------------------------------------------------------------------
                                                           (IN THOUSANDS)

Raw materials                                         $4,058         $2,791
Work-in-process                                        1,226            790
Finished goods                                         2,446          1,936
--------------------------------------------------------------------------------
                                                      $7,730         $5,517
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


4.   LONG-TERM DEBT AND CREDIT ARRANGEMENTS

     Long-term debt consists of the following:


JULY 31,                                                1996           1995
--------------------------------------------------------------------------------
                                                          (IN THOUSANDS)
Term loan payable (a)                                 $6,210         $6,999
Litigation settlement (b)                                147            229
Other (including $84 and $132 due to a related party)    324            294
--------------------------------------------------------------------------------
                                                       6,681          7,522
Less:  Current portion                                (1,649)        (1,520)
--------------------------------------------------------------------------------
                                                      $5,032         $6,002
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

     The future minimum payments of the long-term debt are as follows:



                                                              (IN THOUSANDS)
--------------------------------------------------------------------------------
1997                                                                 $1,649
1998                                                                  1,559
1999                                                                  1,341
2000                                                                  1,358
2001                                                                    774
--------------------------------------------------------------------------------
                                                                      6,681
Interest through maturity                                             1,182
--------------------------------------------------------------------------------
                                                                     $7,863
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


                                                                            F-12
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     (a)  TERM LOAN

          In a prior year, the Company entered into a credit agreement with two
          banks to provide a term loan facility of $24,000,000, the proceeds of
          which were used to fund the cash portions of  business acquisitions,
          and a revolving credit facility of $12,000,000, the proceeds of which
          were used to refinance short-term debt. Various amendments to the
          credit agreement were made during the past few years to (i) extend the
          maturity of the term loan payable in varying principal amounts through
          May 31, 1995; (ii) refinance the revolving credit borrowings with
          funds provided from a factoring agreement (see below); and (iii) cure
          previously existing events of default under certain loan covenants.

          In fiscal 1994, the Company negotiated two additional significant
          amendments to the loan agreement. The first one, dated December 15,
          1993, modified the payment terms and interest rates of the term loans
          and reduced the outstanding principal amount of the debt (payable to a
          related party, see below), upon the issuance of 20,000 shares of the
          $12 Preferred Series E Stock (the "Series E Preferred Stock"). The
          second amendment, dated July 31, 1994, extended the maturity dates of
          the loans, modified the payment terms and interest rates and reduced
          the outstanding principal amount of the debt by a total of $4,755,000.


                                                                            F-13
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

          Accounting for these amendments, which is based on Statement of
          Financial Accounting Standards No. 15, "Accounting by Debtors and
          Creditors for Troubled Debt Restructurings", resulted in an
          extraordinary gain of approximately $4,165,000 in the year ended
          July 31, 1994, as follows:


                                                             (IN THOUSANDS)
          ----------------------------------------------------------------------
          Balance of debt, July 31, 1993                            $16,500
          Principal payments, fiscal 1994                            (1,000)
          ----------------------------------------------------------------------
                                                                     15,500
          Fair value of preferred stock issued to retire debt          (300)
          Amortization in fiscal 1994 of deferred interest
           resulting from first amendment                              (231)
          Accrued interest at date of second amendment                  290
          ----------------------------------------------------------------------
          Balance of debt prior to second amendment                  15,259
          Principal amount of new debt                               (8,745)
          Estimated interest on new debt through maturity            (2,457)
          Professional fees and other costs                            (158)
          ----------------------------------------------------------------------
               Subtotal                                               3,899
          Forgiveness of accrued interest on the subordinated
           note (see Note 5)                                            266
          ----------------------------------------------------------------------
                                                                    $ 4,165
          ----------------------------------------------------------------------
          ----------------------------------------------------------------------

          The interest on the new debt, which offset the gain recognized upon
          restructuring, was deferred and is being recognized as a reduction of
          interest expense through the maturity of the new debt. The remaining
          balance of deferred interest at July 31, 1996 and 1995 was $1,182,000
          and $1,755,000, respectively.


                                                                            F-14
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

          The outstanding balance of the term loans is approximately $6,210,000
          and $6,999,000 at July 31, 1996 and 1995, respectively. The loans are
          repayable in varying amounts through fiscal 2001. Interest, which is
          payable monthly, accrues at the rate of 1.5% above the one-year LIBOR
          (5.9062% and 5.8125% at July 31, 1996 and 1995, respectively) for
          loans totaling approximately $3,974,000 and $4,431,000 at July 31,
          1996 and 1995, respectively, and accrues at the rate of 1.5% above the
          prime rate (8.25% and 8.75% at July 31, 1996 and 1995, respectively)
          for the balance of the debt (approximately $2,236,000 and $2,568,000
          at July 31, 1996 and 1995, respectively).

          The new term loan agreement contains various covenants, including
          requirements relating to the maintenance of certain specified ratios
          and levels of income, as defined, and limitations on (i) the creation
          of new debt, (ii) the amortization of the subordinated debt (Note 5)
          and the redemption of the cumulative preferred stock (Note 6), (iii)
          the level of capital expenditures, and (iv) dividends and other
          restricted payments, as defined.

          The term loans are subject to certain mandatory repayment provisions
          using proceeds received from (i) the sale of capital stock, (ii) the
          collection of certain receivables from related parties, (iii) the sale
          of collateral, and (iv) excess cash flow as defined in the agreement.

     (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, an initial payment of
          $150,000 was made in December 1994, with the balance payable in five
          semi-annual installments of $50,000 commencing June 30, 1995 and a
          final payment of $60,000 on December 31, 1997. The settlement has been
          discounted at an annual effective interest rate of 9% to reflect its
          present value at July 31, 1996.


                                                                            F-15
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     (c)  FACTOR AGREEMENT

          In fiscal 1993, the Company entered into a $15,000,000 factoring
          agreement (the "Factor Agreement") whereby the Company assigned
          substantially all accounts receivable to the factor for advances based
          on a percentage of the Company's unmatured accounts receivable and
          eligible inventories. The Factor Agreement was secured by the
          Company's accounts receivable and inventories.

     (d)  REVOLVING LINE OF CREDIT

          In September 1995, the Factor Agreement was replaced with a credit
          agreement that provides a $15,000,000 revolving line of credit for
          advances of up to 85% of eligible receivables and 50% of eligible
          inventories, subject to allowances for specified seasonal
          overadvances. Borrowings under the revolving line of credit bear
          interest at either 1% above the higher of Federal Funds Rate plus
          1/2% or the prime rate (the "Alternative Base Rate") or 2- 1/2% above
          the applicable LIBOR reserve rate, at the Company's option, and are
          secured by the Company's accounts receivable and inventories. In
          January 1996, the maximum loan amount under the revolving credit
          facility was increased from $15,000,000 to $23,000,000.

          The agreement, as amended, expires August 31, 1997 and contains
          various covenants including requirements relating to the maintenance
          of specific levels of working capital, net worth and net income, and
          restrictions on (i) the creation of new debt, (ii) the level of
          capital expenditures, (iii) the payment of dividends and (iv) the
          redemption of stock and other restricted payments.


                                                                            F-16
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

5.   SUBORDINATED NOTE

     In May 1989, the Company issued to a related party a $1,000,000
     subordinated promissory note which bears interest at the rate of 9% per
     annum, payable semi-annually, with an original maturity of December 31,
     1993. In connection with an amendment to the credit agreement, in
     December 1993, the holder of this note agreed to (i) forgive accrued and
     unpaid interest through December 15, 1993, in the amount of $266,250, (ii)
     extend the maturity date of the note to June 1998, and (iii) reduce the
     interest rate to 8%.

     Effective November 1, 1995, the Company entered into an agreement for the
     exchange of the $1,000,000 subordinated note plus accrued and unpaid
     interest of $150,000 for an amended and restated subordinated note in the
     aggregate principal amount of $600,000. As a result of this exchange, a
     gain of $550,000 was recognized and recorded as extraordinary income in the
     year ended July 31, 1996. In February 1996, a principal payment of $50,000
     was made on the amended note. The balance of the amended note is payable in
     the amount of $50,000 on June 30, 1997 with the remaining balance due on
     June 30, 1998. Interest accrues on the unpaid principal balance of the
     amended note at a rate of 8-1/2% and is payable on a quarterly basis.
     Additional interest accrues at the rate of 4% on the unpaid principal
     balance and is payable on June 30, 1998.

     The subordinated promissory note is subject to certain restricted payment
     covenants and is subordinate to payment in full of all senior debt.

6.   CUMULATIVE REDEEMABLE PREFERRED STOCKS

     The Company's $9 Cumulative Preferred Series B Stock ("Series B Preferred
     Stock") has a redemption value of $100 per share and is subject to
     mandatory semi-annual redemption requirements which commenced on June 30,
     1995, with a final redemption on December 31, 1997. Such redemptions are
     not permitted according to the terms of the Company's 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.

     The Series B Preferred Stock is nonvoting and contains certain restrictions
     on the payment of dividends on the Common Stock or the acquisition of
     Common Stock by the Company.


                                                                            F-17
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


     In fiscal 1995, the Company entered into agreements providing for the
     exchange of 25,000 shares of the Series B Preferred Stock and accrued
     dividends thereon for 11,650 shares of the Company's $8.50 Cumulative
     Preferred Series H Stock ("Series H 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 redemption requirements commencing on
     May 1, 1996, with a final redemption on May 1, 2002.

     The excess of the carrying value of the exchanged Series B Preferred Stock
     and accrued dividends thereon over the redemption value of the Series H
     Preferred Stock and consideration paid was recorded as a capital
     contribution of approximately $2,097,000 in fiscal 1995.

7.   STOCKHOLDERS' EQUITY

     The Series E Preferred Stock, with a stated value $100 per share, is
     nonvoting and may be redeemed, subject to certain conditions, at the
     Company's option at anytime. The Series E Preferred Stock ranks senior to
     common shares as to dividends and liquidation preference.

     The $12 Preferred Series F Stock (the "Series F Preferred Stock"), with a
     stated value of $100 per share, is nonvoting and may be redeemed, subject
     to certain conditions, at the Company's option. The Series F Preferred
     Stock was issued with warrants to purchase an aggregate of 3,876,140 shares
     of the Company's common stock. Each warrant entitled the holder to purchase
     the Company's common stock at an exercise price of $.10 per share through
     November 1, 1996. The warrants to 3,876,140 shares were exercised at
     July 31, 1996.


                                                                            F-18
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     The $10 Preferred Series G Stock (the "Series G Preferred Stock") has a
     stated value of $100 per share, is non-voting and may be redeemed by the
     Company, subject to certain conditions.

     In February 1996, the stockholders agreed to amend the Company's
     Certificate of Incorporation to increase the number of authorized common
     shares from 15,000,000 to 30,000,000.

     Effective July 30, 1996, the Company effectuated a one-for-20 exchange of
     the Series E, F and G Preferred Stock and issued 8,096,940 shares of common
     stock. If this conversion occurred effective August 1, 1995, the net loss
     per common share for the year ended July 31, 1996 would have decreased $.03
     from $.05 to $.02.

8.   PENSION PLANS

     The Company had a noncontributory defined benefit pension plan (the "Plan")
     covering substantially all employees in the Robby Len Division who are not
     members of a collective bargaining unit, and have met certain age and
     service requirements.

     Effective July 31, 1994, the Company suspended the Plan and ceased
     contributions. In fiscal 1996, the Company terminated the Plan by settling
     the vested benefit portion of the projected benefit obligation through the
     purchase of nonparticipating annuity contracts. The Company recognized a
     net settlement gain of approximately $220,000 and a curtailment gain of
     approximately $340,000 in fiscal 1996 and 1994, respectively.

     Effective October 1, 1994, the Company adopted a tax qualified 401(k) plan.
     Participants may contribute up to 15% of their salary. The Company will
     match 40% of the participant's contribution up to a maximum of 6% of each
     participant's salary. The expense related to the 401(k) plan was
     approximately $77,000 and $54,000 for the years ended July 31, 1996 and
     1995, respectively.

     The Company also contributes to noncontributory, multi-employer retirement
     and health plans for its union employees. The Company's contributions to
     the plans were approximately $968,000, $1,029,000 and $774,000 for the
     years ended July 31, 1996, 1995 and 1994, respectively.


                                                                            F-19
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

9.   RELATED PARTY TRANSACTIONS

     Certain of the Company's swimwear products are manufactured on a contract
     basis by companies owned by certain officers of the Robby Len division.
     Amounts paid to such contractors approximated $3,965,000, $2,888,000 and
     $2,587,000 for the years ended July 31, 1996, 1995 and 1994, respectively.

     Rent expense includes payments to an affiliate of approximately $227,000,
     $214,000 and $164,000 for the years ended July 31, 1996, 1995 and 1994,
     respectively.

10.  INCOME TAXES

     Deferred income taxes reflect the impact of temporary differences between
     the amount of assets and liabilities for financial reporting purposes and
     such amounts as measured by tax laws and regulations. These temporary
     differences are determined in accordance with SFAS 109. Deferred tax
     liabilities (assets) are comprised of the following:

     JULY 31,                                           1996           1995
     ---------------------------------------------------------------------------
                                                           (IN THOUSANDS)
     Inventory (Section 263A)                           $(44)          $(26)
     Accumulated depreciation                           (356)          (129)
     Receivable reserve                                 (211)          (170)
     Other accruals                                      (23)          (187)
     Net operating loss                              (17,356)       (17,519)
     ---------------------------------------------------------------------------
     Gross deferred tax assets                       (17,990)       (18,031)
     Valuation allowance                              17,990         18,031
     ---------------------------------------------------------------------------
     Net deferred tax asset                         $      -       $      -
     ---------------------------------------------------------------------------
     ---------------------------------------------------------------------------

     The current provision for income taxes consists of state income taxes. For
     the years ended July 31, 1996, 1995 and 1994, Federal income taxes have not
     been provided for because of net operating losses.

     At July 31, 1996, the Company has the ability to offset future taxable
     income aggregating approximately $43,390,000 with tax loss carryforwards
     which expire at various times from 2000 to 2008.


                                                                            F-20
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

11.  LEASES

     The Company leases plant, warehouse and office facilities and machinery and
     equipment under noncancellable operating leases that expire in various
     years through 2000. One of the plant facilities is leased from an affiliate
     (see Note 9). Certain of the leases, which may be renewed for periods
     ranging from five to ten years, provide for rental adjustments based upon
     cost of living escalations, changes in the Consumer Price Index and for
     payments by the Company for maintenance costs, property taxes and other
     occupancy costs in excess of specified amounts and insurance obligations on
     the leased property.

     Future minimum lease payments, including rent payable to an affiliate (see
     Note 8), under noncancellable operating leases as of July 31, 1996 are as
     follows:

     ---------------------------------------------------------------------------
                                                              (IN THOUSANDS)
     1997                                                              $794
     1998                                                               738
     1999                                                               644
     2000                                                               376
     ---------------------------------------------------------------------------
          Total                                                      $2,552
     ---------------------------------------------------------------------------

     Rent expense amounted to approximately $839,000, 645,000 and $649,000 for
     the years ended July 31, 1996, 1995 and 1994, respectively (see Note 9).

12.  INCENTIVE COMPENSATION PLANS AND EMPLOYMENT ARRANGEMENTS

     The Company has a management incentive compensation plan for certain key
     executives and employees. The incentive compensation is based upon
     percentages of adjusted pre-tax earnings, as defined, of the Robby Len
     division. For the years ended July 31, 1996, 1995 and 1994, such
     compensation amounted to approximately $155,000, $364,000 and $300,000,
     respectively.


                                                                            F-21
<PAGE>

                                                           APPAREL AMERICA, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

13.  COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS

     (a)  The Company is a party to certain litigation incurred in the normal
          course of business. While any litigation has an element of
          uncertainty, the litigation pending against the Company either (i)
          seeks immaterial damage amounts, or (ii) in the opinion of management
          and the Company's outside legal counsel, will be resolved in a manner
          that should not have a material adverse effect on the Company's
          financial statements.

     (b)  Financial instruments which potentially expose the Company to
          concentrations of credit risk, as defined by Statement of Financial
          Accounting Standards No. 105, consist primarily of trade accounts
          receivable. The Company's customers are not concentrated in any
          specific geographic region, but are concentrated in the apparel retail
          business. Sales to three major customers (which sales in excess of 10%
          of total sales) approximated, on an individual basis, 14%, 12% and 11%
          for the year ended July 31, 1996. Sales to one major customer
          approximated 13% for each of the years ended July 31, 1995 and 1994.


                                                                            F-22
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Apparel America, Inc.
New Haven, Connecticut

The audits referred to in our report dated September 23, 1996, relating to the
financial statements of Apparel America, Inc. which is included in Item 8 of
this Form 10-K, included the audit of the financial statement schedule listed in
the accompanying index. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audits.

In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.




BDO Seidman, LLP



New York, New York

September 23, 1996


                                                                             S-1

<PAGE>

                                                           APPAREL AMERICA, INC.
                                               VALUATION AND QUALIFYING ACCOUNTS
                                                          (THOUSANDS OF DOLLARS)
                                                                     SCHEDULE II

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
          Column A                        Column B              Column C                      Column D               Column E
--------------------------------------   -----------    -----------------------      ---------------------------    ----------
                                                                Additions                    Deductions
                                                        -----------------------      ---------------------------
                                                                                     Uncollectible   Transferred
                                                                                       accounts        to net
                                         Balance at     Charged to      Charged      written off,      balance      Balance at
                                          beginning      costs and     to other         net of        due from          end
Description                               of period      expenses      accounts       recoveries       factor        of period
------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>           <C>             <C>            <C>

YEAR ENDED JULY 31, 1996:
  Reserves and allowances deducted
   from asset accounts:
  Allowance for uncollectible accounts:
     Accounts receivable                      $302           $298          $ 124           $140           $  -           $584
     Due from factor                           124              -           (124)             -              -              -
------------------------------------------------------------------------------------------------------------------------------
                                              $426           $298          $   -           $140           $  -           $584
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------

YEAR ENDED JULY 31, 1995:
  Reserves and allowances deducted
   from asset accounts:
  Allowance for uncollectible accounts:
     Accounts receivable                      $147           $195          $   -          $  40           $  -           $302
     Due from factor                            50              -              -            (74)             -            124
------------------------------------------------------------------------------------------------------------------------------
                                              $197           $195          $   -           $(34)          $  -           $426
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------

YEAR ENDED JULY 31, 1994:
  Reserves and allowances deducted
   from asset accounts:
  Allowance for uncollectible accounts:
     Accounts receivable                      $  -           $197           $  -           $  -           $ 50           $147
     Due from factor                            97              -             50             97              -             50
------------------------------------------------------------------------------------------------------------------------------
                                              $ 97           $197           $ 50           $ 97           $ 50           $197
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------

</TABLE>



S-2