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

                                    FORM 10-K

(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 DECEMBER
         28, 1996.
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED].

Commission file number 0-20382

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

Delaware                                    62-1284179
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

111 West 40th Street, New York, New York    10018
(Address of principal executive offices)    (Zip Code)

       Registrant's telephone number, including area code: (212) 764-4630
           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:
          Common Stock, par value $.01 per share, and associated rights

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this annual report on Form 10-K or any amendment to
this Form 10-K [   ].

         As of March 7, 1997, the aggregate market value of the Common Stock
held by non-affiliates of the registrant was $7,336,163. Such aggregate market
value was computed by reference to the closing price of the Common Stock on the
Nasdaq SmallCap(TM) Market on such date.

         As of March 7, 1997, there were 6,100,452 shares of the registrant's
Common Stock outstanding, excluding 1,000 shares held by a subsidiary.

         Unless the context indicates otherwise, the term "Company" refers to
Danskin, Inc. and, where appropriate, one or more of its subsidiaries.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None.


<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES


                                TABLE OF CONTENTS


  Page

PART I
  Item 1.    Business                                                      1-8
  Item 2.    Properties                                                    8-9
  Item 3.    Legal Proceedings                                            9-10
  Item 4.    Submission of Matters to a Vote of Security Holders            10

PART II
  Item 5.    Market for the Registrant's Common Stock and
                Related Stockholder Matters                                 11
  Item 6.    Selected Consolidated Financial Data                        12-14
  Item 7.    Management's Discussion and Analysis of Financial
                Condition and Results of Operations                      15-24
  Item 8.    Financial Statements and Supplementary Data                    25
  Item 9.    Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure                         25

PART III
  Item 10.   Directors and Executive Officers of
                the Registrant                                           25-27
  Item 11.   Executive Compensation                                      28-32
  Item 12.   Security Ownership of Certain Beneficial Owners
                and Management                                           33-35
  Item 13.   Certain Relationships and Related Transactions              35-36

PART IV
  Item 14.   Exhibits, Financial Statement Schedules, and
                Reports on Form 8-K                                      37-44

SIGNATURES                                                                  45

CONSOLIDATED FINANCIAL STATEMENTS                                     F-1-F-23

FINANCIAL STATEMENT SCHEDULES                                              S-1
<PAGE>


                                     PART I


ITEM 1.  BUSINESS

General

         The Company designs, manufactures and markets several leading brands of
women's activewear clothing, dance wear, tights and legwear. Danskin(R), Dance
France(R) and Round-the-Clock(R) are the Company's principal proprietary brands.
The Company also manufactures the Givenchy(R) and Anne Klein(R) women's hosiery
brands pursuant to license agreements. In addition to its branded merchandise,
the Company manufactures and markets private label merchandise, principally
legwear, for many major retailers, including most full line department stores.
The Company currently operates as two divisions: Danskin ("Danskin") for
activewear and Pennaco ("Pennaco") for legwear.

         Danskin(R) is the leading brand of women's tights, dance wear and
exercise clothing in the United States, enjoying a brand awareness factor of
over 82% among American women. The Company believes the strong awareness of the
Danskin(R) brand and its reputation for fit, comfort and durability will enable
it to continue to expand its product lines to fit the active lifestyle of
today's woman. In an effort to further capitalize on the high brand recognition
of Danskin(R) and to develop additional channels for distribution, the Company
operates two full price retail stores, one in New York City and the other in
Miami's South Beach, which offer a wide assortment of Danskin(R) products.
Additionally, the Company currently operates 46 factory outlet stores in 19
states.

         Pennaco hosiery is widely recognized for its quality, fit and
innovation. The Company is one of the oldest manufacturers of hosiery in the
United States and the second largest supplier of sheer hosiery to domestic, full
line department stores and apparel specialty stores, as well as being the
leading supplier of private label hosiery to these stores. The Company markets
Round-the-Clock(R), which has been in the market since 1919, as well as two
licensed brands of hosiery: Givenchy(R) and Anne Klein(R).


Strategy

         The Company has developed a diversified portfolio of well regarded
branded and private label products that can be offered to consumers at varying
price points through each of its channels of distribution. Its objective is to
utilize this portfolio and the high name recognition of its proprietary and
licensed brands to capitalize on its brand name in order to become a complete
activewear resource and to complete the transition from being principally a
supplier of sheer hosiery to being a supplier of a full line of women's legwear.
Key elements of the Company's strategy include the following:


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

Danskin(R), Danskin Plus(R), Dance France(R) and Round-the-Clock(R) are
registered trademarks of Danskin, Inc. 
Givenchy(R) is a registered trademark of Givenchy S.A.
Anne Klein(R) is a registered trademark of Anne Klein & Company. Christian
Dior(R) is a registered trademark of Christian Dior S.A. 
Shape(R) is a registered trademark of Weider Publications, Inc. 
Lycra(R) is a registered trademark of E.I. DuPont de Nemours & Co., Inc.
<PAGE>


Market Segmentation

Activewear

         The Company sells its activewear products to approximately 6,000
accounts, representing over 12,000 stores. These products are targeted towards
different segments of the wholesale market. Danskin(R) and Danskin Plus(R)
(activewear for the large sized woman) products are marketed to major sporting
goods stores, such as The Sports Authority, Inc., Jumbo Sports, Inc., and
Oshman's Sporting Goods, Inc., full line department stores, including Dillard's,
Burdine's, Nordstrom, Lord & Taylor, Macy's and Belk Stores, and many smaller
sporting goods and specialty stores. Dance France(R) is the Company's line of
high fashion bodywear targeted for the fitness enthusiast that is distributed
principally through full line department stores, such as Nordstrom's and Macy's,
and specialty stores. The Company believes that its strategy of developing
product lines for specific channels of distribution enhances its ability to
maintain the integrity of its brands while reducing the risk associated with any
particular line.

Legwear

         The Company sells its legwear products to approximately 1,870 accounts,
representing over 2,500 stores. The customer base for its legwear consists
primarily of full line department stores and apparel specialty stores, including
Federated Department Stores (including Macy's), Bloomingdale's, Dayton Hudson -
Marshall Field's, Lord & Taylor, Neiman Marcus, Nordstrom, Saks Fifth Avenue,
Carson Pirie Scott and Talbot's (including its catalog). The Company provides a
diversity of legwear products to its customer base at each price/quality level,
and it seeks market niches for product expansion. Within this universe, the
market is divided principally by retail price point, with designer brands, such
as Anne Klein(R) and Givenchy(R), occupying the upper positions at generally
higher gross margins, non-designer brands, such as Round-the-Clock(R), occupying
the middle, and with private label at the bottom. The Company believes the
reintroduction of Anne Klein(R) sheer hosiery in 1996, the introduction of Anne
Klein(R) socks and an upscale Givenchy(R) couture line and the launch of "Leg
Solutions" by Round-the-Clock(R), together with the Company's traditional
strength in private label products, will further position the Company as a
leading legwear resource to its customer base.


Expansion of Danskin(R) Product Lines

         The Company has introduced a variety of new activewear products. This
expansion has included sports bras, a complete line of exercise clothing
designed for walking (Danskin(R) Walking Gear), and Fitness Slimmers(TM), a
Danskin(R) bodywear line containing support features. This expansion of product
lines exemplifies the Company's strategy to take the brand beyond the gym and
dance studio and into a woman's total active lifestyle. Due to the strength of
the Danskin(R) name, the Company has expanded its product offerings in
categories such as fleece and outerwear, which complement its traditional
strength in stretch bodywear and tights. This strategy should facilitate the
Company's ability to sell a fully merchandised wardrobe concept to retail
customers and to have Danskin(R) brand products offered for sale in many more
departments in department stores.


International Sales Expansion

         The Company believes that the Danskin(R) brand enjoys strong
recognition in many foreign markets, including Canada, Germany, England,
Australia and Italy. Accordingly, the Company has targeted international markets
as a potential significant source of growth. It generally approaches this market
through distributors, although it distributes directly in Canada and is
considering direct distribution in other foreign countries as well. Export net
sales over the past three full fiscal years were $5.2 million in fiscal 1994,
$6.2 million in fiscal 1995 and $6.7 million in fiscal 1996.


                                      - 2 -
<PAGE>


Establishment of  the Company as a Complete Legwear Resource

         Pennaco is the number two hosiery resource (behind Sara Lee
Corporation) in most domestic, full line department stores, and is valued for
the fit and quality of its products, private label offerings, reliable shipping
performance and brand diversity. The Company is also the major supplier of
private label sheer hosiery sold by these department stores. The Company has
developed initiatives for each of its legwear brands to penetrate new market
niches. These include the reintroduction of Anne Klein(R) sheer hosiery to take
advantage of the extensive Anne Klein(R) presence on the main floor of
department stores and to build on the success of its established Anne Klein(R)
trouser socks. The Company's strategy also includes the further rollout of
Round-the-Clock(R) "Leg Solutions," one of the first brands to offer "Lycra 3-D"
construction (with additional Lycra(R) content, thereby rendering the product
softer to the touch, more durable, better fitting and visually more attractive),
and the introduction of Round-the-Clock(R) "Nine Months" pantyhose made
specifically for wear during maternity. The Givenchy(R) brand was repackaged,
and an upscale "couture" line has been marketed. The Company has also introduced
a line of packaged bodywear (produced by Danskin), which is designed to be
displayed on wall fixtures in the hosiery department of department stores.
Recognizing the trend towards more casual dressing, the Company intends to
lessen its reliance upon sales of sheer hosiery and to increase its socks and
tights business, which currently accounts for approximately 10% of shipments, to
30%. It has launched a Danskin(R) sock and tight line and Anne Klein(R) socks
and tights, and is launching its own line of Round-the-Clock(R) socks and
tights.

Licensing of Danskin(R) Name

         The Company currently licenses the Danskin(R) brand to manufacturers of
women's underwear, kids' socks, cycling wear and footwear. The Company believes
there is an opportunity to license the Danskin(R) name for additional product
categories, such as swimwear, sunglasses, watches and outerwear. The Company
believes that selective licensing enhances its brand value, because it expands
the level of retail purchases of the name, it affords cross marketing and
merchandising opportunities, and it provides additional product categories for
sale in Company owned stores.

Outlet Store Strategy

         Over the past year, the Company's outlet stores have experienced sales
declines comparable to that in the outlet industry as a whole. In response, the
Company is evaluating the performance of selected locations and attempting to
renegotiate the leases on certain underperforming outlet stores and is limiting
the number of new outlet stores it opens each year. In addition, in order to
improve the operating performance of its outlet stores, the Company has changed
the stores' merchandise mix and ordering practices, and now provides for the
automatic replenishment of product as determined by model stock levels.

Expansion of Full Price Retail Stores

         In November 1995, the Company opened a full price retail store under
the Danskin(R) name on Columbus Avenue in New York City, followed in February
1996 by a second store in Miami's South Beach. The Company believes that the
Danskin(R) name recognition of over 82% among American women and the brand's
reputation for fit, comfort and durability provide the Company with an
opportunity to open additional full price Danskin(R) stores in freestanding
metropolitan and upscale mall locations. These stores offer the Company's
consumers a wider assortment of Danskin(R) merchandise by carrying an inventory
of approximately 1,500 SKU's (stock keeping units), contrasted with only
approximately 150 SKU's maintained at any one time by even the largest retailer
of Danskin(R) products. In addition to opening a new channel of distribution for
the Company's products, the Company believes these stores are an effective form
of consumer advertising and help "showcase" the full assortment of its
activewear merchandise. An additional benefit is that the stores provide ideal
testing conditions for the introduction of new products, such as Danskin(R)
footwear, sweaters, denim jeans and sunglasses. The Company believes there are
ample opportunities for select national expansion of its full price retail
strategy, although additional financing will be required to open new full price
stores.


                                      - 3 -
<PAGE>


Products

Activewear

         The Company designs, manufactures and markets several leading brands of
women's and girls' activewear (including bodywear, cover-ups and outerwear),
dance wear and tights under the Danskin(R), Dance France(R) and Shape(R) labels.
The Company also has introduced casual socks and fashion tights under the
Danskin(R) brand name to full line department and specialty stores. Dance
France(R) is the Company's line of high fashion bodywear offering finer fabrics,
textures and prints, and is primarily directed to specialty stores at higher
price points. The Company also licenses the name Shape(R), under which it
produces activewear products for mass market distribution, although it plans to
discontinue marketing this brand at the end of 1997, by mutual agreement with
the licensor.

         Danskin realizes approximately 65% of activewear revenues from basic
styles, with black being the single most popular color. These activewear
products are generally designed in four seasonal fashion groupings, with a
monthly introduction of new styles or prints. In an effort to improve margins
and minimize operating complexity, the Company continually reviews and
eliminates low-volume SKU's from its product offerings. The total number of
SKU's for activewear is approximately 5,000.

         Dance France(R)activewear products sell at retail in a price range of
$18 to $68, while Danskin(R)equivalents are $3.50 to $68.


Legwear

         The Company is one of the oldest manufacturers of hosiery in the United
States and is the second largest supplier of women's sheer hosiery and tights to
domestic, full line department stores and apparel specialty stores and the major
supplier of private label hosiery to these stores. Approximately 36% of the
Company's annual legwear revenues consist of sales of its private label
merchandise. Pennaco hosiery is widely recognized for its quality, fit and
innovation. Through its proprietary brand, Round-the-Clock(R), the Company was
the first manufacturer to introduce multiple sizes and colors in pantyhose, and
was a pioneer in the application of spandex (Lycra(R)) yarns to hosiery. In this
tradition, with "Leg Solutions," Round-the-Clock(R) was the first American brand
to introduce "Lycra 3-D" in department stores, and in the Fall of 1996, it
introduced Round-the-Clock(R) "Nine Months" pantyhose made specifically for wear
during maternity.

         Recognizing the trend towards more casual dressing, the Company has
launched a Danskin(R) sock and tight line, as well as Anne Klein(R) socks and
tights, and its own line of Round-the-Clock(R) trouser socks. It is launching
Round-the-Clock(R) socks and tights for Fall 1997.

         The Company also manufactures and sells two licensed brands of hosiery:
Givenchy(R) and Anne Klein(R), which represented approximately 22% and 7% of
1996 legwear revenues. Givenchy(R) has been a leading brand since its
introduction by Pennaco in 1979. The license agreement with Givenchy Corporation
covers the United States, Canada and Mexico and expires on December 31, 1998.
Anne Klein(R) legwear was initially launched during 1991 and was repositioned
during the Fall 1996 season with a new line of sheer hosiery and a new marketing
strategy in order to capitalize on its existing successful trouser socks
business. The license with Anne Klein & Company expires on December 31, 1997,
and covers the United States, certain other countries and duty-free shops
throughout most of the world. The Company also formerly licensed the Christian
Dior(R) brand under a license agreement which it allowed to expire at the end of
1996. See Item 3 - "Legal Proceedings."

         Anne Klein(R) sheer hosiery retails in a price range of $11.00 to
$16.00; Givenchy(R) in a price range of $4.50 to $19.00; and Round-the-Clock(R)
in a price range of $3.75 to $12.50.


                                      - 4 -
<PAGE>


         Although the Company is required to maintain a high number of legwear
SKU's because of the complex packaging requirements of its private label
customers, it knits only 160 styles. Product is held in an undyed state and is
dyed, finished and packaged in accordance with forecasted demand. Over the past
year, the Company has aggressively reduced both the number of legwear styles and
SKU's it produces, which has contributed to improved gross margins.

Store Operations

Full Price Retail

         In November 1995, the Company opened a full price retail store under
the Danskin(R) name on Columbus Avenue in New York City, followed in February
1996 by a second store in Miami's South Beach. These stores are designed
exclusively for women and offer a wide assortment of Danskin(R) products. By
adding new, higher priced Danskin(R) products, such as sweaters, sunglasses,
denim jeans and jackets, the Company has raised the average amount of a retail
transaction in its stores. It also believes that the full price store concept
will be applicable in other major metropolitan areas and in selected upscale
mall locations in the United States, and if it is successful in raising
additional financing, it intends to further test that concept in new locations.

         The Company's New York City and South Beach stores cover 2,500 square
feet, and the Company expects that full price stores to be opened in the future
will range in size from approximately 2,000 to 2,500 square feet. The Company
estimates that capital expenditures for each store of this size will average
approximately $300,000, and that each store will require approximately $150,000
of inventory.


Outlets

         The Company currently operates 46 outlet stores located in 19 different
states, situated in areas where the Company believes they generally do not
compete with the Company's principal channels of distribution. They range in
size from approximately 1,100 to 12,000 square feet, with the average being
approximately 5,400 square feet. These stores traditionally have provided a
channel of distribution for closeout merchandise. Over the past year, the
Company's outlet stores have experienced sales declines comparable to that in
the outlet industry as a whole. The Company has taken steps which have improved
inventory turns and margins for its outlet stores. See "-Strategy-Outlet Store
Strategy."


Operations

Activewear

         The Company manufactures over 80% of its activewear products at its
275,000 square foot plant in York, Pennsylvania and is one of the only major
suppliers of branded women's activewear with substantial domestic manufacturing
capacity. Manufacturing domestically allows the Company to respond to customer's
orders quickly and also allows its designers to respond quickly to market
trends, thus enabling the Company to defer fabric purchase commitments until
product samples have been seen by buyers and to defer authorization of fabric
cutting until approximately three weeks prior to expected shipment dates. In
order to complement the York plant, the Company has acquired a sewing facility
in Mexico, operating under NAFTA, that currently produces activewear products
with lower costs on a contract basis. This facility provides the activewear
plant with expansion opportunities, while retaining the quick response and
flexibility afforded by being a domestic manufacturer. In addition, as the
Company progresses in its strategy of diversification of its activewear product
offerings, it expects to source an increasing proportion of total production
through offshore contractors.


                                      - 5 -
<PAGE>


         The York plant has a dyeing facility, which enables the Company to hold
garments in an undyed state and then to dye them when customer orders are
received, thereby minimizing inventory risk and inventory levels. The Company is
also able to do its own screen printing at this facility. Distribution of
activewear is made from York.


Legwear

         The Company manufactures its hosiery in its 281,000 square foot
facility in Grenada, Mississippi. The facility's current capacity is 60,000
dozen pairs per week, with the Company currently producing approximately 32,000
dozen pairs per week. Actual production varies according to seasonal
requirements. The plant operates over 500 high speed knitting machines and has a
state-of-the-art dyeing facility that has helped make Pennaco a recognized
leader in the industry for its fashion and color offerings. Legwear distribution
facilities are also located in Grenada.

         The Company continues to process a substantial, and increasing, portion
of its customer orders through EDI programs, which permit the receipt of
purchase orders and, in some cases, the transmission of invoices electronically.
In addition, the Company has established a "New Quick Response Program" for
certain high volume styles, which has enhanced its EDI replenishment
capabilities and has enabled it to ship products within five days of the order.

Sales and Marketing

         The Company's domestic sales force consists of approximately 35 sales
people, all of whom are responsible for marketing both activewear and legwear
product lines to department stores, apparel specialty stores, sporting goods
retailers and smaller specialty stores.

         Export sales are made to international distributors, with the exception
of Canada, where the Company utilizes independent sales representatives to
market Danskin(R) activewear directly.

         The Company emphasizes its commitment to customer service through a
staff of approximately 150 area representatives, located throughout the country,
whose principal responsibility is field merchandising of legwear products in
department stores. These representatives are present in the stores during peak
consumer traffic periods; they merchandise the selling fixtures, instruct store
personnel about effective selling, conduct seminars, interact directly with
consumers and are available to support in-store events and promotions, all with
the goal of maximizing sales of the Company's products. To a lesser extent, they
also merchandise the Company's activewear products in the department stores.

         One of the Company's principal promotional vehicles for activewear is
its title sponsorship of the Danskin(R) Women's Triathlon Series, an annual
series of six triathlon competitions for women. The Company uses the series as a
promotional event for both retailers and consumers, and it offers seminars at
retail stores for participants prior to the race event in each location. The
Company further evidences its support of women's programs by donating a portion
of the triathlon entry fees to the Susan G. Komen Breast Cancer Foundation.

         The Company has also developed an advertising and marketing program
which capitalizes on the celebrity status in gymnastics of Nadia Comaneci, a
1976 and 1980 Olympic gold medalist, and Kerri Strug, 1996 Olympic gold
medalist. Nadia appears in advertisements and is featured in catalogs and
promotional materials, and both of them make in-store and event appearances on
behalf of Danskin. The Company believes that their accomplishments and
dedication to their sport and their achievements in Olympic gymnastics reflect
well on the image of the Danskin(R) brand, and much of the Company's marketing
effort has been focused on them.


                                      - 6 -
<PAGE>


         The Company also sponsors Team Danskin, a group of world class women
athletes from a variety of sports. The rising level of participation by women in
all sports has prompted Danskin to expand its fitness apparel offerings in
recent years and to direct more of its marketing efforts toward these consumers.
The Team Danskin members help the Company's designers create products suitable
for each of their sports. They are selected not only for their accomplishments
but also for their communications skills. All are expected to appear at in-store
promotions, trade shows and sales meetings. The current active Team Danskin
members include, in addition to Nadia Comaneci and Kerri Strug (gymnastics),
Patty Dodd (volleyball), Candace Cable (physically challenged downhill skier)
and Nicole Bobek (figure skating). The Company also sponsors walking seminars in
stores to support its introduction of the Danskin(R) Walking Gear, and otherwise
focuses its marketing efforts on sports with a high level of participation by
girls and high media awareness, such as figure skating and gymnastics.

         Legwear marketing programs consist primarily of in-store promotions,
co-operative advertising and in-store legwear seminars, which are designed to
teach the stores' sales personnel how to sell the product.

Seasonality

         The Company's business achieves seasonally higher financial performance
in its September fiscal quarter, principally as a result of "back-to-school"
purchases.

Suppliers

         The Company's raw materials consist principally of piece goods and yarn
that are purchased by the Company from a number of domestic and foreign textile
mills and converters. The Company obtains Lycra(R) from DuPont. Although from
time to time there have been shortages of Lycra(R), such shortages have not
adversely affected the Company. The Company does not have long-term formal
arrangements with any of its suppliers. However, the Company to date has been
able to satisfy its raw material requirements and considers its sources of
supply adequate.

Trademarks

         The Company owns and utilizes a variety of trademarks, the principal
ones being Danskin(R), Dance France(R) and Round-the-Clock(R). The Danskin(R)
trademarks are owned by the Company worldwide, except in Japan, and are
registered with the United States Patent and Trademark Office and in most other
major jurisdictions of the world. In Japan, the trademark is owned by the
Company's former licensee, Goldwin, Inc., with whom the Company has a long-term
cooperation agreement.

         Certain of the Company's other trademarks are registered with the
United States Patent and Trademark Office and in some foreign jurisdictions as
well. The Company regards its trademarks and other proprietary rights as
valuable assets and believes that they have significant value in the marketing
of its products. The Company actively protects its trademarks against
infringement.

Regulation

         The Company is subject to various federal, state and local
environmental laws and regulations limiting the discharge, storage, handling and
disposal of a variety of substances, particularly the federal Water Pollution
Control Act, the Clean Air Act of 1970 (as amended in 1990), the Resource
Conservation and Recovery Act (including amendments relating to underground
tanks) and the federal "Superfund" program. The Company cannot with certainty
assess at this time the impact upon its operations or capital expenditure
requirements of future emission standards, and enforcement practices under the
1990 amendments to the Clean Air Act.


                                     - 7 -
<PAGE>


         The Company also is subject to federal, state and local laws and
regulations relating to workplace safety and worker health, including those
promulgated under the Occupational Safety and Health Act ("OSHA"). As part of
its OSHA compliance efforts, the Company requires all personnel working in high
noise areas and those working in certain areas with high concentrations of dust
to wear protective equipment.

         The Company believes that it currently is in compliance in all material
respects with existing OSHA standards and environmental laws and regulations.
The Company does not believe that there is a substantial likelihood that further
OSHA or environmental compliance will require substantial expenditures or
materially affect its operations or competitive position.

Employees

         As of December 28, 1996, the Company employed 1,353 persons on a
full-time basis, of whom 742 were employed at Danskin, 561 were employed at
Pennaco and the remainder were employed at the Company's executive offices. At
such date, 955 of the Company's employees were paid on an hourly basis, and the
remainder were salaried employees. Although there have been attempts to organize
certain of its employees in the past, none are currently represented by a union,
and employee relations are generally considered to be good.

Competition

         The apparel industry is highly competitive. Many of the Company's
competitors are larger and have greater financial, distribution, marketing and
other resources, and better established brand names, than the Company. The
Danskin(R), Dance France(R) and Shape(R) brands compete with products sold by an
array of smaller and larger companies, including Nike, Reebok, Adidas, Fila,
Champion, Authentic Fitness, Weekend Exercise Company, Hanes Her Way and Jacques
Moret. Legwear products compete with products sold by a number of other
established manufacturers and marketers, the largest of which is the Hanes
division of Sara Lee Corporation, while other significant competitors include
Jockey International, Inc., Kayser-Roth Corp. and Ithaca Industries, Inc. The
Company does not market its legwear either in the mass market channel of
distribution or in food or drug stores.


ITEM 2.  PROPERTIES

         The Company leases its principal executive offices and showroom located
at 111 West 40th Street in New York City. Such lease provides for annual rent of
$748,000 and expires in December 2001.

         The Danskin plant is located in York, Pennsylvania and contains office
space, inventory storage space and a shop area where substantially all of the
Company's activewear products are manufactured. This facility is owned by the
Company. Danskin also leases a distribution facility in York, Pennsylvania. Such
lease provides for annual rent of $424,000 and expires in September 1999.

         The Pennaco mill is located in Grenada, Mississippi and contains office
space and inventory storage space where substantially all the hosiery products
manufactured by the Company are produced. The Company leases this facility from
the City of Grenada for a nominal rent through the year 2065. The distribution
center is also leased from the City of Grenada for annual rent of $333,000,
under a lease that expires in December 2008.

         The Company also has committed to lease space for 47 retail stores at
annual rents ranging from $17,000 to $300,000 under leases expiring in fiscal
1997 through fiscal 2006. One outlet store is owned by the Company. Two outlet
store leases expire in 1997 and will not be renewed because of a lack of
profitability. The Company may also attempt to negotiate additional lease
terminations.

         The Company's facilities provide adequate levels of capacity for
current levels of production as well as for reasonable levels of additional
growth. None of the Company's properties is leased from any affiliated entity.

                                      - 8 -
<PAGE>


         Substantially all of the Company's properties and other assets are
pledged to First Union National Bank of North Carolina ("First Union") to secure
the Company's obligations under its loan and security agreement with First Union
(the "Loan Agreement"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" and Note 11
in the Notes to Consolidated Financial Statements.


ITEM 3.  LEGAL PROCEEDINGS

         In December 1992, several class actions (subsequently consolidated)
were filed against the Company, certain of its officers and directors, the
underwriters of its initial public offering and the Company's former parent,
Esmark, Inc. ("Esmark"), in the U.S. District Court for the Southern District of
New York, alleging that materially false and misleading statements were made in
the prospectus for the Company's initial public offering and in subsequent
public statements and a regulatory filing. These actions arose following the
Company's reporting of a $1,000,000 pretax charge against income in fiscal 1993
related to production problems caused by an unauthorized change in product
specifications by a yarn vendor. Following a fairness hearing held on May 29,
1996, the Court entered an Order and Final Judgement approving a settlement of
the consolidated actions. The settlement was funded in its entirety by
defendants unrelated to the Company and by the carrier of the Company's
Directors' and Officers' Liability insurance policy. The Company also recovered
a portion of its cost of defending the action from the carrier. The Order and
Final Judgment certified the class and released all of the defendants from
claims by the class members arising from the purchase of the Company's
securities, as well as claims for contribution or indemnification arising from a
class member's claims.

         On August 19, 1994, a stockholder, who is also a plaintiff in the
securities class action litigation described above, filed a derivative action in
the Delaware Court of Chancery against Esmark and the directors of the Company,
with the Company as nominal defendant, alleging that a certain amount of funds
advanced by the Company to Esmark, and for which reserves charged to operations
have been established by the Company, constituted a waste of corporate assets.
The action did not seek any damages from the Company. This matter was settled by
agreement dated May 17, 1996 among the plaintiffs, the defendants and the
carrier of the Company's Directors' and Officers' Liability policy, and the
terms of the settlement were approved by the Delaware Court of Chancery on
November 26, 1996.

         The Company terminated its prior Canadian license agreement of the
Danskin(R) and Playskin(R) trademarks in December 1995 and initiated direct
sales of Danskin(R) merchandise in Canada. In January 1996, the Company received
a letter from the former Canadian licensee threatening legal action to recover
damages resulting from the "unethical manner" in which it had conducted
negotiations concerning the relationship. The Company believes it is unlikely
that there will be any further assertion of these claims by the former licensee
and that it has substantial defenses to any allegations that may be brought. The
Company has commenced litigation against a principal of the former licensee for
fraud in the willful under reporting of royalties that were due under the prior
license agreement and for damages.

         The Company was named as third party defendant in Beatrice Company v.
Robinson, Silverman, etc., U.S. District Court, Southern District of New York,
96 Civ. 4110 (HB), an action for conversion by the defendant of a tax refund
check in the amount of $1,141,323.85 that was issued by the Internal Revenue
Service in the name of "Esmark, Inc." and apparently mailed to the Company's
headquarters. The check had been destined for the Company's wholly owned
subsidiary, Danpen, Inc. (" Danpen"), the former name of which was " Esmark,
Inc.", and which in turn was obligated by agreement to turn the check over to
Beatrice Company, since it related to the 1984 tax year of Danpen. The Company
in turn filed a fourth party complaint against Byron A. Hero, Jr., its former
Chairman of the Board and Chief Executive Officer, alleging conversion and
breach of fiduciary duty. Beatrice charged in its complaint that Mr. Hero had
received the check in his capacity as the principal of Esmark and endorsed it to
his own uses, even though the check bore the employer identification number of
Danpen and even though the 1984 tax year to which the refund applied was a year
prior to the formation of Esmark. Beatrice filed its claim against Robinson,
Silverman, Pearce, Aronsohn & Smith for conversion of the check in having
established a client trust account on behalf of Mr. Hero, from which the funds
were disbursed. Robinson, Silverman, Pearce, Aronsohn & Smith impleaded the
Company on a theory

                                      - 9 -
<PAGE>


of negligence in having allowed the check to fall under the control of
Mr. Hero. This action has now been discontinued by stipulation among all the
parties, and an order of dismissal was entered on February 19, 1997.


         On March 11, 1997 a complaint was filed against the Company in
Christian Dior Couture S.A. and Christian Dior, Inc. vs. Danskin, Inc., U.S.
District Court, Southern District of New York, 97Civ. 1709 (sas), an action
brought by the Company's former licensor of the Christian Dior [registered
trademark symbol] trademark for women's hosiery, alleging that the Company had
marketed certain unapproved merchandise under Dior's trademark and requesting an
injunction as well as monetary damages. Concurrently with the filing of the
complaint, the plaintiffs also requested an order directing the Company to show
cause as to why a temporary restraining order should not be entered enjoining
the Company from, among other things, selling any non-conforming merchandise
under Dior's trademark. On March 14, 1997, the parties entered into a
Stipulation and Order resolving the issues relating to the plaintiffs' request
for an injunction which was so ordered by the District Court on March 17, 1997.

         The Company intends to contest these allegations and to assert
affirmative defenses in its answer to the complaint, which is not yet due, and
management believes that any possible ultimate liability of the company in these
proceedings will not be material to its consolidated financial position or
results of operations.

         The Company is a party to a number of other legal proceedings in the
ordinary course of business. Management believes that the ultimate resolution of
thse proceedings will not, in the aggregate, have material adverse impact on the
financial condition, results of operations, liquidity or business of the
Company.





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

         None


                                     - 10 -
<PAGE>


                                     PART II

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

         The Company's Common Stock was traded over-the-counter on the Nasdaq
National Market under the symbol "DANS" until August 8, 1996, at which time it
was moved to The Nasdaq SmallCap(TM) Market under the same symbol. The following
table presents the quarterly high and low bid quotations during the last two
fiscal years. These quotations reflect the inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.


==========================================================================
Nine Months ended December 30, 1995                     HIGH       LOW
--------------------------------------------------------------------------
    Three-month period ended June                   $ 3.50         $ 1.875
--------------------------------------------------------------------------
    Three-month period ended September                3.75           2.25
--------------------------------------------------------------------------
    Three-month period ended December                 5.625          3.00
--------------------------------------------------------------------------
Fiscal Year ended December 28, 1996
--------------------------------------------------------------------------
    Three-month period ended March                    4.875          3.375
--------------------------------------------------------------------------
    Three-month period ended June                     4.00           2.50
--------------------------------------------------------------------------
    Three-month period ended September                4.00           1.875
--------------------------------------------------------------------------
    Three-month period ended December                 3.125          2.125
==========================================================================


         As of March 7, 1997, the closing price of the Common Stock on the
Nasdaq SmallCap(TM) Market was $2.50, and the number of stockholders of record
of the Company's Common Stock was approximately 155.

         The Company has not declared any dividends with respect to the Common
Stock subsequent to the effective date of its initial public offering, August
19, 1992. The Company's Loan Agreement with First Union prohibits the payment of
dividends without the lender's consent.


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         Commencing with the nine months ended December 30, 1995, the Company
changed its fiscal year end to the last Saturday in December. The following
selected consolidated operating data for each of the three years in the period
ended March 25, 1995, the two nine month periods ended December 24, 1994 and
December 30, 1995, and the two twelve month periods ended December 30, 1995 and
December 28, 1996, and the financial position for each of the periods then
ended, have been derived from the consolidated financial statements of the
Company. The twelve month period ended December 30, 1995 is herein referred to
as the "Twelve Months 1995"; the nine-month period ended December 30, 1995 is
referred to as "Nine Months 1995"; the twelve month period ended December 24,
1994 is referred to as the "Twelve Months 1994"; and the nine-month period ended
December 24, 1994 is referred to as the "Nine Months 1994." The data presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements, including the Notes thereto, of the Company, appearing elsewhere in
this Form 10-K.


                                     - 11 -
<PAGE>


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA (continued)

<TABLE>
<CAPTION>
                                                       Fiscal Years            Fiscal Nine Months     Fiscal Years
                                                       Ended March               Ended December      Ended December
                                                       ------------            ------------------    --------------
                                                                   (in thousands, except per share amounts)
 
                                                 1993      1994      1995        1994      1995     1995       1996
INCOME STATEMENT DATA:                         -------   -------   -------     -------   -------  -------    -------
<S>                                            <C>       <C>       <C>         <C>       <C>      <C>        <C>    
Net revenues
  Danskin                                      $68,342   $71,814   $74,608     $55,003   $56,732  $76,337    $80,608
  Pennaco(1)                                    66,148    59,683    53,510      40,964    37,055   49,601     47,537
                                               -------   -------   -------     -------   -------  -------    -------
    Total                                      134,490   131,497   128,118      95,967    93,787  125,938    128,145
 
Cost of goods sold
  Danskin                                       42,068    42,797    45,979      33,769    35,028   47,244     49,056
  Pennaco(1)                                    45,432    43,207    41,367      31,640    27,153   36,874     34,554
                                               -------   -------   -------     -------   -------  -------    -------
    Total                                       87,500    86,004    87,346      65,409    62,181   84,118     83,610
 
Gross profit
  Danskin                                       26,274    29,017    28,629      21,234    21,704   29,093     31,552
  Pennaco(1)                                    20,716    16,476    12,143       9,324     9,902   12,727     12,983
                                               -------   -------   -------     -------   -------  -------    -------
                                                46,990    45,493    40,772      30,558    31,606   41,820     44,535
Selling, general and
  administrative expenses                       42,934    43,847    44,077      32,038    29,851   41,895     42,026
                                               -------   -------   -------     -------   -------  -------    -------
Operating (loss) income before non-recurring 
  charges                                        4,056     1,646    (3,305)     (1,480)    1,755      (75)     2,509
Non-recurring charges (2)                          ---     6,244     4,143       1,645     1,100    3,598        ---
Interest expense                                 2,353     2,343     3,928       2,684     3,699    4,943      4,721
                                               -------   -------   -------     -------   -------  -------    -------
(Loss) income before (benefit from) 
  provision for income taxes, cumulative 
  effect of a change in accounting method
  and extraordinary item                         1,703    (6,941)  (11,376)     (5,809)   (3,044)  (8,616)    (2,212)
(Benefit from) provision for income taxes(6)       195       370    (1,719)     (1,524)      178      (20)     2,777
                                               -------   -------   -------     -------   -------  -------    -------
(Loss) income before cumulative effect 
  of a change in accounting method and 
  extraordinary item                             1,508    (7,311)   (9,657)     (4,285)   (3,222)  (8,596)    (4,989)
Cumulative effect of a change in accounting 
  method                                           ---       250       ---         ---       ---      ---        ---
Extraordinary item                                 ---       ---       ---         ---       ---      ---        ---
                                               -------   -------   -------     -------   -------  -------    -------
Net (loss) income                                1,508    (7,061)   (9,657)     (4,285)   (3,222)  (8,596)    (4,989)
                                               =======   =======   =======     =======   =======  =======    =======
Preferred Stock dividend                           240       ---       ---         ---       ---      ---       202
                                               -------   -------   -------     -------   -------  -------    -------
(Loss) income applicable to Common Stock        $1,268   ($7,061)  ($9,657)    ($4,285)  ($3,222) ($8,596)   ($5,191)
                                               =======   =======   =======     =======   =======  =======    =======
Common Stock dividend-cash                     $15,000       ---       ---         ---       ---      ---        ---
                                               =======   =======   =======     =======   =======  =======    =======
 
(Loss) earnings per share(3)
  (Loss) income before cumulative effect of a 
    change in accounting method                   $.26    ($1.23)   ($1.64)      ($.73)    ($.54)  ($1.45)    ($0.86)
  Cumulative effect of a change in accounting 
    method                                         ---       .04       ---         ---       ---      ---        ---
                                               -------   -------   -------     -------   -------  -------    -------
  Net (loss) income                               $.26    ($1.19)   ($1.64)      ($.73)    ($.54)  ($1.45)    ($0.86)
                                               =======   =======   =======     =======   =======  =======    =======
Weighted average number of common shares 
  outstanding                                    4,947     5,915     5,904       5,900     5,921    5,921      6,011
                                               =======   =======   =======     =======   =======  =======    =======

Working Capital                                $28,927   $17,066   $17,618     $19,585    67,742  $25,656    $24,559
Total assets                                    68,892    74,481    77,741      81,601    67,742   67,742     66,940
Long-term debt (excludes current 
  obligations)(4)                               15,293    13,850    24,399      22,743    36,666   36,666     31,589
Total debt(5)                                   26,435    38,371    45,725      44,083    41,101   41,101     41,558
Total stockholders' equity (4)                  22,416    13,408     5,195       9,233     1,519    1,519        801
</TABLE>


                                     - 12 -

<PAGE>



ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA (continued)

(1)      Pennaco recorded a $1.0 million pre-tax charge against income in fiscal
         1993 related to production problems caused by an unauthorized change in
         product specifications by a yarn vendor. Net revenues and cost of goods
         sold were each adversely affected by $0.5 million in fiscal 1993.

(2)      Non-recurring charges were $1.1 million for the Nine Months 1995 and
         consisted of losses on certain license arrangements and certain
         executive employee severance costs.

         Non-recurring charges were $4.1 million (net of $0.7 million in related
         party interest income) for fiscal 1995. The non-recurring charges
         included costs associated with the potential acquisition of affiliated
         entities, a reserve for additional amounts due from Esmark, an accrual
         for certain executive compensation costs and costs associated with
         certain litigation, and the write-off of certain non-operating
         long-term assets.

         Fiscal 1994 included $1.1 million of non-recurring charges associated
         with the acquisition and development of additional private label
         hosiery programs and a $5.2 million full reserve of amounts due from
         Esmark, the Company's former parent, excluding $0.2 million in related
         party interest income. Such reserve was considered necessary
         principally due to the diminution in the market value of one of
         Esmark's principal assets, its 2,010,000 shares of Common Stock of the
         Company. See Note 13 in the Notes to Consolidated Financial Statements.

(3)      (Loss) earnings per common share is based on the weighted average
         number of shares and common share equivalents. The weighted average
         number of shares gives effect to the issuance of 3,000,000 shares of
         Common Stock in connection with the Company's initial public offering
         (the "Initial Public Offering"), and to the issuance of 3,000,000
         shares of the Common Stock to Esmark in July 1992. Common share
         equivalents consist of a warrant to purchase 333,000 shares of the
         Common Stock at a nominal price for fiscal 1993.

(4)      On August 19, 1992, the Company consummated the Initial Public Offering
         of 3,000,000 shares of Common Stock at $13.00 per share, which provided
         proceeds of $34.6 million, net of underwriting discounts and related
         costs. The net proceeds of the Initial Public Offering received by the
         Company were used to: (i) redeem all outstanding shares of a certain
         preferred stock outstanding for $5.2 million (including accrued
         dividends of approximately $0.2 million to the date of redemption);
         (ii) repay $13.9 million in debt obligations; (iii) pay $0.5 million to
         the Company's former lender, representing the balance of the purchase
         price of $2.0 million due for the Company's purchase of a warrant
         issued to such lender that provided for the purchase of 10% of the
         Common Stock of the Company by such lender; and (iv) pay to Esmark a
         dividend of $15.0 million that was declared prior to the date of the
         Initial Public Offering.

(5)      In connection with an amendment to the Company's loan and security
         agreement with First Union in November 1994, $6.1 million in term debt
         refinancing was obtained, directly reducing revolving obligations. Bank
         debt obligations totaled $45.7 million as of March 25, 1995, with
         revolving credit obligations totaling $31.3 million and term
         obligations totaling $14.4 million. Effective June 22, 1995, the
         Company amended its Loan Agreement with First Union, pursuant to which
         an additional $8.0 million in term debt refinancing was obtained,
         reducing revolving credit obligations to a balance of $22.0 million and
         increasing term obligations to $22.0 million. In addition, the maturity
         date of all obligations to First Union was extended from August 1996 to
         March 2002. Total First Union debt obligations as of December 28, 1996
         and December 30, 1995 amounted to $41.6 million and $36.1 million
         including a revolver balance of $20.0 million and $14.1 million, and
         term obligations at $21.6 million and $22.0 million, respectively.
         Total revolving credit availability in excess of utilization under the
         new terms of the Loan Agreement amounted to $3.5 million and $8.5
         million as of December 28, 1996 and December 30, 1995, respectively and
         $2.0 million at March 25, 1995. See Note 10 in the Notes to
         Consolidated Financial Statements.

(6)      Fiscal Year Ended December 28, 1996 included a $2.5 million increase in
         the valuation allowance which reduced the net defered tax asset to
         zero.


                                     - 13 -
<PAGE>


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

         The following discussion and analysis should be read in conjunction
with the Selected Consolidated Financial Data and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this Form 10K.

Background

         In 1986, the Company was acquired by Esmark from Beatrice Companies,
Inc. (the corporate parent of Playtex International) in a leveraged buyout
transaction. From 1986 to 1992, the Company generated positive earnings and cash
flow which were used to grow the hosiery and activewear businesses. In August
1992, the Company completed the Initial Public Offering, resulting in net
proceeds of approximately $39.0 million. The Company received approximately
$14.0 million of the net proceeds from the Initial Public Offering, which were
used to further reduce indebtedness.

         During the fiscal year ended March 1994, the Company began to
experience decreased hosiery sales as overall market demand declined due to a
trend toward casual clothing. As a result of hosiery sales declines, a $6.2
million non-recurring charge, principally for a write-off of an advance to
Esmark, and continued legal costs associated with certain litigation, the
Company incurred a $7.1 million net loss in the fiscal year ended March 1994.
During fiscal year ended March 1995, the Company suffered a $9.7 million net
loss principally due to a $4.1 non-recurring charge associated with continued
decreases in hosiery sales, the loss of a large private label hosiery customer
and continued legal costs associated with class action lawsuits. These losses
constrained the Company's cash flow, resulting in increased bank borrowings.
This tight cash flow caused the Company's legwear operations in certain
instances to operate with insufficient inventory and to ship incomplete orders.
This cash flow shortfall also hampered the Company from pursuing certain
strategic opportunities in the Danskin division, including opening full price
retail stores, expanding the Company's international operations and broadening
the Company's product line to capitalize on Danskin's high consumer brand
recognition. The Company has undertaken a number of aggressive steps to improve
its operating results. These steps have included: (i) the appointment of a new
Chairman; (ii) amending the terms of the Loan Agreement, which is designed to
provide more flexible financial terms; (iii) significant reductions in selling,
general and administrative costs; (iv) the issuance of a $5.0 million
convertible subordinated debenture (the "Debenture") and the subsequent exchange
thereof for the Company's 10% Cumulative Convertible Preferred Stock (the
"Preferred Stock"), which further reduced the Company's average interest rate
and bank borrowings; (v) improved efficiencies at both of the Company's
manufacturing facilities; and (vi) the development of new channels of
distribution for the Company's activewear products, including the opening of
full price retail stores. As a result of these actions, the Company increased
its operating income to $2.5 million for fiscal year ended December 28, 1996
from a loss of $0.1 million for the Twelve Months 1995 and to $1.8 million for
the Nine Months 1995 from a loss of $1.5 million for the Nine Months 1994.
However, the continued difficulties in the sheer hosiery business and the need
to raise additional financing make the Company unable to predict future
improvements.

Change in Fiscal Year End

         As of December 1995, the Company changed its fiscal year to the last
Saturday in December from the last Saturday in March.


                                     - 14 -
<PAGE>


RESULTS OF OPERATIONS
 
 
The following table sets forth selected operating data as a percentage of net
revenues, with divisional net revenues through gross profit expressed as a
percentage of divisional net revenues, for the period
 
 
 
<TABLE>
<CAPTION>
                                                          Fiscal Years          Fiscal Nine Months      Year Ended
                                                           Ended March            Ended December         December
                                                          ------------         -------------------      ----------
                                                     1993     1994     1995       1994     1995       1995     1996
                                                    ------   ------   ------     ------   ------     ------   ------
<S>                                                 <C>      <C>      <C>        <C>      <C>        <C>      <C>   
Net revenues                                                                                                   
   Danskin                                           50.9%    54.6%    58.2%      57.3%    60.5%      60.6%    62.9%
   Pennaco                                           49.1%    45.4%    41.8%      42.7%    39.5%      39.4%    37.1%
                                                    ------   ------   ------     ------   ------     ------   ------
      Total                                         100.0%   100.0%   100.0%     100.0%   100.0%     100.0%   100.0%
                                                                                                               
Cost of goods sold                                                                                             
   Danskin                                           61.5%    59.6%    61.6%      61.4%    61.7%      61.9%    60.9%
   Pennaco                                           68.7%    72.4%    77.3%      77.2%    73.3%      74.3%    72.7%
                                                    ------   ------   ------     ------   ------     ------   ------
      Total                                          65.1%    65.4%    68.2%      68.2%    66.3%      66.8%    65.2%
                                                                                                               
Gross profit                                                                                                   
   Danskin                                           38.5%    40.4%    38.5%      38.6%    38.3%      38.1%    39.1%
   Pennaco                                           31.3%    27.6%    22.6%      22.8%    26.7%      25.7%    27.3%
                                                    ------   ------   ------     ------   ------     ------   ------
      Total                                          34.9%    34.6%    31.9%      31.8%    33.7%      33.2%    34.8%
                                                                                                               
Selling, general and administrative expenses         31.9%    33.3%    34.4%      33.4%    31.8%      33.3%    32.8%
                                                    ------   ------   ------     ------   ------     ------   ------
Operating (loss) income before non-recurring                                                                   
    charges, interest expense, and other income       3.0%     1.3%    -2.5%      -1.5%     1.9%      -0.0%     2.0%
Non-recurring charges                                  ---     4.8%     3.3%       1.7%     1.2%       2.9%      ---
Interest expense                                      1.8%     1.8%     3.1%       2.8%     3.9%       3.9%     3.7%
                                                                                                               
(Loss) income before (benefit from) provision for                                                              
   income taxes, cumulative effect of a change in                                                              
   accounting method and extraordinary item           1.2%    -5.3%    -8.9%      -6.1%    -3.2%      -6.8%    -1.7%
(Benefit from) provision for income taxes             0.1%     0.3%    -1.3%      -1.6%     0.2%       0.0%     2.2%
                                                    ------   ------   ------     ------   ------     ------   ------
                                                                                                               
(Loss) income before cumulative effect of             1.1%    -5.6%    -7.6%      -4.5%    -3.4%      -6.8%    -3.9%
   method and extraordinary item                                                                               
Extraordinary item                                     ---      ---      ---        ---      ---        ---      ---
Cumulative effect of a change in accounting                                                                    
   method                                              ---     0.2%      ---        ---      ---        ---      ---
                                                    ------   ------   ------     ------   ------     ------   ------
Net (loss) income                                     1.1%    -5.4%    -7.6%      -4.5%    -3.4%      -6.8%    -3.9%
                                                    ======   ======   ======     ======   ======     ======   ======
                                                                                                          
</TABLE>

                                     - 15 -
<PAGE>


Comparison of the Fiscal Year Ended December 1996 with the Twelve Months Ended 
December 1995

Net Revenues

         Net revenues for fiscal December 1996 amounted to $128.1 million, an
increase of $2.2 million, or 1.8%, from the Twelve Months 1995.

         Danskin activewear net revenues, which includes the Company's retail
operations, increased $4.3 million, or 5.6%, to $80.6 million for fiscal 1996,
over the Twelve Months 1995. During fiscal 1996, the Company operated 49 retail
stores, generating $20.7 million for fiscal 1996, with four additional stores
opened and one store closed in comparison with the prior year. Same store sales
at 36 comparable retail stores declined 6.4% for fiscal 1996, which is
comparable to general outlet industry trends. The Company continues to improve
store product offerings, renegotiate existing leases and streamline store
operations. Marketing of activewear wholesale products continues to address the
industry's lifestyle casual wear trends, and to emphasize fashion and dance
product offerings. In addition, the Company has increased its focus on outdoor
fitness and sport bra products as well as offerings for kids gymnastics, as
promoted by Nadia Comaneci and Kerri Strug.

         Pennaco legwear net revenues declined $2.1 million, or 4.2%, to $47.5
million for fiscal 1996, from the Twelve Months 1995. This decline is indicative
of a continued weak sheer hosiery market in the department store class of trade.
The re-launch of Anne Klein(R) sheer hosiery and tights was successfully
introduced in July 1996, partially offsetting other branded declines. The
Company's Round-the-Clock Lycra(R) 3D "Leg-solutions" hosiery (containing
Lycra(R) in every course), launched in the Fall of 1995, has been well received,
and has partially offset significant declines in the traditional Lycra(R)
business.

Gross Profit

         Gross profit increased by $2.7 million, or 6.5%, to $44.5 million for
fiscal 1996, over the same prior year period. Gross profit as a percentage of
net revenues increased to 34.8% in fiscal 1996 from 33.2% in the prior year
period.

         Gross margins for activewear were 39.1% and 38.1% for fiscal 1996 and
the Twelve Months 1995, respectively. This increase was primarily attributable
to improvements in retail inventory mix and prior year liquidation of certain
excess wholesale inventories, partially offset by higher wholesale sales levels
of lower margin fashion products.

         Legwear gross profit margins increased to 27.3% in fiscal 1996 from
25.7% in the prior year period. The increase was principally due to price
increases and reductions in certain production costs, partially offset by the
continued competitive market in traditional Lycra(R) products.

Selling, General and Administrative Expenses

         Selling, general and administrative expenses, which include retail
store operating costs, increased by $0.1 million, or 0.3%, to $42.0 million, or
32.8% of net revenues, in fiscal 1996 compared to $41.9 million, or 33.3% of net
revenues, for the prior year period. Wholesale selling, general and
administrative expenses, excluding retail store operating costs, decreased $1.2
million, or 3.7%, to $30.7 million, or 28.6% of net revenues, despite a $0.5
million prior year insurance refund of certain legal costs. The wholesale
decrease for the year ended December 1996 was principally a result of a
reduction in the provision for doubtful accounts and lower compensation costs,
partially offset by increased advertising costs.


                                     - 16 -
<PAGE>


Operating Income (Loss) Before non-recurring charges, interest and taxes.

         As a result of the foregoing, income from operations (i.e., income/loss
before interest expense, non-recurring charges and income taxes) amounted to
$2.5 million for fiscal 1996, an improvement of $2.6 million for the Twelve
Months 1995.

Interest Expense

         Interest expense amounted to $4.7 million and $4.9 million for fiscal
1996 and the Twelve Months 1995, respectively. The Company's effective interest
rate was 10.5% and 11.2% for fiscal 1996 and the Twelve Months 1995,
respectively. Effective interest rates declined principally due to more
favorable market rates and lower rates that became effective under the Loan and
Security Agreement dated June 22, 1995.

Income Tax Provision (Benefit)

         The Company's effective Federal and state income tax provision rate was
125% and 6% for fiscal 1996 and the Twelve Months 1995, respectively. The fiscal
1996 tax provision includes increases in valuation allowances which reduced
defered tax assets, State taxes and unrealized benefit from net operating
losses. The Twelve Months 1995 tax provision rates were principally the result
of unrealized benefit from net operating losses net of state taxes. The
Company's deferred tax balances of $0 as of December 1996 and $3.9 million as of
December 1995 were net of a valuation allowance amounting to $10.6 million and
$6.1 million, respectively.

Net Loss

         As a result of the foregoing, the net loss for fiscal 1996 was $5.2
million, an improvement of $3.4 million from a $8.6 million net loss in the
prior year.

Comparison of the Nine Months December 1995 to the Nine Months December 1994

Net Revenues

         Consolidated net revenues decreased by $2.2 million, or 2.3%, to $93.8
million in the Nine Months 1995 from $96.0 million in the Nine Months 1994,
reflecting a decrease in Pennaco operations of $3.9 million, which more than
offset an increase in Danskin operations of $1.7 million.

         Net revenues of Danskin increased by $1.7 million, or 3.1%, to $56.7
million in the Nine Months 1995 from $55.0 million in the Nine Months 1994, due
to increases in sales of the Company's retail operations. Overall retail store
sales increased by $2.4 million to $14.6 million in the Nine Months 1995 from
$12.2 million in the Nine Months 1994, principally due to the opening of eight
additional stores over the prior year, including the Company's first full price
store, which opened in November 1995, in New York City. Comparable retail store
sales declined 4.2% in the Nine Months 1995, primarily due to a weak retail
environment and the Company's inability to provide its stores with appropriate
inventory levels and product mix earlier in the year. Danskin wholesale
operations experienced a decline of $0.6 million, or 1.4%, in sales in the Nine
Months 1995, principally due to a divestiture of certain unprofitable kids' and
performance lines. In addition, sales of performance tights declined because of
a continuing difficult hosiery market. Danskin's efforts towards addressing the
industry's trends of lifestyle casual wear partially offset these declines.


                                     - 17 -
<PAGE>


         Net revenues of Pennaco decreased by $3.9 million, or 9.5%, to $37.1
million in the Nine Months 1995 from $41.0 million in the prior period. The
results principally reflect a continuing weak retail climate for the sheer
hosiery market, as evidenced by Pennaco's loss of certain customer doors due to
bankruptcies and consolidations. Pennaco's decline in sales in the Nine Months
1995 occurred primarily in its branded business, with reductions in private
label sales as well, partially offset by certain customer price increases. The
Company introduced certain new marketing initiatives in its branded business,
principally for Givenchy(R) and Round-the-Clock(R) "Leg Solutions".

Gross Profit:

         Gross profit increased by $1.1 million, or 3.6%, to $31.6 million in
the Nine Months 1995 from $30.5 million in the prior period. Gross profit as a
percentage of net revenues increased to 33.7% in the Nine Months 1995 from 31.8%
in the Nine Months 1994.

         Gross margins for Danskin were 38.3% and 38.5% in the Nine Months 1995
and 1994, respectively. This reduction was primarily attributable to an
increasingly promotional retail environment and planned retail store inventory
reductions by the Company to improve turns.

         Gross margins of Pennaco increased to 26.7% in the Nine Months 1995
from 22.7% in the prior period. The improvement in gross margins was primarily
attributable to private label price increases, the elimination of certain low
margin customers and reductions in certain production costs.

Selling, General and Administrative Expenses

         Selling, general and administrative expenses, which include retail
store operating costs, decreased by $2.2 million to $29.8 million, or 31.8% of
net revenues, in the Nine Months 1995, from $32.0 million, or 33.3% of net
revenues, in the Nine Months 1994. The decrease in the 1995 period was
principally a result of reduced compensation, lower legal costs and
reimbursement to the Company of a portion of legal defense costs related to
securities class actions. Excluding increases associated with retail expansion,
expenses declined by $3.9 million, or 14.9% for the Nine Months 1995.

Operating Income (Loss) Before Non-recurring Charges, Interest and Taxes

         As a result of the foregoing, income from operations (i.e., income
before non-recurring charges, interest expense and income taxes) increased by
$3.3 million to earnings of $1.8 million in the Nine Months 1995. The legwear
business contributed most significantly to this improvement.

Non-recurring Charges

         Non-recurring charges were $1.1 million for the Nine Months 1995 and
consisted of losses on certain license arrangements and certain executive
employee severance costs.

Interest Expense

         Interest expense increased by $1.0 million, or 37.0%, to $3.7 million
in the Nine Months 1995 from $2.7 million in the Nine Months 1994. This increase
was mostly attributable to higher market interest rates, higher interest factors
provided under restructured debt terms and increased borrowing levels. The
Company's effective interest rate reflected these factors and was 10.9% and 8.6%
in the Nine Months 1995 and 1994, respectively. In addition, amortization of
financing costs included in interest expense amounted to $0.4 million and $0.3
million in the Nine Months 1995 and 1994, respectively.


                                     - 18 -
<PAGE>


Income Tax Provision (Benefit)

         The Company's income tax provision/benefit rates differed from the
Federal statutory rates due to the effect of state taxes and the change in
valuation allowance for the Nine Months 1995, and the Nine Months 1994. The
Company's deferred tax balance of $3.9 million as of March 1995 and December
1995 was net of a valuation allowance amounting to $4.9 million and $6.1
million, respectively.

Net Loss

         As a result of the foregoing, the Company's net loss was $3.2 million
in the Nine Months 1995 and $4.3 million in the Nine Months 1994, an improvement
of $1.1 million, or 25.0%.

Comparison of fiscal 1995 with fiscal 1994

Net Revenues

         Net revenues decreased by $3.4 million, or 2.6%, to $128.1 million in
the fiscal year ended March 1995 ("fiscal 1995") from $131.5 million in the
fiscal year ended March 1994 ("fiscal 1994"). Net revenues of Danskin increased
by $2.8 million, or 3.9%, to $74.6 million in fiscal 1995 from $71.8 million in
fiscal 1994. Sales growth was concentrated in Company owned outlet stores,
sporting goods stores, dance shops and in exports, with certain trade classes
having declined from the prior year. Danskin's increase in fiscal 1995 over
fiscal 1994 was mostly due to a $1.0 million increase in export sales (totaling
8% in fiscal 1995, up from 7% in fiscal 1994, of total Danskin net revenues),
and a $1.2 million increase in the Company's retail operations, as a result of
the opening of eight retail outlet stores during fiscal 1995. Comparable retail
store sales were lower for fiscal 1995 by 12.4% from the same prior year period,
principally attributable to a weaker retail market as well as basic merchandise
not being provided to certain stores. Net revenues of Pennaco decreased by $6.2
million, or 10.4%, to $53.5 million in fiscal 1995 from $59.7 million in fiscal
1994, principally from the loss of a certain high volume private label customer,
aggressive market pricing, continued over-capacity in the hosiery industry,
casual wear trends mitigating against the sheer hosiery market and inadequate
levels of inventory caused by insufficient operating funds.

Gross Profit

         Gross profit decreased by $4.7 million, or 10.3%, to $40.8 million in
fiscal 1995 from $45.5 million in fiscal 1994. Gross profit as a percentage of
net revenues amounted to 31.9% in fiscal 1995, a decrease from 34.6% in fiscal
1994. Gross margins attributable to Danskin net revenues were 38.5% and 40.4% in
fiscal 1995 and fiscal 1994, respectively. The decrease in Danskin's gross
margins in fiscal 1995 was principally a result of the Company's increased
customer markdowns and a change in product mix from higher margin product
volume. Retail operations continue to generate gross margins in excess of 50%.
Gross margins attributable to Pennaco net revenues were 22.6% and 27.6% in
fiscal 1995 and fiscal 1994, respectively. The decrease in Pennaco's gross
margins was primarily attributable to conditions previously noted.

Selling, General and Administrative Expenses

         Selling, general and administrative expenses increased by $0.3 million,
or 0.7%, to $44.1 million in fiscal 1995, or 34.4% of net revenues from $43.8
million, or 33.3%, of net revenues, mostly due to increased retail operating
costs associated with additional store openings and increased allowance for
doubtful accounts, partially offset by reduced advertising and promotional
costs.


                                     - 19 -
<PAGE>


Operating Income Before Non-recurring Charges, Interest and Taxes

         As a result of the foregoing, the Company's loss from operations (i.e.,
income before non-recurring charges, interest expense, income taxes and
cumulative effect of a change in accounting method) was $3.3 million in fiscal
1995, compared to income from operations in fiscal 1994 of $1.6 million.
Operating losses were related solely to the Company's hosiery business.

Non-recurring Charges

         Non-recurring charges were $4.1 million (net of $0.7 million in related
party interest income) for fiscal 1995. The non-recurring charges included costs
associated with the potential acquisition of affiliated entities, a reserve for
additional amounts due from Esmark (Note 13), an accrual for certain executive
compensation costs, costs associated with certain litigation (Note 16) and the
write-off of certain non-operating long-term assets.

Interest Expense

         Interest expense increased to $3.9 million in fiscal 1995 from $2.3
million in fiscal 1994, due to higher levels of debt balances and an increase in
the average effective interest rate on the Company's debt to 9.2% during fiscal
1995 from 7.5% for fiscal 1994. See "- Liquidity and Capital Resources."

(Benefit) Provision for Income Taxes

         The Company's income tax benefit rates differed from the Federal
statutory rates due to the unrealized benefit from net operating losses in
fiscal 1995 and certain expenses that were not deductible in fiscal 1994, net of
state taxes. The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", in the first quarter of fiscal
1994, which resulted in a cumulative benefit effect of the accounting change
amounting to $250,000 in fiscal 1994. The Company's deferred tax balances as of
March 26, 1994 and March 25, 1995 were net of valuation allowances amounting to
$2.1 million and $4.9 million.

Net Loss

         As a result of the foregoing, the Company's net loss was $9.7 million,
or 7.6% of net revenues, in fiscal 1995 compared to a net loss in fiscal 1994 of
$7.1 million, or 5.4% of net revenues.

SEASONALITY

         In the year ended December 1996 and 1995, the Fall season continued to
represent the best volume period for activewear and legwear, while the
performance of women apparel at retail deteriorated in the first quarter of
1996, negatively impacting results. In addition, the timing of non-recurring
charges and expense reductions affected quarterly results. Non-recurring charges
recorded for the March 1995 and December 1995 quarters were $2.4 million and
$1.1 million, respectively, although none for fiscal 1996.


                                     - 20 -
<PAGE>


         The following table summarizes the net revenues, operating (loss)
income before non-recurring charges, interest and taxes and net (loss) income of
the Company for each of the fiscal June, September and December quarters in the
last two years:


<TABLE>
<CAPTION>
                                                                        For the fiscal quarters ended

                                                  March          June       September        December
                                                                      (millions)
<S>                                                <C>          <C>            <C>               <C> 
1996
Net Revenues                                       31.4          29.7           34.8             32.2
Operating (loss) income before non-
recurring charges, interest and taxes              (0.8)           .8            1.8               .6
Net (loss) income                                  (2.0)          (.4)            .6             (3.2)

1995
Net Revenues                                       32.2         $29.6          $33.6             30.6
Operating (loss) income before non-
recurring charges, interest and taxes               1.8           1.1            1.7             (1.1)
Net (loss) income                                  (5.4)         (0.1)           0.3             (3.4)
</TABLE>

INFLATION

         The Company does not believe that the relatively moderate levels of
inflation which have been experienced in the United States, Canada and Western
Europe in recent years have had a significant effect on its net revenues or its
profitability.



                                     - 21 -
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         The Company's primary liquidity and capital requirements relate to the
funding of working capital needs, primarily inventory, accounts receivables,
capital investments in operating facilities, machinery and equipment, and
principal and interest payments on indebtedness. The Company's primary sources
of liquidity are from bank financing, vendor credit terms and
internally generated funds.

         Net cash flow used in operations increased by $9.2 million to $4.4
million for the year ended December 1996, principally attributable to an
increase in activewear inventory levels. Cash remained constant at $1.1 million,
after $5.5 million in net debt increases and $0.7 million in capital
expenditures.

         Working capital declined $1.1 million to $24.6 million at December 1996
from $25.7 million at December 1995. Accounts receivable increased by $1.5
million and inventory levels increased by $3.3 million offset by a $5.9 million
increase in the revolving credit balance, principally to support increased
activewear business.

         On June 22, 1995, the Company entered into an Amended and Restated Loan
and Security Agreement with First Union National Bank of North Carolina ("First
Union") (the "Loan and Security Agreement") which restructured the terms of its
financing arrangements and provided availability under the revolving
credit facility. These restructured provisions included total term debt of
$22,000,000 ($21,589,000 balance outstanding as of December 28, 1996 and
$22,000,000 as of December 30, 1995) and a revolving credit facility of
$25,000,000, of which $19,969,000 and $14,101,000 were outstanding as of
December 28, 1996 and December 30, 1995, respectively, with availability in
excess of utilization of $3,500,000 as of December 28, 1996 and $8,500,000 as of
December 30, 1995. Quarterly amortization payments of the term debt were
scheduled to begin on September 30, 1996 and to progressively increase from
$333,000 to $1,500,000, with a final maturity of March 2002. The Company
classifies $10,000,000 of its revolving obligations as long term debt. In
addition to the scheduled quarterly principal payments of the term debt, the
Loan and Security Agreement provides for a semi-annual mandatory retirement of
term principal if cash flow, as defined, attains certain levels, payable when
availability under the revolving credit exceeds $5,000,000.

         The Loan and Security Agreement was amended subsequent to June 22, 1995
to allow for the Company's change in fiscal year end, to permit the
establishment of a Canadian subsidiary and related factoring arrangements for
purposes of selling directly to customers in Canada, to restate certain
financial covenants, to grant approval for the issuance of a subordinated
convertible debenture, the exchange of such debentures for convertible preferred
stock, and payment of the related dividends, and to increase the annual capital
expenditure limitation to $2,000,000.

         The Loan and Security Agreement established covenants requiring the
Company to meet certain interest coverage and profitability levels, and it
contains certain other restrictions, including limits on the Company's ability
to incur debt, make capital expenditures, merge, pay dividends or repurchase its
own stock. It also provides that the Company will be in default if any person,
with specific exceptions, becomes the owner of or controls more than 20% of the
Company's Common Stock. Substantially all the Company's assets continue to be
collateralized under these debt facilities.

         The Company issued warrants to First Union to purchase up to 10% of the
Company's then outstanding Common Stock at an exercise price per share of $.01
per share, The Warrants provide for a put option by First Union, exercisable
after March 1998, at fair market value, as defined. The Company also has a call
option providing for payment at fair market value. For so long as the Company
remains in compliance with the requirements of the Loan and Security Agreement,
the Warrants does not provide anti-dilution protection for First Union for new
issuances of securities.


                                     - 22 -
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES (continued)

         On March 27, 1997, the Company entered into a Sixth Amendment to the
Loan and Security Agreement with First Union (the "Sixth Amendment) which (i)
increased the revolving credit "cap" from $25,000,000 to $28,500,000 for the
period from March 26, 1997 to March 31, 1998, (ii) altered certain advance rate
formulas under the revolving credit facility during a specific period of time,
(iii) amended financial covenants with respect to fiscal 1997, (iv) deferred all
fiscal 1997 term loan amortization payments until fiscal 1998 required the
Company to pay First Union an "additional equity fee" of $3,000,000 in 2002,
unless the Company obtains at least $6,000,000 of net equity proceeds prior to
August 31, 1997, (vi) provided for an amendment fee of $250,000, and (vii)
provides that the Company retain certain business consultants as advisors and
outline certain business strtegies plans.

         In connection with the 1995 restructuring, interest rates on all
obligations under the Loan and Security Agreement were set at prime plus 1.5%
(9.75% at December 28, 1996 and 10.0% at December 30, 1995). On each annual
adjustment date (as defined), the interest rate may be reduced based on certain
ratios of interest coverage and debt to earnings before interest, taxes,
depreciation and amortization levels. In July 1995, the Company purchased an
interest rate cap from First Union with a nominal amount of $20,000,000, which
provides for a prime rate limit of 9.25% for the period through October 1998.

         The Company completed the sale of the Debenture to a bond fund on
August 17, 1995. The Debenture had an aggregate face value of $5,000,000,
accrued interest at 8% and would have matured on September 1, 2002. The initial
conversion price was $3.15, representing 1,587,300 shares, subject to adjustment
for dilution. The proceeds of this sale were used to reduce the Company's bank
revolving credit obligations. On October 26, 1995, a representative of the bond
fund was elected as a Director of the Company, in accordance with the provision
of the Debenture.

         On August 6, 1996, the Company issued its Preferred Stock having a
liquidation preference of $5,000,000, in exchange for the Debenture. The
Preferred Stock is entitled to vote on an as converted basis, and has an initial
conversion price of $2.76, currently representing 1,811,594 shares. Such
conversion price may be reset on the first and second anniversaries of
issuance under certain circumstances and will be adjusted in the event of
dilution. Holders of the Preferred Stock have the right to vote separately as a
class for the election of one Director, and the right to require the Company to
redeem their shares for liquidation value in the event of a "change of control",
as defined. The Company has the right to make quarterly dividend payments by
issuing additional shares of common stock in lieu of cash.

Strategic Outlook

         The Company's business strategy over the next two to three years will
be to better capitalize on the consumer recognition of the Danskin(R) brand and
to develop new channels for distribution. In this regard, the Company will, to
the extent adequate cash flow from operations can be generated and financing can
be obtained on appropriate terms, expand Danskin(R) and other product lines,
pursue growth in international sales, selectively license the Danskin name for
additional product categories and open additional full price Danskin(R) stores.
There can be no assurance that the Company will be able to generate adequate
cash flow from operations and obtain financing on appropriate terms to implement
this strategy particulary given the difficulty of predicting hosiery operations
or, if implemented, that this strategy will be successful.

         The Company expects that short-term funding requirements will continue
to be provided principally by the Company's banking and vendor arrangements. As
a result the Company's increased borrowing capacity realized from the Sixth
Amendment, the Company believes that it has adequate liquidity to pursue its
business strategies. Further, the Company is taking steps to evaluate its long
term business prospects in the contracting sheer hosiery market, amid increased
retailer demands for responsiveness. The Company needs additional financing to
avoid incurring the additional equity fee specified in the Sixth Amendment and
to fund such requirements beyond December 31, 1997, the acquisition or
development of any new business, and the costs related to opening any full price
retail store.

                                     - 23 -
<PAGE>


         The Company has engaged Wasserstein Perella & Co., Inc to assist in
raising financing and with the implementation of its strategic plan. It has
elected Donald Schupak as its Chairman of the Board of Directors in the belief
he will better enable the Company to explore a range of financing alternatives
in an effort to reduce its indebtedness, lower interest costs and expand its
business. It believes it will obtain prior to August 31, 1997 a commitment for
such an infusion and that, if such a commitment is obtained, adequate financing
will be available to meet the above requirements. No assurances can be given
regarding the Companys ability to de-leverage its capital structure or to raise
new equity as required in the Loan and Security Agreement.


                                     - 24 -
<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Financial statements and supplementary data required pursuant to this
Item 8 begin on page F-I of this Form 10-K.


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

         None


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers and Directors

         The following table sets forth certain information regarding the
Company's directors and executive officers:


<TABLE>
<CAPTION>
                    Name                         Age                 Position                     Year Term as
                                                                                                Director Expires
<S>                                               <C>     <C>                                         <C> 
Donald Schupak (1)(2).......................      53      Chairman of the Board                       1998

Mary Ann Domuracki (1)......................      42      President, Chief Executive                  1999
                                                          Officer and Director

Edwin W. Dean...............................      60      Vice Chairman of the                        1997
                                                          Board, General Counsel
                                                          and Secretary

Beverly Eichel..............................      39      Executive Vice President                     -
                                                          and Chief Financial
                                                          Officer

Henry T. Mortimer, Jr.(1) (3)...............      54      Director                                    1997

Michael S. Rosen (3)........................      36      Director                                    1997

Patricia S. Patterson (2)...................      68      Director                                    1998

Larry B. Shelton(1) (2).....................      62      Director                                    1998

John W. Burden, III (1)(3)..................      60      Director                                    1998

Michel Benasra (3)..........................      46      Director                                    1999

Howard D. Cooley (1)........................      62      Director                                    1999
</TABLE>

--------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee

                                     - 25 -
<PAGE>


         The business experience, principal occupations and employment, as well
as the periods of service, of each of the directors and executive officers of
the Company during at least the last five years, are set forth below.

         Donald Schupak has been a Director of the Company since October 16,
1996 and became the Chairman of the Board of Directors on March 27, 1997. He is
the Chairman of the Board of Directors of 7th Level, Inc., an entertainment
company that develops and produces interactive software products for consumer
use. He is also the Chief Executive Officer of Schupak Group, an organization
that provides strategic planning, management consulting and corporate finance
services to a variety of clients, including several Fortune 100 companies. Mr.
Schupak founded Schupak Group in 1990 and has served as a director of Horn &
Hardart Company. From September 1988 through September 1990, he served as
Chairman, Chief Executive Officer and President of Horn & Hardart Company. From
1971 through 1980, Mr. Schupak was actively engaged in the practice of law with
Schupak, Rosenfeld & Fischbein, a New York City law firm founded by Mr. Schupak.

         Mary Ann Domuracki became the Chief Executive Officer of the Company on
April 1, 1996, after having been its President and Chief Operating Officer since
July 1992, and has been a Director since March 1989. From September 1987 to June
1992, she was Vice President and Chief Financial Officer of the Company. She
also serves as an officer and director of several of the Company's subsidiaries.
She joined the Company in June 1987. Prior to that, she was employed by Arthur
Young & Co. (now known as Ernst & Young LLP), a public accounting firm, from
1976 to 1987, and was the Audit Principal responsible for the Company's account.
She is a director of The American Apparel Manufacturing Association, The AAMA
Executive Committee and a member of its Marketing Committee. In addition, she is
a member of Young Presidents' Organization, Board Member of the Catholic Big
Brothers, and a member of the SGMA Steering Committe for the SuperShow. Mrs.
Domuracki was a director and officer of Esmark until October 1993.

         Edwin W. Dean has been Vice Chairman of the Board of Directors of the
Company since July 1992, General Counsel and a Director since March 1989 and
Secretary since July 1986. From March 1989 to June 1992, he was the Executive
Vice President of the Company. He also serves as an officer and director of each
of the Company's subsidiaries. From 1980 until 1986, he was a consultant. Prior
to 1980, he was a Senior Vice President of Paine Webber Jackson & Curtis, Inc.
and manager of its government bond trading department. He is a member of the New
York State Bar. Until August 1995, Mr. Dean was a director and executive officer
of Esmark, for which the United States Bankruptcy Court for the Southern
District of New York has ordered liquidation under Chapter 7 of the Bankruptcy
Code, and has appointed a trustee.

         Beverly Eichel has been the Executive Vice President of the Company
since April 1996, with responsibility for retail store operations. Additionally,
she has been the Chief Financial Officer of the Company since July 1992, having
previously been its Controller since October 1987. Prior to that, she was the
Director of Accounting for MGM/UA Home Video from 1984 to 1987 and a Senior
Accountant with Ernst & Whinney (now known as Ernst & Young LLP) from 1980 to
1984. She is a member of American Institute of CPA's in New York.


                                     - 26 -
<PAGE>


         Henry T. Mortimer, Jr., has been a Director of the Company since August
1992. From November 1988 to August 1992, he was a director of Esmark. He has
been the Managing Director, Europe, of Financial Security Assurance, Inc., a
bond insurance company, and the President of American International Advisory
Group, Inc., a financial advisory firm, since 1985. Prior to 1985, he was a
Senior Vice President of E.F. Hutton & Co., Inc. in its investment banking
department. In addition, he is currently a director of Tipiak, S.A., a French
food manufacturing company.

         Michael S. Rosen has been a Director of the Company since October 1995.
He is the President of the Rochester Division of OppenehimerFunds, Inc., Vice
President of OppenheimerFunds, Inc., and Portfolio Manager of Oppenheimer Bond
Fund For Growth, holder of the Debenture. He is a former Principal of The
Rochester Funds, which was acquired by OppenheimerFunds, Inc. in Janaury 1996.
He has been associated with The Rochester Funds since 1983.

         Patricia S. Patterson has been a Director of the Company since August
1992. From July 1986 to August 1992, she was a director of Esmark. She is an
International Representative of Sotheby's and Sotheby's International Realty,
and serves on the President's Council of the New York Zoological Society and on
the Board of Directors of the New York City Ballet, the School of American
Ballet, The Boys Club of New York, the Parrish Museum and the Central Park
Conservancy and as a member of the Council of the Museum of Modern Art.

         Larry B. Shelton has been a Director of the Company since October 1994.
He is the President of Shelton & Associates, a management consulting firm
specializing in the apparel industry. In 1991, he retired as President and Chief
Operating Officer of Genesco, Inc., an apparel manufacturing company, having
served in that organization for over 35 years in various management capacities.
He has long been active in the apparel industry, having served as Chairman of
the Board of The American Apparel Manufacturing Association and as a board
member of The Clothing Manufacturers Association.

         John W. Burden, III has been a Director of the Company since November
1995. He is a partner in Retail Options, Inc., a retail consulting group. In
1990, he retired as the Chairman of both Federated Department Stores, Inc. and
Allied Department Stores, Inc., following a 19 year career in various
merchandising positions in the Federated organization, including as President of
Burdine's and Chairman of the Abraham & Strauss division. Prior to that, he
spent 12 years with Macy's. Mr. Burden is also a director of Hills Department
Stores and Carson Pirie Scott & Co.

         Michel Benasra became a Director of the Company on October 16, 1996. He
founded Pour le bebe, Inc. in 1984 and has served as its sole director, Chairman
of the Board and Chief Executive Officer since its founding. Pour le bebe, d/b/a
Baby Guess(R), Guess Kids(R) and Guess Home Collections(R), is a manufacturer,
wholesaler and retailer of infants' and children's apparel and home furnishings.
Pour le bebe, in addition to its core major department store and international
distribution, operates over 40 retail and factory outlet specialty stores
nationwide, and is the largest of Guess?, Inc.'s 26 licensees.

         Howard D. Cooley has been a Director of the Company since 1993 and was
the Chairman of its Board of Directors from August 15, 1995 until March 27,
1997, at which time he resigned voluntarily to facilitate the transition to Mr.
Schupak. He was also the Chief Executive Officer of the Company from September
16, 1994 until March 31, 1996. He was President of Jockey International, Inc., a
vertically integrated apparel manufacturer, from December 1979 until his
retirement in June 1992. From June 1960 to December 1979, he held various
positions (including Vice President of the Manufacturing Management Division) at
Kurt Salmon Associates, a management consulting company, and was at one time a
member of its executive committee. Mr. Cooley founded the Apparel Foundation,
which provides clothing to poor and homeless people worldwide, and has also
served as Vice Chairman and Chairman of The American Apparel Manufacturing
Association.


                                     - 27 -
<PAGE>


         Under Section 16(a) of the Securities and Exchange Act of 1934, the
Company's directors, executive officers and holders of more than 10% of the
Common Stock are required to report their initial ownership of the Company's
equity securities and any subsequent changes in that ownership to the Securities
and Exchange Commission. Specific due dates for these reports have been
established, and the Company is required to disclose any failure to file by
these dates with respect to fiscal 1996. Based on written representations of its
directors and executive officers and copies of reports they have filed with the
Securities and Exchange Commission, the only late reports filed for fiscal 1996
were Forms 3 for Mr. Schupak and Mr. Benasra (respecting their election to the
Board of Directors of the Company), and a Form 4 for Mr. Cooley (respecting one
transaction).

Board of Directors and Board Committees

         The number of Directors is currently fixed at ten. The Board of
Directors is divided into three classes of Directors, each of whom serves a
three-year term following election. Each class consists, as nearly as
practicable, of one-third of the total number of Directors serving on the Board
of Directors.

         The Board of Directors has established an Executive Committee, an Audit
Committee and a Compensation Committee. The Executive Committee is generally
empowered to act on behalf of the Board of Directors when the Board is not
convened in meeting. The members of the Executive Committee consist of Mr.
Mortimer, Mr. Schupak, Mr. Cooley, Mrs. Domuracki, Mr. Burden and Mr. Shelton.

         The Audit Committee is generally responsible for recommending the
appointment of the Company's independent auditors and overseeing the accounting
and internal audit functions of the Company, including reviewing, with the
Company's independent auditors, (i) the general scope of their audit services
and the annual results of their audit, (ii) the reports and recommendations made
to the Audit Committee by the independent auditors, and (iii) the Company's
internal control structure. The members of the Audit Committee presently consist
of Mr. Shelton, Mr. Schupak and Mrs. Patterson.

         The Compensation Committee is responsible for reviewing and making
recommendations to the Board of Directors concerning compensation of the
Company's executive officers and for administering the Stock Option Plan. The
members of the Compensation Committee presently consist of Mr. Burden, Mr.
Mortimer, Mr. Benasra and Mr. Rosen.


                                     - 28 -
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION


         Summary Compensation Table

         The following table sets forth information concerning the compensation
earned during the last three fiscal years by the Company's Chief Executive
Officer and each other executive officer of the Company (each, a "named
executive officer"). The Company had only four executive officers during the
fiscal year ended Dcember 28, 1996 ("fiscal 1996"). In 1995, the Company's Board
of Directors approved a change in the fiscal year end to the last Saturday in
December from the last Saturday in March, effective December 30, 1995. As a
result, the information set forth in the table below as "NM 1995" is for the
nine-month transition period ended December 30, 1995, and the information for
1995 is for the fiscal year ended March 25, 1995.


<TABLE>
<CAPTION>
==================================================================================================================================
Name and Principal Position      Fiscal        Salary        Bonus         Other Annual     Stock         All Other Compensation
                                 Year          ($)           ($)           Compensation     Options       ($)
                                                                           ($)              (#)           (10)
----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>           <C>           <C>              <C>           <C>   
Howard D. Cooley(1)              1996          150,000            0        ---              200,000 (3)    453,509
Chairman & Chief Policy Officer  NM 1995       225,000            0        20,804(2)        --             0
                                 1995           16,501            0        19,322(2)        100,000        0
----------------------------------------------------------------------------------------------------------------------------------
Mary Ann Domuracki(4)            1996          353,865       60,000        0                      0        5,072
Chief Executive Officer and      NM 1995       202,500            0        0                 15,000        1,298
President                        1995          292,500            0        0                 79,384(5)     5,075
----------------------------------------------------------------------------------------------------------------------------------
Edwin W. Dean (6)                1996          205,000       25,000        0                      0        1,407
Vice Chairman, General Counsel   NM 1995       195,600            0        0                 49,384(7)     8,545
and Secretary                    1995          286,666            0        0                      0       11,580
----------------------------------------------------------------------------------------------------------------------------------
Beverly Eichel(8)                1996          228,942       40,000        0                      0        4,767
Executive Vice President and     NM 1995       168,750            0        0                 10,000        2,381
Chief Financial Officer          1995          243,750            0        0                 71,359(9)     4,444
==================================================================================================================================
</TABLE>


(1) Mr. Cooley served as Chief Executive Officer from September 6, 1994 until
March 31, 1996. Mr. Cooley's employment agreement provided for no salary
compensation during fiscal 1995. Payment of Mr. Cooley's salary for the Nine
Months 1995 was deferred and paid in January 1996. Prior to becoming Chief
Executive Officer, Mr. Cooley was a non-employee Director and the amount shown
for salary in fiscal 1995 consists of contractually deferred Directors' fees
earned prior to his becoming Chief Executive Officer. Effective April 1, 1996,
Mr. Cooley's employment agreement was amended to provide for (a) his resignation
as Chief Executive Officer and employment as Chairman of the Board, (b)
reduction of his annual salary to $50,000 and (c) severance pay of $450,000. All
Other Compensation for 1996 consists of such severance pay and interest in the
amount of $3,509 paid on the $225,000 salary earned by Mr. Cooley during the
Nine Months 1995 that was deferred and paid in January 1996.

(2) Other Annual Compensation for the Nine Months 1995 consists of travel
allowances of $11,073 and related tax gross-ups of $9,731 provided under Mr.
Cooley's employment agreement. Other Annual Compensation for fiscal 1995
consists of travel allowances of $11,087 and related tax gross-up of $8,235
provided under Mr. Cooley's employment agreement.


                                     - 29 -
<PAGE>


(3) Amounts shown for Mr. Cooley include 100,000 shares that were granted on
June 5, 1996 with an exercise price of $3.25, subject to stockholder approval of
an amendment to the Danskin, Inc. 1992 Stock Option Plan increasing the number
of shares reserved for issuance thereunder by no less than 100,000 shares.

(4) Ms. Domuracki became Chief Executive Officer of the Company on April 1,
1996. Salary for fiscal 1995 reflects voluntary salary reductions from $300,000
to $270,000 that took effect January 1, 1995, and from $350,000 to $270,000 that
were in effect during the Nine Months 1995 and fiscal 1996. Effective November
1, 1996, the full contracted salary rate of $350,000 was reinstated. In
addition, on November 29,1996 Ms. Domuracki received a lump sum payment in the
amount of $71,250 representing payment of the contractual amount of salary due
her for the period April 1, 1995 through October 31, 1996, less the voluntary
10% salary reduction which was in effect during that period.

(5) Amounts shown include options for an aggregate of 39,384 shares that were
repriced effective July 1994 at $4.00 per share, replacing options for 14,384
shares granted in fiscal 1993 with an exercise price of $13.00 per share and
options for 25,000 shares granted in fiscal 1994 with an exercise price of
$6.275 per share.

(6) Salary for fiscal 1995, the Nine Months 1995 and fiscal 1996 reflects a
voluntary salary reduction from $300,000 to $260,000 that was in effect from
January 1, 1995 to March 31, 1996.

(7) Amounts shown include options for an aggregate of 39,384 shares that were
repriced effective June 26, 1995 at $4.00 per share replacing options for 4,384
shares granted in fiscal 1992 with an exercise price of $13.00 per share, and
options for 25,000 shares granted in fiscal 1993 with an exercise price of
$6.375 per share

(8) Ms. Eichel became Executive Vice President of the Company in April 1996.
Salary for fiscal 1995, the Nine Months 1995 and fiscal 1996 reflects a
voluntary salary reduction from $250,000 to $225,000 that was in effect from
January 1, 1995 to November 1, 1996, at which time the full contracted salary
rate of $250,000 was reinstated.

(9) Amounts shown include options for an aggregate of 31,359 shares that were
repriced effective July 1, 1994 at $4.00 per share, replacing options for 6,359
shares granted in fiscal 1993 with an exercise price of $13.00 per share, and
options for 25,000 shares granted in fiscal 1994 with an exercise price of
$6.275 per share.

(10) Amounts shown under "All Other Compensation" for 1996 for Ms. Domuracki and
Ms. Eichel represent premiums paid by the Company in respect of life insurance
policies for the benefit of Ms. Domuracki and Ms. Eichel in the amount of $1,290
and $985 respectively and $2,375 for each contributed by the Company in 1996 as
the 25% matching contribution for the first 6% of earnings contributed by such
individuals to the Company's Savings Plan, a tax qualified defined contribution
plan covering full-time salaried employees over the age of 21 (the "Savings
Plan"). The Savings Plan allows participants to elect to make contributions, on
a pre-tax basis, from 1% to 15% of their compensation, subject to applicable
Internal Revenue Code limitations, and the Company is required to make a
matching contribution equal to 25% of the participant's contributions up to 6%
of such compensation. A participant becomes 33-1/3% vested in the matching
contributions after three years of service, 66-2/3% after four years of service
and 100% after five years of service. In addition, included for Ms. Domuracki,
Ms. Eichel and Mr. Dean is a discretionary profit sharing contribution of $1,407
on behalf of each made by the Company in 1996 in shares of Common Stock (417
shares each). The Savings Plan provides for a discretionary profit sharing
contribution. A participant becomes fully vested in a profit sharing
contribution after five years of service.


                                     - 30 -
<PAGE>


         Stock Option Grants in Last Fiscal Year


         The following table shows information for Fiscal Year 1996 respecting
stock option grants to each named executive officer.

<TABLE>
<CAPTION>
===================================================================================================================================
                                          Individual Grants                               Grant Date Value
-----------------------------------------------------------------------------------------------------------------------------------
                        Number of Securities    Percent of Total Options
                        Underlying Options      Granted to Employees in                      Expiration      Grant Date Present
Name                    Granted                 Fiscal Year                 Exercise Price   Date            Value(3)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                     <C>                         <C>              <C>             <C>     
Howard D. Cooley        100,000 (1)             37.3%                       $4.375           Feb 7, 2006     $324,461
                        100,000 (2)             37.3%                       $3.25            June 4, 2006    $241,028
-----------------------------------------------------------------------------------------------------------------------------------
Mary Ann Domuracki      --                      --                          --               --              --
-----------------------------------------------------------------------------------------------------------------------------------
Edwin W. Dean           --                      --                          --               --              --
-----------------------------------------------------------------------------------------------------------------------------------
Beverly Eichel          --                      --                          --               --              --
===================================================================================================================================
</TABLE>

(1) These options were fully exercisable upon grant and will remain exercisable
for a period of three years following the termination of Mr. Cooley's
employment.

(2) These non-qualified stock options were granted under the Company's 1992
Stock Option Plan subject to subsequent stockholder approval of an amendment to
the Stock Option Plan increasing the number of shares reserved for issuance
thereunder, and entitle the holder to purchase shares of the Common Stock at an
exercise price equal to the fair market value per share of the Common Stock as
of the date the option was granted. Fair Market Value for these purposes was
defined as the closing price of a share of the Common Stock on the Nasdaq
National Market on the date of grant. These options will be fully exercisable
following the date such stockholder approval is obtained and will remain
exercisable for a period of three years following the termination of Mr.
Cooley's employment.

(3) The present values on the grant date are calculated under the Black-Scholes
valuation model. The Black- Scholes valuation model is a mathematical formula
used to value options, and considers historical stock price volatility, the
exercise period of the option and interest rates. Historical stock price
volatility has been measured since the effective date of the Initial Public
Offering, August 19, 1992. The Black-Scholes valuation model was chosen in
accordance with Securities and Exchange Commission rules; however, this model
should not be construed as an endorsement of its accuracy at valuing options.
The real value of the options in this table depends upon the actual performance
of the Common Stock during the applicable period.


                                     - 31 -
<PAGE>


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

         The following table shows information for fiscal 1996 respecting stock
options for each named executive officer. 

<TABLE>
<CAPTION>
========================================================================================================================
                                                                          Number of Securities
                                                                          Underlying
                                                                          Unexercised Options   Value of Unexercised In-
                        Shares Acquired on                                at Fiscal Year End    The-Money Options at
Name                    Exercise                  Value Realized          (1)                   Fiscal Year End (2) ($)
------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                       <C>                     <C>                   <C>
Howard D. Cooley        100,000                   $50,000                 200,000               $0
------------------------------------------------------------------------------------------------------------------------
Mary Ann Domuracki                                                        94,384                $0
------------------------------------------------------------------------------------------------------------------------
Edwin W. Dean                                                             49,384                $0
------------------------------------------------------------------------------------------------------------------------
Beverly Eichel                                                            81,359                $0
========================================================================================================================
</TABLE>


(1) All unexercised options are currently exercisable, with the exception of
100,000 shares granted to Howard Cooley on June 5, 1996, which will be
immediately exercisable upon the approval by the stockholders of an amendment to
the 1992 Stock Option Plan increasing the number of shares reserved for issuance
thereunder.

(2) The value of an unexercised option at December 28, 1996 is determined by
subtracting the exercise price of such option from the market value of a share
of Common Stock on December 28, 1996, as reported by the Nasdaq Small- Cap(TM)
Market ($2.4375). There were no in-the-money unexercised options at December 28,
1996.

Employment Agreements


     On March 27, 1997 Donald Schupak was elected Chairman of the Board and
Chief Policy Officer of the Company and it entered into a "Heads of Agreement"
letter with him. This agreement engages him as Chairman, reporting to the Board
of Directors, until the earlier of (i) the consummation of an equity
transaction, (ii) consummation of a refinancing transaction, or (iii) December
31, 1997. His duties are to undertake a leadership role with respect to the
raising of equity capital and to the development of a long-term business plan.
In compensation he has been granted an option to acquire 4% of the Common Stock
outstanding, on a fully diluted basis, immediately following the completion of
the equity transaction. If a refinancing transaction is consummated prior to
December 31, 1997, or if the Company has been excused from payment of the
"additional equity fee" to First Union under the Sixth Amendment, the option
previously granted will convert to, and the Company shall immediately issue to
Mr. Schupak, stock certificates representing 4% of the Common Stock outstanding
on fully diluted basis. If neither the equity transaction nor a refinancing
transaction occurs prior to December 31, 1997, or if a bankruptcy petition is
filed by or against the Company prior to that date, of if the "additional equity
fee" has not been excused by that date, then the option shall convert to, and
the Company shall immediately issue to Mr. Schupak stock certificates
representing 3% of the Common Stock outstanding on a fully diluted basis. The
equity transaction option will become exercisable immediately following
consummation of an equity transaction, and will have a term of five years from
the date of such consummation. The exercise price of the equity transaction
option will be the per share price of Common Stock or equivalent purchased in
the equity transaction. In the event the Company terminates Mr. Schupak for
"cause", or if he resigns as Chairman during the term of the engagement, his
equity transaction option, or his 3% or 4% Common Stock, as the case may be,
will terminate or be surrendered. In addition, Mr. Schupak will receive a cash
payment of $7,500 per month for the first three months of his engagement, and
$10,000 thereafter, to defray office overhead, and he is entitled to
reimbursement of reasonable travel and other expenses incidental to the
performance of his duties. If Mr. Schupak is retained by the Company in any
capacity following the consummation of an equity transaction, his equity
transaction option shall be increased from 4% to 12% of the Common Stock
outstanding on a fully diluted basis.


         On October 27, 1994, the Company entered into an employment agreement
with Howard D. Cooley employing him as Vice Chairman of the Board of Directors
and Chief Executive Officer until he resigns or is terminated. He served without
salary compensation until June 30, 1995, and thereafter received annual base
salary compensation of $450,000 until March 31, 1996, as of which time his
employment agreement was amended to provide for (a) his resignation as Chief
Executive Officer and employment as Chairman of the Board, (b) reduction of his
annual salary to $50,000 and (c) severance pay of $450,000, payable in equal
installments over a one year period beginning April 1, 1996. In connection with
such amendment, Mr. Cooley was granted additional options to purchase 100,000
shares of Common Stock at an exercise price of $4.375 per share, the then
current fair market value per share of the Common Stock. He is also entitled to
receive "gross-up" payments for certain state and local income tax consequences.
Under the employment agreement, if the Company terminates his employment without
"cause," as defined, or if he resigns by reason of a "change of control," as
defined, the Company will be obligated to make a lump sum payment to Mr. Cooley
of $450,000, and all granted, but unvested, stock options shall vest
immediately. Mr. Cooley deferred payment of all base compensation due during
calendar year 1995 until January 1996.


                                     - 32 -
<PAGE>


         On August 1, 1994, the Company entered into an employment agreement
with Mary Ann Domuracki employing her as President and Chief Operating Officer
until she resigns or is terminated. This agreement was amended as of April 4,
1996 to provide for her employment as Chief Executive Officer. Her annual base
salary compensation is $350,000, with the amount subject to annual adjustment by
the Chairman of the Board and approved by the Compensation Committee of the
Board of Directors, but not to be less than $350,000. She is entitled to receive
an annual bonus calculated in a manner established by the Chairman of the Board
and approved by the Compensation Committee. Under the employment agreement, if
the Company terminates her employment without "cause," as defined, or if she
resigns by reason of a "change of control," as defined, (i) the Company will be
obligated to continue her base salary payments for two years (offset by
compensation received from any new employer after one year), and to reimburse
her for all amounts by which she voluntarily reduced her annual base salary
since January 1, 1995, (ii) the Company will make a prorated bonus payment to
her for the fiscal year then in progress and (iii) any granted, but unvested
stock options shall vest immediately.

         On April 1, 1996, the Company entered into an employment agreement with
Edwin W. Dean employing him as Vice Chairman of the Board, General Counsel and
Secretary until he resigns or is terminated. His annual base salary compensation
was $260,000 through June 30, 1996, and thereafter is $150,000, with the amount
subject to annual adjustment by the Chief Executive Officer and approved by the
Compensation Committee of the Board of Directors, but not to be less than
$150,000. He is entitled to receive an annual bonus calculated in a manner
established by the Chief Executive Officer and approved by the Compensation
Committee. Under the employment agreement, if the Company terminates his
employment without "cause," as defined, or if he resigns by reason of a "change
in control," as defined, the Company will be obligated to continue his annual
base salary payments for two years thereafter (offset by compensation received
from any new employer after one year), and to make a prorated bonus payment for
the fiscal year then in progress, and any granted, but unvested, stock options
shall vest immediately.

         On August 1, 1994, the Company entered into an employment agreement
with Beverly Eichel employing her as Vice President and Chief Financial Officer
until she resigns or is terminated. This agreement was amended as of April 4,
1996 to provide for her employment as Executive Vice President and Chief
Financial Officer. Her annual base salary compensation is $250,000, with the
amount subject to annual adjustment by the Chief Executive Officer and approved
by the Compensation Committee of the Board of Directors, but not to be less than
$250,000. She is entitled to receive an annual bonus calculated in a manner
established by the Chief Executive Officer and approved by the Compensation
Committee. Under the employment agreement, if the Company terminates her
employment without "cause," as defined, or if she resigns by reason of a "annual
change of control," as defined, (i) the Company will be obligated to continue
her base salary payments for two years thereafter (offset by compensation
received from any new employer after one year), and to reimburse her for all
amounts by which she voluntarily reduced her base salary since January 1, 1995,
(ii) the Company will make a prorated bonus payment for the fiscal year then in
progress and (iii) any granted, but unvested, stock options shall vest
immediately.


Compensation Committee Interlocks and Insider Participation

         All of the members of the Compensation Committee are non-employee
Directors of the Company and are not former officers of the Company or its
subsidiaries. No executive officer of the Company serves as a member of the
Board of Directors or on the compensation committee of a corporation for which
any of the Company's Directors serving on the Compensation Committee or on the
Board of Directors of the Company is an executive officer.


                                     - 33 -
<PAGE>


Compensation of Directors


         Directors who are employees of the Company are not compensated for
serving as Directors. Directors who are not employees of the Company receive an
annual retainer fee of $15,000 plus fees of $1,000 per day for attendance at
meetings of the Board of Directors and its committees. Non-employee Directors of
the Company are also reimbursed for out-of-pocket expenses. In addition, each
non-employee Director receives, upon such person's initial election as a
Director, a grant of an option to purchase 20,000 shares of the Common Stock
under the Stock Option Plan at fair market value. Because of his position as the
Managing Director of The Bond Fund For Growth, holder of the Preferred Stock,
Mr. Rosen has declined to accept either cash compensation or stock options. Mr.
Schupak and Mr. Benasra have agreed to defer the grant of their options until an
amendment to the Stock Option Plan has been approved by the stockholders,
increasing the total number of shares reserved for issuance thereunder.




                                     - 34 -
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information, as of March 7,
1997, regarding the beneficial ownership of the Common Stock by (i) each person
known to the Company to beneficially own more than 5% of the Common Stock; (ii)
each Director and each named executive officer; and (iii) all executive officers
and Directors of the Company as a group. A person is a beneficial owner if he or
she has or shares voting power or investment power. At March 7, 1997, there were
6,100,452 shares of the Common Stock outstanding (excluding 1,000 shares held by
a subsidiary of the Company).


<TABLE>
<CAPTION>
Name and Address
of Beneficial Owner                               Shares Owned                       Percent of Outstanding Stock

<S>                                               <C>                                             <C>  
SunAmerica Life Insurance Company (1)             2,010,000                                       32.9%
1 SunAmerica Center
Los Angeles, CA 90025

Oppenheimer Bond Fund For Growth (2)
350 Linden Oaks                                   1,811,594                                       29.7%
Rochester, NY 14625

Electra Investment Trust PLC (3)                    990,000                                       16.2%
65 Kingsway, London, WC2 England

Barbara Balaber-Strauss (3)                         990,000                                       16.2%
81 Main Street
White Plains, NY 10601

Wellington Management Company, LLP (4)              310,000                                        5.1%
75 State Street
Boston, MA  02109

Howard D. Cooley (5)                                196,000                                        3.2%
Mary Ann Domuracki (6)                              105.363                                        1.7%
Edwin W. Dean (7)                                   108,192                                        1.8%
Beverly Eichel (8)                                   81,559                                        1.3%
Henry T. Mortimer, Jr. (9) (12)                       8,333                                        0.1%
Patricia S. Patterson (9) (12)                        8,333                                        0.1%
Michael S. Rosen (2) (12)                         1,811,594                                       29.7%
Larry B. Shelton (10) (12)                            7,501                                        0.1%
John W. Burden, III (11)(12)                          6,666                                        0.1%
Donald Schupak(13)
Michel Benasra(13)

All Directors and executive officers as a group (11
persons)(13)(14)                                   2,33,540                                        38.3%
</TABLE>
-------------

(1) Includes the sole investment and voting power with respect to 2,010,000
shares of the Common Stock previously owned of record by Esmark (the "Esmark
Shares"). On June 14, 1996, SunAmerica, Inc. and SunAmerica Life Insurance
Company ("SunAmerica") filed a third amendment to their Schedule 13D, reporting
that, on March 12, 1996, the United States Bankruptcy Court for the Southern
District of New York entered an order, effective May 1, 1996, terminating the
automatic stay in the bankruptcy case of Esmark, insofar as such automatic stay
prohibited SunAmerica from enforcing its rights under a guarantee and pledge
agreement with Esmark and related loan documents, including with respect to a
foreclosure sale of the Esmark Shares. On June 7, 1996, a foreclosure sale of
the Esmark Shares (the "Foreclosure Sale") was conducted at which SunAmerica
submitted the highest conforming bid and purchased the Esmark Shares, by
crediting its bid against its secured claim, at a price of $3.00 per share, or
an aggregate purchase price of $6,030,000. The Esmark Shares represent
approximately 32.9% of the Common Stock outstanding and 25.4% of the stock
entitled to vote. SunAmerica's

                                     - 35 -
<PAGE>


purchase of the Esmark Shares at the Foreclosure Sale could be deemed to have
constituted a change in control of the Company. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."

(2) Includes 1,811,594 shares (representing 22.9% of the stock entitled to vote)
into which the Convertible Preferred Stock is convertible at any time at a
current conversion price of $2.76 per share.

(3) Electra Investment Trust PLC ("Electra") has sole investment power and
currently no voting power with respect to 990,000 shares of Common Stock which
it owns of record (the "Electra Shares"). The Company and Electra have received
an opinion of Delaware counsel that by virtue of the Foreclosure Sale, a proxy,
which Electra had previously granted in favor of Esmark with respect to the
Electra Shares, became revocable, although to date the Company believes that
Electra has not yet revoked it. Since Esmark is being liquidated under Chapter 7
of the Bankruptcy Code, the Trustee in Bankruptcy, Barbara Balaber-Strauss,
voted the Electra Shares at the Annual Meeting of Stockholders held on October
16, 1996, voting to withhold authority for the election of the two Directors who
had been nominated for election at that meeting. Information regarding the
aggregate number of shares of the Common Stock beneficially owned by Electra and
its investment power with respect to such shares is based on such information as
reported in Electra's Amendment No. 1 to Schedule 13D dated February 22, 1993.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." The Electra Shares
represent approximately 16.2% of the Common Stock outstanding and 12.5% of
the stock entitled to vote.

(4) All of such shares are beneficially owned by Wellington Management Company,
LLP, and it shares both voting power and investment power over such shares with
numerous of its investment counseling clients. Information regarding the
aggregate number of shares of the Common Stock beneficially owned by Wellington
Management Company and its investment and voting power with respect to such
shares is based on such information as reported in Wellington Management
Company's Amendment No. 5 to Schedule 13G dated January 24, 1997 and Wellington
Trust Company, N.A.'s Amendment No. 3 to Schedule 13G dated January 27, 1997.
Wellington Trust Company, N.A. is a wholly owned subsidiary of Wellington
Management Company.

(5) Includes 46,000 shares owned of record by Mr. Cooley, as to which shares he
has sole voting and investment power; 50,000 shares held by his spouse, as to
which shares Mr. Cooley disclaims beneficial ownership; and 100,000 shares
pursuant to presently exercisable options. The amount does not include an option
awarded on June 5, 1996, to purchase 100,000 shares of Common Stock, subject to
stockholder approval of an amendment to the Stock Option Plan increasing the
number of shares reserved under the Stock Option Plan by at least 100,000
shares.

(6) Includes 3,800 shares held by Ms. Domuracki as custodian for her children,
as to which shares Ms. Domuracki has sole voting and investment power; 2,000
shares held by her spouse, as to which shares Ms. Domuracki disclaims beneficial
ownership; 5,179 shares owned beneficially by Ms. Domuracki through the
Company's Savings Plan, as to which shares Ms. Domuracki has sole voting and
investment power; and 94,384 shares pursuant to presently exercisable options.

(7) Includes 32,000 shares held by Mr. Dean as custodian for his children, as to
which shares Mr. Dean has sole voting and investment power; 8,000 shares held by
his spouse, as to which shares Mr. Dean disclaims beneficial ownership; 18,808
shares owned beneficially by Mr. Dean through the Company's Savings Plan, as to
which shares Mr. Dean has sole voting and investment power; and 49,384 shares
pursuant to presently exercisable options.

(8) Includes 200 shares owned of record by Ms. Eichel, as to which shares Ms.
Eichel has sole voting and investment power; and 81,359 shares pursuant to
presently exercisable options.

(9) For each of Mr. Mortimer and Mrs. Patterson, includes 8,333 shares pursuant
to presently exercisable options.

(10) Includes 7,500 shares pursuant to presently exercisable options.

(11) Includes 6,666 shares pursuant to presently exercisable options.

                                     - 36 -
<PAGE>


(12) Although Messrs. Mortimer, Rosen, Shelton and Burden and Mrs. Patterson
previously reported shared voting power with respect to the Electra Shares by
virtue of an agreement dated September 16, 1994 between the Company and Byron A.
Hero, Jr., its former Chief Executive Officer, the Company believes that by
virtue of the Foreclosure Sale (See Note 3 above) they no longer exercise such
shared voting power. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

(13) Mr. Schupak and Mr. Benasra are each entitled to the automatic grant of an
option to purchase 20,000 shares of the Common Stock, but have agreed to defer
such grant until an amendment to the 1992 Stock Option Plan has been approved by
the stockholders, increasing the total number of shares reserved for issuance
thereunder.

(14) Includes 355,959 shares issuable upon the exercise of presently exercisable
stock options and 1,811,594 shares issuable upon conversion of the Convertible
Preferred Stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         As previously reported, prior to February 1993, Esmark, the former
parent of the Company, owned of record 3,000,000 shares of the Common Stock,
consisting of the Esmark Shares, which it subsequently pledged to SunAmerica,
and the Electra Shares, which it subsequently transferred to Electra upon the
exercise of an Option Agreement between it and Electra, a copy of which was
filed by Electra as an exhibit to its Schedule 13D, dated December 31, 1992. The
Schedule 13D also contained as an exhibit a copy of an irrevocable 10 year proxy
which Electra granted to Esmark with respect to the Electra Shares.

         In September 1993, Esmark pledged the Esmark Shares to SunAmerica as
collateral for its guarantee of a loan of $14,500,000 which SunAmerica had made
to a subsidiary of Esmark. The guarantee and pledge agreement were attached as
an exhibit to the Schedule 13D which SunAmerica filed on September 29, 1994,
along with a notice of exercise of rights by SunAmerica. On February 1, 1995,
SunAmerica amended the Schedule 13D and attached as an exhibit a foreclosure
notice with respect to its intention to sell the Esmark Shares at public
auction. The sale was then temporarily stayed during the pendency of an
involuntary bankruptcy petition that was filed against Esmark. On June 6, 1996,
the United States Bankruptcy Court for the Southern District of New York ordered
the liquidation of Esmark under Chapter 7 of the Bankruptcy Code, and appointed
a trustee. These actions could be deemed to have constituted a change in control
of the Company.

         On June 14, 1996, Sun America filed Amendment No. 3 to its Schedule 13D
("Amendment No. 3"), reporting that, on March 12, 1996, the United States
Bankruptcy Court had entered an order effective May 1, 1996 terminating the
automatic stay in the Esmark bankruptcy insofar as it prohibited SunAmerica from
enforcing its rights under the guarantee and pledge agreement with Esmark,
including with respect to the Foreclosure Sale of the Esmark Shares. Amendment
No. 3 also reported that on June 7, 1996 the Foreclosure Sale was conducted at
which SunAmerica submitted the highest conforming bid and purchased the Esmark
Shares, by crediting its bid against its secured claim, at a price of $3.00 per
share, for an aggregate purchase price of $6,030,000. The Esmark Shares were
subsequently reregistered in the name of a nominee of SunAmerica. SunAmerica's
purchase of the Esmark Shares at the Foreclosure Sale could be deemed to have
constituted a change in control of the Company.

         Amendment No. 3 further states, among other things, that the purpose of
the purchase by SunAmerica is to maximize the value of its interest in the
Esmark Shares, that SunAmerica does not consider itself to be a passive investor
and that it may purchase additional shares of the Common Stock, seek
representation on the Board of Directors of the Company, commence a tender or
exchange offer and/or propose a business combination, seek redemption or
judicial invalidation of the Company's stockholders' rights plan, or dispose of
all or a portion of the Esmark Shares. On October 4, 1996, the Company entered
into an agreement with SunAmerica which entitled SunAmerica to (a) designate two
nominees for election to the Company's Board of Directors and to appoint at
least one of these nominees to serve on each committee of the Board and (b)
designate an additional person to serve as an observer at Board meetings. At the
meeting of the Board of Directors immediatly following the Annual Meeting of
Stockholders on October 16, 1996, the Board of Directors voted to increase the
number of Directors constituting the

                                     - 37 -
<PAGE>


entire Board from eight to 10, and elected Donald Schupak and Michel Benasra,
SunAmerica's designees, to fill the vacancies thus created. At the same time, it
amended the Company's By-laws to provide that the size of the Board cannot be
further increased without the affirmative vote of the SunAmerica designees. It
also extended an invitation to Electra to designate an additional Director to
become a member of the Board, but Electra declined this invitation.

         The Esmark Shares are the subject of a Registration Rights Agreement
dated July 2, 1992 between the Company and Esmark. The Company has acknowledged
the status of Electra as a Holder under such agreement with respect to the
shares of Common Stock that are owned by it.

          In September 1994, the Company obtained a judgment against Esmark,
which remains unsatisfied, with respect to all amounts owed to the Company by
Esmark. Esmark was indebted to the Company in the amount of $6,099,000 as of
December 30, 1995, an amount which the Company has fully reserved as a result of
Esmark's financial condition. The Company no longer accrues interest on this
indebtedness for financial statement purposes.

         On June 5, 1996, the Board of Directors of the Company declared a
dividend distribution of one Right (each, a "Right") for each outstanding share
of Common Stock to stockholders of record at the close of business on June 17,
1996. Each Right entitles the registered holder to purchase from the Company a
unit consisting of one one-ten thousandth of a share (a "Unit") of the Series A
Junior Participating Preferred Stock, par value $.01 per share, of the Company,
or a combination of securities and assets of equivalent value, at a purchase
price of $22.50 per Unit, subject to adjustment. The description and terms of
the Rights are set forth in a Rights Agreement (the "Rights Agreement") between
the Company and First Union, as rights agent. The Rights will separate from the
Common Stock and a distribution date (the "Distribution Date") will occur upon
the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired,
or obtained the right to acquire, beneficial ownership of 35% or more of the
outstanding Common Stock (the "Stock Acquisition Date"), or (ii) the close of
business on such date as may be fixed by the Board of Directors, which date
shall not be more than 65 days following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning 35% or
more of the outstanding Common Stock. The Rights are not exercisable until the
Distribution Date and will expire at the close of business on June 17, 2006,
unless earlier redeemed by the Company or unless a transaction under Section
13(d) of the Rights Agreement has occurred.


                                     - 38 -
<PAGE>


                                     PART IV

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

(a) Exhibits

         1. Financial Statements

         2. Financial Statement Schedules

         The financial statements and financial statement schedules included in
this Form 10-K are listed in the accompanying Index to the Financial Statements
on Page F-1 of this Form 10-K.

         All other schedules have been omitted because the required information
is shown in the Consolidated Financial Statements or Notes thereto or they are
not applicable.

         3. Exhibits

         The Exhibits designated by an asterisk are management contracts and
compensatory plans and arrangements required to be filed as Exhibits to this
Form 10-K.


Exhibit
Number          Description

3.1.1           Amended and Restated Certificate of Incorporation of the
                Registrant. (Incorporated by reference to Exhibit 3.1.1 to the
                Registration Statement of the Registrant on Form S-1 (Reg. No.
                33-49274)(the "Registration Statement").)

3.1.2           Certificate of Correction, dated July 9, 1992, of the Amended
                and Restated Certificate of Incorporation of the Registrant.
                (Incorporated by reference to Exhibit 3.1.2 to Amendment No. 1
                to the Registration Statement ("Amendment No. 1").)

3.2B##          Amended By-Laws of the Registrant, as amended through October
                16, 1996.

4.1             Form of Certificate for Common Stock of the Registrant.
                (Incorporated by reference to Exhibit 4.1 to Amendment No. 1.)

10.1.1          Tax Refund Agreement, dated July 22, 1986, by and among Danpen,
                Inc., Beatrice Companies, Inc. and Esmark, Inc. (Incorporated by
                reference to Exhibit 10.1.1 to the Registration Statement.)

10.1.2          Supplemental Tax Refund Agreement, dated March 15, 1990, among
                Beatrice Companies, Inc., Esmark, Inc., Danpen, Inc. and the
                Registrant. (Incorporated by reference to Exhibit 10.1.2 to the
                Registration Statement.)

10.5.1          Lease Agreement, dated October 16, 1986, between the Registrant
                and Robert H. Arnow, relating to leasehold interest at 111 West
                40th Street, New York, New York, as amended, and related
                agreement. (Incorporated by reference to Exhibit 10.5.1 to the
                Registration Statement.)

10.5.4          Lease Agreement, dated March 22, 1996, between the City of
                Grenada, Mississippi and the Registrant. (Incorporated by
                reference to Exhibit 10.5.4 to the Registrant's Form 10-Q for
                the fiscal quarter ended September 28, 1996.)

                                     - 39 -
<PAGE>


10.5.5          Agreements in connection with Industrial Revenue Bond for
                property located at 1261 South Commerce Street, Grenada,
                Mississippi, between the City of Grenada, Mississippi and the
                Registrant (as assignee of International Playtex, Inc.).
                (Incorporated by reference to Exhibit 10.5.5 to Amendment No.
                1.)

10.5.7          Agreement between the Pennaco division and the City of Grenada,
                Mississippi, relating to the issuance by the City of Grenada of
                $1,500,000 principal amount of bonds to finance the construction
                of a distribution center to be owned by the City of Grenada and
                leased to the Pennaco division. (Incorporated by reference to
                Exhibit 10.5.7 to Amendment No. 2 to the Registration Statement
                ("Amendment No. 2").)

10.5.8          Master Lease Agreement, dated as of June 10, 1991, between
                Pacific Rim Capital, Inc. and the Registrant, in the maximum
                amount of $2,472,000. (Incorporated by reference to Exhibit
                10.5.8 to the Registration Statement.)

10.5.9          Real Estate Purchase Agreement, dated December 6, 1988, and
                Amendment thereto, dated March 2, 1989, by and between the
                Registrant and Honeywell, Inc. (Incorporated by reference to
                Exhibit 10.5.9 to the Registration Statement.)

10.5.11         Lease Agreement between Paul Klinge A/S and the Registrant.
                (Incorporated by reference to Exhibit 10.5.11 to Amendment No.
                2.)

10.5.12         Addendum to Lease between Henrik Klinge and the Registrant dated
                August 23, 1996. (Incorporated by reference to Exhibit 10.5.12
                to the Registrant's Form 10-Q for the fiscal quarter ended
                September 28, 1996.)

*10.6.2B        Employment Agreement dated April 1, 1996 between the Registrant
                and Edwin W. Dean. (Incorporated by reference to Exhibit 10.6.2B
                to the Registrant's Form 10-Q for the fiscal quarter ended March
                30, 1996.)

*10.6.3A        Amended Employment Agreement, dated April 1, 1994, between the
                Registrant and Mary Ann Domuracki. (Incorporated by reference to
                Exhibit 10.6.3A to the Registrant's Form 10-Q for the fiscal
                quarter ended June 25, 1994.)

*10.6.3B        Amendment One, effective November 1, 1994, to the amended
                Employment Agreement, dated April 1, 1994, between the
                Registrant and Mary Ann Domuracki. (Incorporated by reference to
                Exhibit 10.6.3B to the Registrant's Form 10-Q for the fiscal
                quarter ended September 24, 1994.)

*10.6.3C        Amendment Two, effective January 1, 1995, to the amended
                Employment Agreement, dated August 1, 1994, between the
                Registrant and Mary Ann Domuracki. (Incorporated by reference to
                Exhibit 10.6.3C to the Registrant's Form 10-Q for the fiscal
                quarter ended December 24, 1994.)

*10.6.3D        Amendment Three, effective April 1, 1996, to the amended
                Employment Agreement, dated August 1, 1994, between the
                Registrant and Mary Ann Domuracki. (Incorporated by reference to
                Exhibit 10.6.3D to the Registrant's Form 10-Q for the fiscal
                quarter ended September 28, 1996.)

*10.6.4A.1      Employment Agreement, dated August 1, 1994, between the
                Registrant and Beverly Eichel. (Incorporated by reference to
                Exhibit 10.6.4A.1 to the Registrant's Form 10-K for the fiscal
                year ended March 25, 1995.)


                                     - 40 -
<PAGE>


*10.6.4B        Amendment One, effective November 1, 1994, to the Employment
                Agreement, dated August 1, 1994, between the Registrant and
                Beverly Eichel. (Incorporated by reference to Exhibit 10.6.4B to
                the Registrant's Form 10-Q for the fiscal quarter ended
                September 24, 1994.)

*10.6.4C        Amendment Two, effective January 1, 1995, to the amended
                Employment Agreement, dated August 1, 1994, between the
                Registrant and Beverly Eichel. (Incorporated by reference to
                Exhibit 10.6.4C to the Registrant's Form 10-Q for the fiscal
                quarter ended December 24, 1994.)

*10.6.4D        Amendment Three, effective April 1, 1996, to the amended
                Employment Agreement, dated August 1, 1994, between the
                Registrant and Beverly Eichel. (Incorporated by reference to
                Exhibit 10.6.4D to the Registrant's Form 10-Q for the fiscal
                quarter ended September 28, 1996.)

*10.6.7         Employment Agreement, dated as of October 27, 1994, between the
                Registrant and Howard D. Cooley. (Incorporated by reference to
                Exhibit 10.6.7 to the Registrant's Form 10-K for the fiscal year
                ended March 25, 1995.)

*10.6.8         Deferral of payment agreement for Howard D. Cooley dated June 8,
                1995, related to employment agreement dated, October 27, 1994.
                (Incorporated by reference to Exhibit 10.6.8 to the Registrant's
                Form 10-K for the fiscal year ended March 25, 1995.)

*10.6.9         Amendment dated October 26, 1995 to the Employment Agreement
                dated as of October 27, 1994 between the Registrant and Howard
                D. Cooley. (Incorporated by reference to Exhibit 10.6.9 to the
                Registrant's Form 10-Q for the fiscal quarter ended March 30,
                1996.)

*10.7.1         Life Insurance Policy dated November 13, 1992, issued by
                Metropolitan Life Insurance Co. on the life of Edwin W. Dean, in
                the amount of $1,500,000, with the Registrant named as
                beneficiary, including assignment dated, March 16, 1995, to
                First Union National Bank of North Carolina. (Incorporated by
                reference to Exhibit 10.7.1 to the Registrant's Form 10-K for
                the fiscal year ended March 25, 1995.)

*10.7.2         Life Insurance Policy dated February 20, 1992, issued by
                Prudential Select on the life of Mary Ann Domuracki, in the
                amount of $2,000,000, with the Registrant named as beneficiary,
                including assignment, dated March 16, 1995, to First Union
                National Bank of North Carolina. (Incorporated by reference to
                Exhibit 10.7.2 to the Registrant's Form 10-K for the fiscal year
                ended March 25, 1995.)

*10.7.3         Life Insurance Policy dated November 2, 1992, issued by
                Metropolitan Life Insurance Co. on the life of Beverly Eichel in
                the amount of $1,000,000, with the Registrant named as
                beneficiary, including assignment, dated March 16, 1995, to
                First Union National Bank of North Carolina. (Incorporated by
                reference to Exhibit 10.7.3 to the Registrant's Form 10-K for
                the fiscal year ended March 25, 1995.)

*10.8.1         1992 Stock Option Plan of the Registrant, together with form of
                Non-Qualified Stock Option Agreement. (Incorporated by reference
                to Exhibit 10.8.1 to the Registration Statement.)

*10.8.1A        Amendment No. 1 to the 1992 Stock Option Plan of the Company.
                (Incorporated by reference to Exhibit 10.8.1A to the
                Registrant's Form 10-K for the fiscal year ended March 27,
                1993.)

*10.8.2         Savings Plan of the Registrant, as amended. (Incorporated by
                reference to Exhibit 4.1 to the Registration Statement of the
                Registrant on Form S-8 (Reg. No. 33-53852).)

10.10.1A        Renewal license agreement dated December 29, 1993 between
                Givenchy and the Registrant. (Incorporated by reference to
                Exhibit 10.10.1A to the Registrant's Form 10-Q for the fiscal
                quarter ended December 25, 1994.)


                                     - 41 -
<PAGE>


10.10.2A        Renewal license agreement dated January 1, 1994 between Anne
                Klein & Company and the Pennaco Division of Danskin, Inc.
                (Incorporated by reference to Exhibit 10.10.2A to the
                Registrant's Form 10-Q for the fiscal quarter ended December 25,
                1994.)

10.10.2B        Renewal license agreement dated January 26, 1996 between Anne
                Klein & Company and the Pennaco Division of Danskin, Inc.
                (Incorporated by reference to Exhibit 10.10.2A to the
                Registrant's Form 10-Q for the fiscal quarter ended March 30,
                1996.)

10.10.3         License agreement, dated as of October 1, 1994, between
                SsangYong (U.S.A.), Inc. and the Registrant. (Incorporated by
                reference to Exhibit 10.10.3 to the Registrant's Form 10-Q for
                the fiscal quarter ended September 24, 1994.)

10.10.4         License agreement, dated April 1, 1994 between Christian Dior,
                Inc. and the Registrant. (Incorporated by reference to Exhibit
                10.10.3 to the Registrant's Form 10-Q for the fiscal quarter
                ended December 24, 1994.)

10.10.5         License agreement, dated June 1, 1995, between Canari Cycle
                Wear, a Division of Kassach Marketing and the Registrant.
                (Incorporated by reference to Exhibit 10.10.5 to the
                Registrant's Form 10-K for the fiscal year ended March 25,
                1995.)

10.11           Registration Rights Agreement, dated as of July 2, 1992, between
                Esmark, Inc. and the Registrant. (Incorporated by reference to
                Exhibit 10.11 to the Registration Statement.)

10.16.2         Stock Pledge Agreement, dated as of August 17, 1992, between
                Danpen, Inc. and First Union National Bank of North Carolina, as
                Agent. (Incorporated by reference to Exhibit 10.16.2 to
                Amendment No. 2.)

10.16.4         Patent Collateral Assignment and Security Agreement, dated as of
                August 17, 1992, between the Registrant and First Union National
                Bank of North Carolina, as Agent. (Incorporated by reference to
                Exhibit 10.16.4 to Amendment No. 2.)

10.16.5         License Security Agreement, dated as of August 17, 1992, between
                the Registrant and First Union National Bank of North Carolina,
                as Agent. (Incorporated by reference to Exhibit 10.16.5 to
                Amendment No. 2.)

10.16.6         Trademark Security Agreement, dated as of August 17, 1992,
                between the Registrant and First Union National Bank of North
                Carolina, as Agent. (Incorporated by reference to Exhibit
                10.16.6 to Amendment No. 2.)

10.16.7         Continuing Guaranty, dated as of August 17, 1992, by Danpen,
                Inc. for the benefit of First Union National Bank of North
                Carolina, as Agent. (Incorporated by reference to Exhibit
                10.16.7 to Amendment No. 2.)

10.16.8         Mortgage, Security Agreement and Assignment of Leases and Rents,
                dated as of August 17, 1992, by the Registrant in favor of First
                Union National Bank of North Carolina, as Agent, with respect to
                certain property located in Berks County, Pennsylvania.
                (Incorporated by reference to Exhibit 10.16.8 to Amendment No.
                2.)

10.16.9         Mortgage, Security Agreement and Assignment of Leases and Rents,
                dated as of August 17, 1992, by the Registrant in favor of First
                Union National Bank of North Carolina, as Agent, with respect to
                certain property located in York County, Pennsylvania.
                (Incorporated by reference to Exhibit 10.16.9 to Amendment No.
                2.)


                                     - 42 -
<PAGE>


10.16.10        Mississippi Deed of Trust, Security Agreement and Assignment of
                Rents, dated as of August 17, 1992, by the Registrant to Robert
                D. Drinkwater, as Trustee, for the use and benefit of First
                Union National Bank of North Carolina, as Agent, with respect to
                certain property located in Grenada County, Mississippi.
                (Incorporated by reference to Exhibit 10.16.10 to Amendment No.
                2.)

10.16.11        Mississippi Leasehold Deed of Trust, Security Agreement and
                Assignment of Rents, dated as of August 17, 1992, by the
                Registrant to Robert D. Drinkwater, as Trustee, for the use and
                benefit of First Union National Bank of North Carolina, as
                Agent, with respect to certain leasehold interests.
                (Incorporated by reference to Exhibit 10.16.11 to Amendment No.
                2.)

10.16.15        Promissory note, dated December 16, 1993, from Esmark, Inc. to
                Danskin, Inc. (Incorporated by reference to Exhibit 10.16.15 to
                the Registrant's Form 10-Q for the fiscal quarter ended December
                25, 1993).

10.16.16        Option agreement dated December 16, 1993, between Danskin, Inc.
                and Esmark, Inc. (Incorporated by reference to Exhibit 10.16.16
                to the Registrant's Form 10-Q for the fiscal quarter ended
                December 25, 1993).

10.16.18        Amended and restated promissory note, dated July 1, 1994, in the
                amount of $5,418,000, from Esmark, Inc. to the Registrant.
                (Incorporated by reference to Exhibit 10.16.18 to the
                Registrant's Form 10-K for the fiscal year ended March 26,
                1994.)

10.16.19        Agreement, dated as of July 1, 1994, between Esmark, Inc. and
                the Registrant. (Incorporated by reference to Exhibit 10.16.19
                to the Registrant's Form 10-K for the fiscal year ended March
                26, 1994.)

10.16.25        Amended and restated Loan and Security Agreement, dated as of
                June 22, 1995, between the Registrant and First Union, with
                attachments and exhibits. (Incorporated by reference to Exhibit
                10.16.25 to the Registrant's Form 10-K for the fiscal year ended
                March 25, 1995.)

10.16.25A       First Amendment, dated August 17, 1995, to the Amended and
                Restated Loan Agreement between the Registrant and First Union
                National Bank of North Carolina, as Agent. (Incorporated by
                reference to Exhibit 99.1 to the Registrant's Form 8-K dated
                August 17, 1995.)

10.16.25A(1)    Press Release dated August 17, 1995 related to the issuance of
                the Registrant's Convertible Subordinated Debenture.
                (Incorporated by reference to Exhibit 99.2 to the Registrant's
                Form 8-K dated August 17, 1995.)

10.16.25B       Second Amendment dated February 29, 1996 to the Amended and
                Restated Loan Agreement between the Registrant and First Union
                National Bank of North Carolina, as Agent. (Incorporated by
                reference to Exhibit 10.16.25B to the Registrant's Form 10-K for
                the nine-month transition period ended December 30, 1995.)

10.16.25C       Third Amendment dated March 18, 1996 to the Amended and Restated
                Loan Agreement between the Registrant and First Union National
                Bank of North Carolina, as Agent. (Incorporated by reference to
                Exhibit 10.16.25C to the Registrant's Form 10-K for the
                nine-month transition period ended December 30, 1995.)

10.16.25D       Fourth Amendment dated July 31, 1996 to the Amended and Restated
                Loan Agreement between the Registrant and First Union National
                Bank of North Carolina, as Agent. (Incorporated by reference to
                Exhibit 10.16.25D to the Registrant's Form Form 10-Q for the
                fiscal quarter ended December 25, 1993)


                                     - 43 -
<PAGE>


10.16.25E##     Fifth Amendment dated December 31, 1996 to the Amended and
                Restated Loan Agreement between the Registrant and First Union
                National Bank of North Carolina, as Agent.

10.16.25F##     Sixth Amendment dated March 27, 1997 to the Amended and Restated
                Loan Agreement between the Registrant and First Union National
                Bank of North Carolina, as Agent.

10.16.26        Warrant Purchase Agreement and attachments in connection with
                the amended and restated Loan and Security Agreement, dated as
                of June 22, 1995. (Incorporated by reference to Exhibit 10.16.26
                to the Registrant's Form 10-K for the fiscal year ended March
                25, 1995.)

10.16.27        First Amendment to Mississippi Deed of Trust, Security Agreement
                and Assignment of Rents, dated August 17, 1992 by and among the
                Registrant, Robert D. Drinkwater, as Trustee, for the benefit of
                First Union National Bank of North Carolina, as Agent, with
                respect to certain property located in Grenada County,
                Mississippi. (Incorporated by reference to Exhibit 10.16.27 to
                the Registrant's Form 10-K for the fiscal year ended March 25,
                1995.)

10.16.28        Second Amendment to Mississippi Deed of Trust, Security
                Agreement and Assignment of Rents dated as of March 7, 1995, by
                and among the Registrant, Robert D. Drinkwater, as Trustee, for
                the use and benefit of First Union National Bank of North
                Carolina, as Agent, with respect to certain property located in
                Grenada County, Mississippi. (Incorporated by reference to
                Exhibit 10.16.28 to the Registrant's Form 10-K for the fiscal
                year ended March 25, 1995.)

10.16.29        Third Amendment to Mississippi Deed of Trust, Security Agreement
                and Assignment of Rents, dated June 22, 1995, by and between the
                Registrant and First Union National Bank of North Carolina, as
                Agent, with respect to certain property located in Grenada
                County, Mississippi. (Incorporated by reference to Exhibit
                10.16.29 to the Registrant's Form 10-K for the fiscal year ended
                March 25, 1995.)

10.16.30        First Amendment to Open End Mortgage Security Agreement and
                Assignment of Rents, dated March 7, 1995, by and between the
                Registrant and First Union National Bank of North Carolina, as
                Agent, with respect to certain property located in York County,
                Pennsylvania. (Incorporated by reference to Exhibit 10.16.30 to
                the Registrant's Form 10-K for the fiscal year ended March 25,
                1995.)

10.16.31        Second Amendment to Open End Mortgage Security Agreement and
                Assignment of rents, dated June 22, 1995, by and between the
                registrant and First Union National Bank of North Carolina, as
                Agent, with respect to certain property located in York County,
                Pennsylvania. (Incorporated by reference to Exhibit 10.16.31 to
                the Registrant's Form 10-K for the fiscal year ended March 25,
                1995.)

10.16.32        First Amendment to Mississippi Leasehold Deed of Trust, Security
                Agreement and Assignment of Rents, dated August 17, 1992 by and
                among the Registrant, Robert D. Drinkwater, as Trustee, for the
                use and benefit of First Union National Bank of North Carolina,
                as Agent, with respect to certain property located in Grenada
                County, Mississippi. (Incorporated by reference to Exhibit
                10.16.26 to the Registrant's Form 10-K for the fiscal year ended
                March 25, 1995.)

10.16.33        Second Amendment to Mississippi Leasehold Deed of Trust,
                Security Agreement and Assignment of Rents dated as of March 7,
                1995, by and among the Registrant, Robert D. Drinkwater, as
                Trustee, for the use and benefit of First Union National Bank of
                North Carolina, as Agent, with respect to certain property
                located in Grenada County, Mississippi. (Incorporated by
                reference to Exhibit 10.16.33 to the Registrant's Form 10-K for
                the fiscal year ended March 25, 1995.)


                                     - 44 -
<PAGE>


10.16.34        Third Amendment to Mississippi Leasehold Deed of Trust, Security
                Agreement and Assignment of Rents, dated June 22, 1995, by and
                between the Registrant and First Union National Bank of North
                Carolina, as Agent, with respect to certain property located in
                Grenada County, Mississippi. (Incorporated by reference to
                Exhibit 10.16.34 to the Registrant's Form 10-K for the fiscal
                year ended March 25, 1995.)

10.16.35        First Amendment to Open End Mortgage, Security Agreement and
                Assignment of Rents, dated March 7, 1995, between the Registrant
                and First Union National Bank of North Carolina, as Agent, with
                respect to certain property located in Berks County,
                Pennsylvania. (Incorporated by reference to Exhibit 10.16.35 to
                the Registrant's Form 10-K for the fiscal year ended March 25,
                1995.)

10.16.36        Second Amendment to Open End Mortgage, Security Agreement and
                Assignment of Rents, dated June 22, 1995, by and between the
                Registrant and First Union National Bank of North Carolina, as
                Agent, with respect to certain property located in Berks County,
                Pennsylvania. (Incorporated by reference to Exhibit 10.16.36 to
                the Registrant's Form 10-K for the fiscal year ended March 25,
                1995.)

10.22           Agreement, dated September 16, 1994, between Danskin, Inc. and
                Byron A. Hero, Jr. (Incorporated by reference to Exhibit 1 to
                the Registrant's Form 8-K dated September 16, 1994.)

*10.23          Employment Agreement, dated as of September 16, 1994, between
                Danskin, Inc. and Byron A. Hero, Jr. (Incorporated by reference
                to Exhibit 1 to the Registrant's Form 8-K dated September 16,
                1994).

10.26           Notice of Exercise of Rights Under Guaranty and Pledge dated
                September 29, 1994 from SunAmerica, Inc., as Agent, under a
                certain Notes Purchase Agreement dated as of September 3, 1993,
                by and among Nautech Incorporated, SunAmerica Insurance Company
                of America, SunAmerica, Inc. as Agent, and the guarantors named
                therein. (Incorporated by reference to Exhibit 1 to the
                Registrant's Form 8-K dated September 29, 1994.)

10.27           Rights Agreement, dated as of June 5, 1996, between the
                Registrant and First Union National Bank of North Carolina, N.A.
                (Incorporated by reference to Exhibit 4.1 to the Registrant's
                current report on Form 8-K filed on June 6, 1996.)

10.28           Letter Agreement, dated as of October 4, 1996, between the
                Registrant and SunAmerica Life Insurance Company. (Incorporated
                by reference to Exhibit 99.1 to the Registrant's current report
                on Form 8-K filed on October 8, 1996.)

10.29           Certificate of Designations of the Registrant dated August 5,
                1996. (Incorporated by reference to Exhibit 4.1 to the
                Registrant's current report on Form 8-K filed on August 68,
                1996.)

10.29.1         Exchange Agreement dated as of August 6, 1996 between the
                Registrant and the Oppenheimer Bond Fund For Growth.
                (Incorporated by reference to Exhibit 4.2 to the Registrant's
                current report on Form 8-K filed on August 68, 1996.)

10.29.2         Registration Rights Agreement dated as of August 6, 1996 between
                the Registrant and the Oppenheimer Bond Fund For Growth.
                (Incorporated by reference to Exhibit 4.3 to the Registrant's
                current report on Form 8-K filed on August 68, 1996.)

10.29.3         Press Release dated August 6, 1996. (Incorporated by reference
                to Exhibit 4.4 to the Registrant's current report on Form 8-K
                filed on August 68, 1996.)

10.30##         Heads of Agreement dated March 27, 1997 between the Registrant
                and Donald Schupak.


                                     - 45 -
<PAGE>


10.31##         Financial Data Schedule.

21.1##          Subsidiaries of the Registrant.

23.1##          Consent of Deloitte & Touche LLP.

                ---------------
                ## Filed herewith



                                     - 46 -
<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 issued on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York.

                                            DANSKIN, INC.


                                            By 
                                               -----------------------------
                                            Edwin W. Dean
                                            Vice Chairman of the Board,
                                            General Counsel and Secretary

DATE:


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

<TABLE>
<CAPTION>
Signature                         Capacity in Which Signed                                        Date

<S>                               <C>                                                             <C> 
----------------------            Chief Executive Officer and Director                            March 28, 1997
Mary Ann Domuracki                (Principal Executive Officer)


----------------------            Chairman of the Board                                           March 28, 1997
Donald Schupak


----------------------            Vice Chairman of the Board, General Counsel and Secretary       March 28, 1997
Edwin W. Dean


----------------------            Executive Vice President and Chief Financial Officer            March 28, 1997
Beverly Eichel                    (Principal Financial and Accounting Officer)


----------------------            Director                                                        March 28, 1997
Henry T. Mortimer


----------------------            Director                                                        March 28, 1997
Patricia Patterson


----------------------            Director                                                        March 28, 1997
Larry B. Shelton


                                     - 47 -
<PAGE>




----------------------            Director                                                        March 28, 1997
Michael S. Rosen


----------------------            Director                                                        March 28, 1997
John W. Burden, III


----------------------            Director                                                        March 28, 1997
Michel Benasra


----------------------            Director                                                        March 28, 1997
Howard D. Cooley
</TABLE>


                                     - 48 -
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




<TABLE>
<CAPTION>
                                                                                                 Page
<S>                                                                                              <C>
Independent Auditors' Report                                                                     F-2

Consolidated Financial Statements as of March 25, 1995, December 30, 1995 and
December 28, 1996 and for the fiscal years ended March 25, 1995, for the nine
months ended December 30, 1995 and for the year ended December 28, 1996:

         Consolidated Balance Sheets                                                             F-3
         Consolidated Statements of Operations                                                   F-4
         Consolidated Statements of Stockholders' Equity                                         F-5
         Consolidated Statements of Cash Flows                                                   F-6
         Notes to Consolidated Financial Statements                                              F-7 to F-23

Supplemental Financial Information:

         Unaudited Selected Quarterly Financial Information                                      F-24

Financial Statement Schedule:

         Schedule II Schedule of Valuation and Qualifying Accounts                               S-1
</TABLE>

<PAGE>


                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors of DANSKIN, INC.:

We have audited the accompanying consolidated balance sheets of Danskin, Inc.
and Subsidiaries (the "Company") as of December 30, 1995 and December 28, 1996
and the related consolidated statements of operations, stockholders' equity and
cash flows for the fiscal year ended March 25, 1995, for the fiscal nine months
ended December 30, 1995 and for the fiscal year ended December 28, 1996. Our
audits also included the financial statement schedule listed in the Index on
page F-1. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Danskin, Inc. and Subsidiaries as
of December 30, 1995 and December 28, 1996, and the results of their operations
and their cash flows for the fiscal year ended March 25, 1995, for the fiscal
nine months ended December 30, 1995 and for the year ended December 28, 1996 and
in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated statements taken as a whole, presents fairly; in all material
respects, the information set forth therein.



Deloitte & Touche LLP
New York, New York
March 14, 1997, [Except for Note 11 for which the date is March 27, 1997]


                                       F-2
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                            December 30, 1995   December 28, 1996
                                            -----------------   -----------------
<S>                                               <C>                <C>        
ASSETS
Current assets:                                                 
   Cash and cash equivalents                       $1,143,000         $1,177,000
   Accounts receivable, less allowance for                      
      doubtful accounts of $1,631,000 in                        
      December 1995 and $938,000 in                             
      December 1996                                14,631,000         16,093,000
   Inventories                                     30,849,000         34,075,000
   Prepaid expenses and other current assets        3,360,000          3,397,000
                                                  -----------        -----------
      Total current assets                         49,983,000         54,742,000
                                                  -----------        -----------
                                                                
Property, plant and equipment - net of                          
   accumulated depreciation and amortization                    
   of $5,849,000 at December 30, 1995 and                       
   $7,721,000 at December 28, 1996                 10,632,000          9,292,000
Deferred income tax benefits                        3,900,000                ---
Other assets                                        3,227,000          2,906,000
                                                  -----------        -----------
Total Assets                                      $67,742,000        $66,940,000
                                                  ===========        ===========
                                                                
LIABILITIES AND STOCKHOLDERS' EQUITY                            
                                                                
Current liabilities:                                            
   Revolving loan payable                          $4,101,000         $9,969,000
   Current portion of long-term debt                  334,000                ---
   Accounts payable                                 9,361,000          9,682,000
   Accrued expenses                                10,531,000         10,532,000
                                                  -----------        -----------
      Total current liabilities                    24,327,000         30,183,000
                                                  -----------        -----------
                                                                
Subordinated convertible debentures                 5,000,000                ---
Long-term debt, net of current maturities          31,666,000         31,589,000
Accrued retirement costs                            5,230,000          4,367,000
                                                  -----------        -----------
                                                   41,896,000         35,956,000
                                                  -----------        -----------
                                                                
Total Liabilities                                  66,223,000         66,139,000
                                                  -----------        -----------
                                                                
Commitments and contingencies                                   
                                                                
Stockholders' equity:                                           
   Preferred Stock, $.01 par value, 10,000 shares               
      authorized; no shares issued at  December 30        ---                 10
      and 1,000 shares issued at December 28, 1996              
   Common Stock, $.01 par value, 20,000,000 shares              
      authorized, 5,922,375 shares issued at                    
      December 30, 1995 and 6,047,255 shares issued             
      at December 28, 1996, less 1,000 shares                   
      held by subsidiary                               59,214             60,463
   Additional paid-in capital                      13,849,786         18,901,527
   Warrants outstanding                               764,000            764,000
   Accumulated deficit                            (11,154,000)       (16,345,000)
   Accumulated translation adjustment                     ---            (15,000)
   Minimum pension liability adjustment            (2,000,000)        (2,565,000)
                                                  -----------        -----------
         Total Stockholders' Equity                 1,519,000            801,000
                                                  -----------        -----------
Total Liabilities and Stockholders' Equity        $67,742,000        $66,940,000
                                                  ===========        ===========
</TABLE>
                                                                  
                                                                  
                 See Notes to Consolidated Financial Statements   
                                                                  
                                       F-3                        
<PAGE>                                                            
                                                                  
                                                                  
                                                                  
                         DANSKIN, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                  
 
<TABLE>
<CAPTION>
                                         Fiscal Year Ended    Fiscal Nine Months Ended      Fiscal Year Ended
                                           March 25, 1995        December 30, 1995          December 28, 1996
                                        ------------------    ------------------------      ----------------- 
<S>                                      <C>                       <C>                         <C>         
Net revenues                             $128,118,000              $93,787,000                 $128,145,000
Cost of goods sold                         87,346,000               62,181,000                   83,610,000
                                         ------------              -----------                 ------------
   Gross profit                            40,772,000               31,606,000                   44,535,000
                                                                                               
Selling, general and administrative                                                            
  expenses                                 43,046,000               29,468,000                   42,069,000
Non-recurring charges                       4,143,000                1,100,000                          ---
Provision for doubtful accounts                                                                
  receivable                                1,031,000                  383,000                      (43,000)
Interest expense                            3,928,000                3,699,000                    4,721,000
                                         ------------              -----------                 ------------
                                           52,148,000               34,650,000                   46,747,000
                                                                                               
Loss before income tax (benefit)                                                               
  provision                               (11,376,000)              (3,044,000)                  (2,212,000)
(Benefit) provision for income taxes       (1,719,000)                 178,000                    2,777,000
                                         ------------              -----------                 ------------

Net loss                                   (9,657,000)              (3,222,000)                  (4,989,000)
                                                                                               
Preferred dividends                               ---                      ---                      202,000
                                         ------------              -----------                 ------------

Net loss applicable to Common Stock       ($9,657,000)             ($3,222,000)                 ($5,191,000)
                                         ============              ===========                 ============
                                                                                               
Net loss per share                             ($1.64)                  ($0.54)                      ($0.86)
                                         ============              ===========                 ============
                                                                                               
Weighted average number of common shares    5,904,000                5,921,000                    6,011,000
                                         ============              ===========                 ============
</TABLE>


                 See Notes to Consolidated Financial Statements
                                                                      
                                       F-4
<PAGE>                                                            
                                                                  
                                                                  
                         DANSKIN, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                  
<TABLE>
<CAPTION>
                                                                                      Additional                     
                                   Preferred     Stock          Common Stock           Paid-in       Warrants   Accumulated 
                                     Shares      Amount      Shares     Amount         Capital     Outstanding     Deficit  
                                   ---------     ------      ------     ------         -------     -----------  ----------- 
<S>                                     <C>        <C>     <C>          <C>          <C>           <C>         <C>          
Balance, March 26, 1994                                    5,881,806    $58,818      $13,735,182   $    ---      $1,725,000
                                                           
   Net loss                                                      ---        ---              ---        ---      (9,657,000)
   Purchase and retirement of                              
       Common Stock                                          (14,002)      (140)         (46,860)       ---             ---
   Sale and contribution of Common                         
      Stock to Employee Savings Plan                          53,403        534          162,466        ---             ---
   Warrants granted to lender                                    ---        ---              ---    600,000             ---
   Minimum pension liability                               
      adjustment                                                 ---        ---              ---        ---             ---
                                       -------   -------   ---------    --------     -----------   --------     -----------
Balance, March 25, 1995                                    5,921,207     59,212       13,850,788    600,000      (7,932,000)
                                                           
   Net loss                                                      ---        ---              ---        ---      (3,222,000)
   Purchase and retirement of                              
       Common Stock                                          (12,103)      (121)         (31,002)       ---             --- 
   Sale of Common  Stock to                                
      Employee Savings Plan                                   12,271        123           30,000        ---             --- 
   Warrants granted to lender                                    ---        ---              ---    164,000             --- 
   Minimum pension liability                               
      adjustment                                                 ---        ---              ---       ---              --- 
                                       -------   -------   ---------    --------     -----------   --------     -----------
Balance, December 30, 1995                                 5,921,375    $59,214      $13,849,786   $764,000    ($11,154,000)
                                                           
   Net loss                                                                                                       (4,989,00)
   Prefered Stock dividend                                                                                         (202,000)
   Purchase and retirement of                              
       Common Stock                                          (41,013)      (410)        (139,162)
   Sales and contribution of                               
      Common Stock to Employee                             
      Savings Plan                                            55,893        559          178,263 
   Common Stock option exercises                             110,000      1,100          317,650 
   Issuance of Preferred Stock          1,000       10                                 4,694,990 
   Accumulated translation                                 
      adjustment                                                                                 
   Minimum pension liability                               
      adjustment                                                                                 
                                       -------   -------   ---------    --------     -----------   --------     -----------
Balance, December 28, 1996              1,000      $10     6,046,255    $60,463      $18,901,527   $764,000    ($16,345,000)
                                       -------   -------   ---------    --------     -----------   --------     -----------
</TABLE>


                                                       Minimum
                                        Accumulated    Pension
                                        Translation   Liability
                                        Adjustment    Adjustment       Total
 
Balance, March 26, 1994                              ($2,111,000)   $13,408,000
 
   Net loss                                                  ---     (9,657,000)
   Purchase and retirement of
       Common Stock                                          ---        (47,000)
   Sale and contribution of Common
      Stock to Employee Savings Plan                         ---        163,000
   Warrants granted to lender                                ---        600,000
   Minimum pension liability
      adjustment                                         728,000        728,000
                                        --------     -----------    -----------
Balance, March 25, 1995                               (1,383,000)     5,195,000
 
   Net loss                                                  ---     (3,222,000)
   Purchase and retirement of
       Common Stock                                          ---        (31,123)
   Sale of Common  Stock to
      Employee Savings Plan                                  ---         30,123
   Warrants granted to lender                                ---        164,000
   Minimum pension liability
      adjustment                                        (617,000)      (617,000)
                                        --------     -----------    -----------
Balance, December 30, 1995                           ($2,000,000)    $1,519,000
 
   Net loss                                                          (4,989,000)
   Prefered Stock dividend                                             (202,000)
   Purchase and retirement of
       Common Stock                                                    (139,572)
   Sales and contribution of
      Common Stock to Employee
      Savings Plan                                                      178,822
   Common Stock option exercises                                        318,750
   Issuance of Preferred Stock                                        4,695,000
   Accumulated translation
      adjustment                         (15,000)                       (15,000)
   Minimum pension liability
      adjustment                                        (565,000)      (565,000)
                                        --------     -----------    -----------
Balance, December 28, 1996              ($15,000)    ($2,565,000)      $801,000
                                        ========     ===========    ===========

                                                                  
                 See Notes to Consolidated Financial Statements   
                                                                  
                                       F-5                        
<PAGE>                                                            
                                                                  
                                                                  
                         DANSKIN, INC. AND SUBSIDIARIES           
                      CONSOLIDATED STATEMENTS OF CASH FLOWS       
<TABLE>
<CAPTION>
                                               Fiscal Year Ended      Nine Months Ended    Fiscal Year End
                                                 March 25, 1995       December 30, 1995   December 28, 1996
                                              ------------------      -----------------   ----------------- 
<S>                                              <C>                    <C>                  <C>         
Cash Flows From Operating Activities:
 
Net loss                                         ($9,657,000)           ($3,222,000)         ($4,989,000)
Adjustments to reconcile net loss to net cash                                              
      (used in) provided by operating activities:                                          
   Depreciation and amortization                   1,960,000              2,122,000            2,616,000
   Write-off of certain trademarks and other                                               
      long-term assets                             1,243,000                    ---                  ---
   Provision for doubtful accounts receivable      1,031,000                383,000              (43,000)
   Loss on sale of property, plant and equipment         ---                    ---               28,000
   Deferred income taxes                          (2,127,000)                   ---            2,536,000
   Changes in operating assets and liabilities:                                            
      (Increase) decrease in accounts receivable    (150,000)             5,200,000           (1,419,000)
      (Increase) decrease in inventories          (4,325,000)             4,235,000           (3,226,000)
      (Increase) decrease in prepaid expenses                                              
         and other current assets                  2,373,000               (324,000)             (62,000)
      Increase (decrease) in accounts payable      1,482,000             (1,746,000)             321,000
      Increase (decrease) in accrued expenses      4,075,000               (984,000)              77,000
      Financing costs incurred                      (556,000)            (1,290,000)            (275,000)
      Other                                              ---                414,000                  ---
                                                  ----------            -----------         ------------
Net cash (used in) provided by operating                                                   
     activities                                   (4,651,000)             4,788,000           (4,436,000)
                                                  ----------            -----------         ------------
                                                                                           
Cash Flows From Investing Activities:                                                      
                                                                                           
   Capital expenditures                             (576,000)            (1,714,000)            (738,000)
   Purchase of interest rate cap                         ---               (338,000)                 ---
                                                  ----------            -----------         ------------
Net cash used in investing activities               (576,000)            (2,052,000)            (738,000)
                                                  ----------            -----------         ------------
                                                                                           
Cash Flows From Financing Activities:                                                      
                                                                                           
   Net (payments) receipts under revolving                                                 
      notes payable                                2,723,000             (9,225,000)           5,868,000
   Payments of long-term debt                     (1,419,000)           (22,399,000)            (411,000)
   Proceeds from borrowings and debt                                                       
      restructuring                                6,050,000             22,000,000                  ---
   Proceeds from issuance of subordinated                                                  
      convertible debentures                             ---              5,000,000                  ---
   Purchase and retirement of Common Stock           (47,000)               (31,000)            (139,000)
   Sale of Common Stock to Savings Plan               63,000                 30,000               79,000
   Common Stock option exercises                         ---                    ---              318,000
   Expenses associated with issuance of                                                    
      Preferred Stock                                    ---                    ---             (305,000)
   Preferred Stock Dividend                              ---                    ---             (202,000)
                                                  ----------            -----------         ------------
Net cash provided by (used in) financing                                                   
      activities                                   7,370,000             (4,625,000)           5,208,000
                                                  ----------            -----------         ------------
                                                                                           
Net increase (decrease) in Cash and                                                        
      Cash Equivalents                             2,143,000             (1,889,000)              34,000
                                                                                           
Cash and Cash Equivalents, Beginning of Period       889,000              3,032,000            1,143,000
                                                  ----------            -----------         ------------
Cash and Cash Equivalents, End of Period          $3,032,000             $1,143,000           $1,177,000
                                                  ==========            ===========         ============
</TABLE>
                          
                                                                  
                 See Notes to Consolidated Financial Statements
                                                                  
                                       F-6                        
<PAGE>                                                            
                                                                  
                                                                  
                         DANSKIN, INC. AND SUBSIDIARIES           
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     
                                                                  
1. Summary of Significant Accounting Policies                   

Organization

Danskin, Inc. (the "Company") was incorporated on February 21, 1986 to own and
operate the business and assets of two divisions of a corporation acquired on
July 22, 1986.

The Company currently operates under two divisions: Danskin, which designs,
manufactures and markets dance wear, bodywear, tights and exercise apparel;
including the licensed Shape(R) label, and also operates 46 retail stores and 2
full price stores; and Pennaco, which designs, manufactures and markets hosiery
under the brand names Round-the-Clock(R), Givenchy(R), and Anne Klein(R)
Collections, and under private labels for major retailers, as well as socks
under Round- the-Clock(R), the Anne Klein(R) and Danskin(R) brands. The Company
allowed its license arrangement for hosiery with Christian Dior(R) to expire in
December 1996.

Managements' Plan

The Company has incurred losses for each of the periods presented and is highly
leveraged. In addition, the Company has required several loan amendments to
remain in compliance with its loan agreements. Management believes that with its
current financing (which was most recently amended on March 27, 1997) in place
the Company will have sufficient working capital to sustain its operations.
Managements' plans include to expand Danskin and other product lines, pursue
growth in international sales and selectively license the Danskin name for
additional product categories and open additional full price Danskin(R) stores.
In addition, the Company plans to continue its stablization of its hosiery
business. The Company also believes that additional financing will be raised
through private lendors and/or private placements.

Basis of Presentation

The financial statements of the Company include the accounts of the Company,
including all of its operating divisions, and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.

Certain reclassifications were made to prior year information to conform to
current year presentations.

Fiscal Year

The Company changed its fiscal year end to the last Saturday in December
effective December 1995. Fiscal 1995 ended on March 25, 1995, a nine month
transitional fiscal year ended on December 30, 1995, and fiscal 1996 ended on
December 28, 1996.

Inventories

Inventories are stated at the lower of cost or market on a first-in, first-out
basis. Inventories consist of:

                                December 30, 1995        December 28, 1996
                                -----------------        -----------------
 Finished goods                       $18,792,000              $19,742,000
 Work-in-process                        6,431,000                7,663,000
 Raw materials                          4,461,000                5,767,000
 Packaging materials                    1,165,000                  903,000
                                      -----------              -----------
                                      $30,849,000              $34,075,000
                                      ===========              ===========

                                       F-7
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation
and amortization. Furniture and fixtures, machinery and equipment and buildings
are depreciated by the straight-line method over the estimated useful lives of
the assets, ranging from 5 to 20 years. Leasehold improvements are amortized by
the straight-line method over the related lease terms.

Excess of Purchase Price Over Fair Value of Net Tangible Assets Acquired

The excess of purchase price over fair value of net tangible assets acquired is
generally amortized on a straight-line basis over 20 years.

Deferred Financing Charges

Deferred financing charges are amortized over the respective terms of debt
obtained under financing agreements.

Cash Equivalents

The Company considers all highly liquid financial instruments purchased with a
maturity of three months or less to be cash equivalents.

Trademarks

The Company amortizes capitalized costs to acquire trademarks over the estimated
useful life of the trademark, generally 15 years.

Loss Per Common Share

Losses per common share are based on the weighted average number of common
shares and common stock equivalents. The assumed exercise of common stock
equivalents were antidilutive for all periods presented.

Statements of Cash Flows

The Company presents the consolidated statements of cash flows on the indirect
method. Additional required information follows:

Supplemental disclosure of cash flow information:

<TABLE>
<CAPTION>
                                              Fiscal Year               Fiscal Nine Months        Fiscal Year
                                                Ended                       Ended                   Ended
                                            March 25, 1995              December 30, 1995      December 28, 1996
                                            --------------              ------------------     -----------------
<S>                                            <C>                        <C>                       <C>       
Cash paid for interest                         $3,480,000                 $3,319,000                $4,242,000
Cash paid for income taxes                        110,000                    146,000                   123,000
Cash refunds received for income taxes         (1,282,000)                  (376,000)                  (10,000)
</TABLE>

Non-cash activities:

The Company contributed 34,042 and 29,629 of its common shares to the Danskin,
Inc. Savings Plan on August 19, 1994 and March 22, 1996, respectively, each at a
fair market value of approximately $100,000.


                                       F-8
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

The Company issued 7% warrants to its current lender in July 1994, subsequently
increased in June 1995 to 10%, of the then outstanding common stock. Such
warrants have been recorded as additional financing fees totaling $764,000.

The Company issued 10% Cumulative Convertible Preferred Stock with a $5,000,000
principal value on August 6, 1996, in exchange for subordinated convertible
debentures having an aggregate face value of $5,000,000.


Income Taxes

The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which requires the asset and liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

Long-lived assets

In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement is effective for fiscal years
beginning after December 15, 1995. This statement was adopted by
the Company effective December 31, 1995 and was not material to the Company's
financial position or results of operations.

Pervasiveness 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.

Stock-based Compensation

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This statement was adopted by the Company effective December 31,
1995. The new standard defines a fair value method of accounting for stock
options and other equity instruments used for compensation purposes, and
requires companies electing to report in accordance with the standard to
recognize or disclose such compensation in its financial statements for fiscal
years beginning after December 15, 1995. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period. The Company, as is permitted, continues to account for such transactions
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," but discloses in a note to the financial statements pro forma net
income and earnings per share as if the Company had adopted the new fair value
method of accounting.

Financial Instruments

In assessing the fair value of financial instruments at December 30, 1995 and
December 28, 1996, the Company has used a variety of methods and assumptions,
which were based on estimates of market conditions and risks existing at that
time. For certain instruments, including cash and cash equivalents, it was
assumed that the carrying amount approximated fair value for the majority of
these instruments because of their short maturity. The interest rate cap is
valued at unamortized cost. Bank debt obligations are valued at carrying amount
due to floating interest rates on such debt. These values merely represent a
general approximation of possible value and may never actually be realized.


                                       F-9
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated fair values of the Company's financial instruments are summarized
as follows:

<TABLE>
<CAPTION>
                                            December 30, 1995                  December 28, 1996
                              -----------------------------------------  -------------------------------------- 
                              Carrying Amount   Estimated Fair Value     Carrying Amount  Estimated Fair Value
                              -----------------------------------------  -------------------------------------- 
<S>                             <C>                  <C>                  <C>                <C>        
Cash and cash equivalents       $ 1,143,000          $ 1,143,000          $  1,177,000       $ 1,177,000
Interest rate cap                   187,000              187,000               187,000           187,000
Revolving loan payable           (4,101,000)          (4,101,000)           (9,969,000)       (9,969,000)
Long-term debt                  (31,666,000)         (31,666,000)          (31,589,000)      (31,589,000)
</TABLE>                                                                

2. Stock Option Plan

On July 1, 1992, the Company's Board of Directors adopted the 1992 Stock Option
Plan (the "Plan"), pursuant to which 339,474 shares of common stock were
reserved for issuance. The Plan provides for the granting of options to
directors, officers and certain key employees of the Company. The option price
shall not be less than 100% of the fair market value on the date of grant. No
options may be granted after 10 years from the date of adoption but all options
then outstanding will remain outstanding in accordance with the exercise terms
as determined at each grant date. On July 29, 1993, the stockholders of Danskin
authorized an increase to the number of options available for distribution to
600,000. Options become exercisable at the discretion of the Compensation
Committee of the Board of Directors and the plan provides for discretion on
vesting requirements.

Effective October 19, 1994, the Board of Directors of the Company amended the
Plan to increase the number of options available for grant from 600,000 to
660,000. On October 27, 1994, the Board of Directors of the Company increased
the number of options available for grant from 660,000 to 900,000, which
received the approval of stockholders as voted upon at the 1995 annual meeting.

Since the inception of the Plan, a total of 413,003 options have been repriced
with an exercise price of $4, all at current market prices or higher. All
participants granted options prior to repricing, with the exception of certain
executives and outside directors, were given the opportunity to exchange
previous grants, which were all originally granted at higher prices (ranging
from $4.75 to $13). All participants who elected to make an exchange were
subject to a five-year schedule of vesting to exercise these repriced options,
which began one year from date of grant.

Under provisions of the Plan, as a result of deemed changes in control (Note 6),
prior vesting and fully vested grants, 664,087 options outstanding as of
December 28, 1996 are fully exercisable.


                                      F-10
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Stock Option Plan (continued)

The following table summarizes the activity relating to the Plan as of and for
the fiscal year ended March 25, 1995, for the fiscal nine months ended December
30, 1995, and for the fiscal year ended December 28, 1996:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                              Fiscal Year Ended           Fiscal Nine Months           Fiscal Year Ended
                                               March 25, 1995             December 30, 1995            December 28, 1996
------------------------------------------------------------------------------------------------------------------------------
                          Exercise         # of         Weighted        # of       Weighted        # of         Weighted
                          Price           Shares         Average       Shares       Average       Shares         Average
                          Range                         Exercise                   Exercise                     Exercise
                                                          Price                      Price                        Price
------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>          <C>             <C>            <C>          <C>          <C>             <C>   
  Oustanding,             $1.875 -      471,738        $8.994         618,873      $4.403        755,328        $3.800
beginning of year         $13.00
------------------------------------------------------------------------------------------------------------------------------
Granted                   $1.875 -      579,619        $3.641         214,730      $3.304        168,000        $3.97
                          $4.875
------------------------------------------------------------------------------------------------------------------------------
Canceled                  $2.875 -     (432,484)       $8.389         (78,275)     $6.432       (111,410)       $6.244
                          $13.00
------------------------------------------------------------------------------------------------------------------------------
Exercised                 $1.875 -         ---         ---               ---        ---         (110,000)       $2.898
                          $3.00
------------------------------------------------------------------------------------------------------------------------------
  Outstanding, end        $1.875 -      618,873        $4.403         755,328      $3.800        701,918        $3.594
of year                   $13.00
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Options exercisable and shares available for future grant amounted to:

<TABLE>
<CAPTION>
                               March 25, 1995     December 30, 1995       December 28, 1996
                               --------------    ------------------       ------------------
<S>                                 <C>               <C>                     <C>    
Options exercisable                 616,373           681,162                 664,087
Shares available for grant           41,127           144,672                  88,082
</TABLE>

The Company's former Chairman of the Board purchased 100,000 shares of the
Company's common stock on June 3, 1996, through exercise of options at $3.00 per
share. On June 5, 1996, the Company granted him options to purchase 100,000
common shares, with an exercise price of $3.25, subject to adoption and approval
of an amendment to the Plan and increasing the number of shares available for
issuance.

The weighted average fair value of total stock options granted during 1996 was
$3.97 per share. The fair value of each stock option grant is estimated on the
date of grant using a pricing model, which approximates the Black-Scholes
pricing model, with the following weighted average assumptions used for grants
in 1996: risk-free interest rate of 6.0%; no expected dividend yield; expected
life of five years; and expected volatility of 94%. Stock options generally
expire 10 years from the grant date or at termination, if earlier. The
outstanding stock options at December 28, 1996 have a weighted average
contractual life of 8.1 years. The stock options exercisable at December 28,
1996 have a weighted average exercise price of $2.89 per share.

The Company accounts for the Plan in accordance with Accounting Principles Board
Opinion #25, under which no compensation cost has been recognized for stock
option awards. Had compensation cost for the Plan been determined consistent
with Statement of Financial Accounting Standards No.123, "Accounting for
Stock-Based Compensation" (SFAS 123), the Company's pro forma net loss and loss
per share for the year ended 1996 would have been $5.5 million and $0.90 per
share, respectively. For the fiscal nine months ended Decemebr 30, 1995, the
Company's pro forma net loss and net loss per share would have been $3.4 million
and $0.58 per share. Since the SFAS 123 method of accounting has not been
applied to options granted prior to March 26, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.

                                      F-11
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3. Stockholder Rights Plan

The Company adopted a stockholder rights plan on June 5, 1996, for stockholders
of record on June 17, 1996, which would become effective in the event of an
accumulation of more than 35% of its common stock by an acquirer. A rights
agreement was executed on June 5, 1996 between the Company and its Rights Agent,
a copy of which was filed as an exhibit to the Company's Report on Form 8-K
filed on June 6, 1996.

4. Stock Market Listing

The Company received notification from The Nasdaq Stock Market, Inc. on August
6, 1996 that its request to have its Common Stock listed on the Nasdaq Small
Cap(TM) Market, instead of on the Nasdaq National Market, had been approved.

5. Savings and Profit Sharing Plan

The Company maintains a savings and profit sharing plan (the "Savings Plan") for
the benefit of employees meeting certain eligibility requirements. Company
profit sharing contributions are made at the discretion of the Board of
Directors. Effective April 1, 1987, under a 401(k) vehicle, eligible employees
may elect to defer a portion of their base salary, up to the maximum allowed, as
a deduction for Federal income tax purposes. The Company will match 25% of each
participant's investment, up to 6% of the participant's base salary. Total
expense for this plan, for the fiscal years ended March 25, 1995, the fiscal
nine months ended December 30, 1995 and the fiscal year ended December 28, 1996,
was approximately $200,000, $100,000 and $100,000, respectively. On April 1,
1993, the Company established the Danskin Division Hourly Employees' Savings
Plan, for which the Company will match 10% of each participant's investment up
to 6% of base salary, with nominal plan expense through December 1996.

On October 28, 1992, the Company registered a total of 200,000 shares of the
Company's common stock and participating interests in the Savings Plan in
conjunction with an amendment to the Savings Plan to add shares of the Company's
common stock as an investment option under such plan. All shares issued to or
purchased from the Savings Plan are issued or sold at the then current market
price.


                                      F-12
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



6. Property, Plant and Equipment
 
 
Property, plant and equipment consisted of:
 
 
                                      December 30, 1995       December 28, 1996
                                      -----------------       -----------------
Land                                        $    56,000              $   56,000
Buildings and  improvements                   2,413,000               2,350,000
Machinery and equipment                       7,166,000               3,441,000
Furniture and fixtures                        3,598,000               7,279,000
Leasehold improvements                        3,248,000               3,887,000
                                         --------------           -------------
                                             16,481,000              17,013,000
Accumulated depreciation and amortiza         5,849,000               7,721,000
                                         --------------           -------------
                                            $10,632,000              $9,292,000
                                         ==============           =============
 
7. Other Assets
 
Other assets consisted of:
 
                                        December 30,             December 28,
                                            1995                     1996
                                         --------------           -------------
Excess of purchase over fair value of net
  tangible assets acquired (net of
  accumulated amortization of $591,000 at
  December 1995 and $613,000 at
  December 1996)                              $  249,000            $  227,000
Deferred financing charges and interest rate  
  cap (net of accumulated amortization of     
  $1,333,000 at December 1995 and             
  $1,850,000 at December 1996)                 2,649,000             2,415,000
Unrecognized net pension obligation              144,000               114,000
Trademarks (net of accumulated amortiza-      
  tion of $342,000 at December 1995 and       
  $377,000 at December 1996)                     185,000               150,000
                                          --------------         -------------
                                              $3,227,000            $2,906,000
                                          ==============         =============
                                             
8.          Accrued Expenses
 
Accrued expenses consisted of:
 
                                      December 30, 1995       December 28, 1996
                                         --------------           -------------
Salaries, wages and other compensatio       $ 1,788,000             $   875,000
Employee benefits                             2,447,000               3,116,000
Accrued advertising and promotion cos         3,764,000               4,520,000
Other accrued expenses                        2,532,000               2,021,000
                                         --------------           -------------
                                            $10,531,000             $10,532,000
                                         ==============           =============


                                      F-13
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Net Revenues

Net revenues consisted of:
<TABLE>
<CAPTION>
                                                                 Fiscal
                                      Fiscal Year Ended     Nine Months Ended      Fiscal Year Ended
                                        March 25            December 30, 1995      December 28, 1996
                                       ------------            -----------           ------------ 
<S>                                    <C>                     <C>                   <C>         
Net sales                              $127,514,000            $93,314,000           $127,168,000
Royalties and licensing fees                604,000                473,000                977,000
                                       ------------            -----------           ------------ 
                                       $128,118,000            $93,787,000           $128,145,000
                                       ============            ===========           ============ 
</TABLE>

10. Non-recurring Charges

Non-recurring charges were $1,100,000 for the fiscal nine months ended December
1995 and consisted of losses on certain license arrangements and certain
executive employee severance costs.

Non-recurring charges were $4,143,000 (net of $690,000 in related party interest
income) for the fiscal year ended March 1995. The non-recurring charges include
costs associated with the potential acquisition of affiliated entities, a
reserve for additional amounts due from the Company's former parent, an accrual
for certain executive compensation costs, costs associated with certain
litigation and the write-off of certain non-operating long-term assets.

Non-recurring charges in fiscal 1994 include $1,200,000 in costs associated with
the acquisition and development of additional private label hosiery department
store programs and a $5,044,000 full reserve of amounts due from the Company's
former parent (net of $184,000 in related party interest income).

11. Bank Financing

<TABLE>
<CAPTION>
                                                           December 30, 1995                  December 28, 1996
                                                           -----------------                  ----------------- 
<S>                                                           <C>                                 <C>        
Current portion of revolver                                   $ 4,101,000                         $ 9,969,000
                                                              ===========                         ===========
Long-term debt:
         Term notes                                           $22,000,000                         $21,589,000
         Long-term portion of revolver note                    10,000,000                          10,000,000
                                                              -----------                         -----------
                                                               32,000,000                          31,589,000
         Less current maturities of long-term debt                334,000                                 ---
                                                              -----------                         -----------
                                                              $31,666,000                         $31,589,000
                                                              ===========                         ===========
Maturities of term notes are as follows:
         December 1997                                                                            $       ---
         December 1998                                                                              5,168,000
         December 1999                                                                              3,500,000
         December 2000                                                                              4,500,000
         December 2001                                                                              5,498,000
         Thereafter                                                                                 2,923,000
                                                                                                  -----------
                                                                                                  $21,589,000
                                                                                                  ===========
</TABLE>

                                      F-14
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Bank Financing (continued)

On June 22, 1995, the Company entered into an Amended and Restated Loan and
Security Agreement with First Union National Bank of North Carolina ("First
Union") (the "Loan and Security Agreement") which provided for restructured
terms of its financing arrangements (the "restructuring"). The Restructuring
consisted of converting $8,000,000 of revolving credit balances into term
obligations. Total term debt obligations aggregated $22,000,000 immediately
after the Restructuring and as of December 30, 1995, and amounted to $21,589,000
as of December 28, 1996. Scheduled quarterly payments commenced on September 30,
1996 ranging from $333,000 to $1,500,000 with a final maturity of March 2002.
Revolving credit obligations were reduced by the proceeds of the new term debt,
and the outstanding balance of a new revolving credit facility of $25,000,000
amounted to $19,969,000 as of December 28, 1996 and $14,101,000 as of December
30, 1995, with availability in excess of utilization of $3,500,000 as of
December 28, 1996 and $8,500,000 as of December 30, 1995. The Company classifies
$10,000,000 of its revolving obligations as long term debt. In addition to the
scheduled quarterly principal payments of the term debt, the Loan and Security
Agreement provides for a semi-annual mandatory retirement of term principal if
cash flow, as defined, attains certain levels, payable when availability under
the revolving credit exceeds $5,000,000.

The Loan and Security Agreement has been amended subsequent to June 22, 1995 to
allow for the Company's change in fiscal year end, to permit the establishment
of a Canadian subsidiary and related factoring arrangements for purposes of
selling direct to customers in Canada, to restate certain financial covenants,
to obtain approval for the issuance of a subordinated convertible debenture, the
exchange of such debenture for preferred stock and payment of the related
dividends, and to increase an annual capital expenditure limitation to
$2,000,000.

The Loan and Security Agreement established covenants requiring the Company to
meet certain interest coverage and profitability levels, and it contains certain
other restrictions, including limits on the Company's ability to incur debt,
make capital expenditures, merge, pay dividends or repurchase its own stock. It
also provides that the Company will be in default if any person, other than as
defined, becomes the owner of or controls more than 20% of the Company's Common
Stock.

In connection with the Restructuring, the Company issued warrants to First Union
to purchase, at an exercise price per share equal to par value ($0.01), up to
10% of the Company's then outstanding Common Stock. The Warrants provide for a
put option by First Union, exercisable after March 1998, at fair market value,
as defined. The Company also has a call option providing for payment at fair
market value. For so long as the Company is in compliance with the requirements
of the Loan and Security Agreement, the Warrants provide no anti dilution
protection for First Union for any new issuance of securities.

In connection with the Restructuring, interest rates on all obligations under
the Loan and Security Agreement were set at prime plus 1.5% (9.75% at December
28, 1996 and 10.0% at December 30, 1995). On each annual adjustment date (as
defined), the interest rate may be reduced based on certain ratios of interest
coverage and debt to earnings before interest, taxes, depreciation and
amortization levels. In July 1995, the Company purchased an interest rate cap
from First Union with a nominal amount of $20,000,000, which provides for a
prime rate limit of 9.25% for the period through October 1998.

On March 27, 1997, the Company entered into a Sixth Amendment to the Loan and
Security Agreement with First Union which (i) increased the revolving credit
"cap" from $25,000,000 to $28,500,000 for the period from March 26, 1997 to
March 31, 1998, (ii) altered certain advance rate formulas under the revolving
credit facility during a specific period of time, (iii) amended financial
covenants with respect to fiscal 1997, (iv) deferred all fiscal 1997 term loan
amortization payments until fiscal 1998, (v) required the Company to pay First
Union an "additional equity fee" of $3,000,000 in year 2002, unless the Company
obtains at least $6,000,000 of net equity proceeds prior to August 31, 1997,
(vi) provided for an amendment fee of $250,000, (vii) prior to May 31,1997
deliver a report on its plans for Pennaco, and (vii) allows First Union to
evaluate the Companys' collateral and hire a business consultant.


                                      F-15
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Bank Financing (continued)

The Company's bank financing under the Loan and Security Agreement just prior to
the restructuring consisted of a $35,000,000 revolving credit line, with a
balance of $31,326,000 as of March 25, 1995, which was to mature in August 1996,
and $14,399,000 in term obligations, which were to amortize through April 2000.
As of March 25, 1995, the Company maintained $2,019,000 in unused available
lines of credit, including a benefit of a $3,650,000 overadvance. Prior to the
restructuring, the Company had entered into several amendments to the Loan and
Security Agreement since inception (August 1992) the effects of which were to
extend maturity, increase lines of credit, restructure revolving obligations to
term loans, change interest rates and amend covenants.

The Company's borrowings under the Loan and Security Agreement provided for
LIBOR terms at a range of 9.125% to 10.625% at March 25, 1995. At March 25,
1995, the Company's interest rates were LIBOR plus 3% for revolver obligations,
LIBOR plus 3.5 - 4.5% for term obligations, and LIBOR plus 4.5% for
overadvances, of which $20,000,000 was subject to an annual LIBOR limit of
6.125%, which matured in October 1995. LIBOR was 6.125% as of March 25, 1995.

12. Preferred Stock and Subordinated Convertible Debentures

The Company completed the sale of subordinated convertible debentures to a bond
fund on August 17, 1995. The debentures had an aggregate face value of
$5,000,000, accrued interest at 8% and would have matured on September 1, 2002.
The initial conversion price was $3.15, representing 1,587,300 shares, subject
to adjustment for dilution. The proceeds of this sale were used to reduce the
Company's bank revolving credit obligations. The debenture contains customary
covenants for this type of transaction. On October 26, 1995, a representative of
the bond fund was elected as a Director of the Company, in accordance with the
provision of the debenture.

The Company issued 10% cumulative preferred shares, $5,000,000 principal value,
on August 6, 1996, having a liquidation preference of $5,000 per convertible
share, in exchange for the subordinated convertible debentures. The preferred
shares are entitled to vote on an as converted basis, and have an initial
conversion price of $2.76, currently representing 1,811,594 shares. Such
conversion price may be reset on the first and second anniversaries of the
issuance under certain circumstances and will be adjusted in the event of
dilution. The new preferred stock has the right to vote separately as a class
for the election of one Director. The value of the preferred shares is accounted
for as a component of stockholders equity.

13. Related Party Activities

The Company is a judgment creditor of Esmark, its former parent, and it has
fully reserved the amount of $6,099,000 owed to it through March 1995. In light
of Esmark's financial condition, the Company no longer accrues interest on this
indebtedness for financial statement purposes. On June 6, 1996, the U.S.
Bankruptcy Court for the Southern District of New York entered an order placing
Esmark in Chapter 7 liquidation under the Bankruptcy Code, granting the relief
which had been sought in an involuntary bankruptcy petition, and it appointed a
Trustee to administer the liquidation.

On June 7, 1996, pursuant to authorization of the Bankruptcy Court, SunAmerica
Life Insurance Company ("SunAmerica") purchased at a foreclosure sale 2,010,000
shares of the Company's Common Stock (the "Esmark Shares"), that had been owned
by Esmark, and that Esmark had pledged to SunAmerica to secure the repayment of
certain indebtedness owing to SunAmerica by a subsidiary of Esmark. SunAmerica
subsequently re-registered these shares in the name of its nominee. These shares
represent approximately 33% of the Company's outstanding Common Stock.

In 1992, Esmark was granted an irrevocable 10-year proxy to vote 990,000 shares
of the Company's Common Stock by Electra Investment Trust P.L.C. ("Electra"),
the registered owner of such shares (the "Electra Shares"). The Company has
received an opinion of Delaware counsel that by virtue of the foreclosure sale
of the Esmark Shares to SunAmerica, this proxy became revocable, although to
date Electra has not yet revoked it. Since Esmark is being liquidated under
Chapter 7 of the Bankruptcy Code, the Trustee in Bankruptcy voted the Electra
Shares at the Annual Meeting of Stockholders held on October 16, 1996, voting to
withhold authority for the election of the two Directors

                                      F-16
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Related Party Activities (continued)

who had been nominated. Because of the appointment of the Trustee for the Esmark
estate, Byron A. Hero, Jr. is no longer in control of Esmark, and accordingly
the agreement between the Company and Mr. Hero dated September 16, 1994,
obligating him to cause Esmark to vote the Electra Shares in accordance with the
terms of the agreement, is no longer in effect as to this obligation.

The Esmark Shares are the subject of a Registration Rights Agreement dated July
2, 1992 between the Company and Esmark. The Company has acknowledged the status
of Electra as a Holder under this agreement with respect to the Electra Shares.

On October 4, 1996, the Company entered into an agreement with SunAmerica which
entitled SunAmerica to (a) designate two nominees for election to the Company's
Board of Directors and to appoint at least one of these nominees to serve on
each committee of the Board and (b) designate an additional person to serve as
an observer of the Board. At the meeting of the Board of Directors following the
Annual Meeting of Stockholders on October 16, 1996, the Board of Directors voted
to increase the number of Directors constituting the entire Board from eight to
10 and elected Donald Schupak and Michel Benasra, SunAmerica's designees, to
fill the vacancies. At the same time, it amended the Company's by-laws to
provide that the size of the Board cannot be further increased without the
affirmative vote of the SunAmerica designees. It also extended an invitation to
Electra to designate an additional Director to become a member of the Board, but
Electra has declined this invitation.

14. Pension Plans

The Company sponsors and administers two defined benefit pension plans, the
Danskin Division Hourly Employees' Pension Plan and the Pennaco Hosiery Division
Hourly Employees' Pension Plan. Substantially all of the hourly employees of the
Danskin division and the Pennaco Hosiery division participate in these plans.
Benefits under the plans are based on years of service. The Company's funding
policy is to contribute the minimum required contribution for each plan year.

Effective April 15, 1997, the Pennaco Hosiery Division Hourly Employees' Pension
Plan will be frozen. As such, no person who is not already a Participant shall
become a participant after such date and no additional credited service shall be
granted to any Participant. The Company will be reqired to reevaluate actuarial
assumptions as of that date which may reqire adjustment to previously recorded
asset and liability amounts.


                                      F-17
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Pension Plans (continued)

 
 
The following table sets forth the plans' funded status at December 30, 1995 and
December 28, 1996
 
<TABLE>
<CAPTION>
                                                        December 30, 1995           December 28, 1996
                                                       --------------------       ---------------------  
                                                       Danskin      Pennaco       Danskin       Pennaco
                                                       ----------   ----------    ----------    ----------
<S>                                                    <C>          <C>           <C>          <C>       
Actuarial present value of benefit obligation:
Accumulated benefit obligation:
Vested                                                 $5,678,000   $7,350,000    $5,476,000    $7,223,000
Nonvested                                                  45,000       35,000        35,000        36,000
                                                       ----------   ----------    ----------    ----------
                                                       $5,723,000   $7,385,000    $5,511,000    $7,259,000
                                                       ==========   ==========    ==========    ==========
 
Plan assets at fair value, primarily cash equivalents,
     stocks and bonds                                  $4,867,000   $4,043,000    $5,068,000    $5,140,000
Projected benefit obligation for service rendered to
     date                                               5,723,000    7,385,000     5,511,000     7,259,000
                                                       ----------   ----------    ----------    ----------
Plan assets less than projected benefit
     obligation                                          (856,000)  (3,342,000)     (443,000)   (2,119,000)
Unrecognized net loss                                   1,815,000    1,851,000     1,442,000     1,338,000
Unrecognized prior service cost                             3,000      214,000         2,000       185,000
Implementation asset not yet recognized to be
     amortized over 15 years                             (332,000)         ---      (279,000)          ---
Additional minimum liability                           (1,486,000)  (2,065,000)   (1,165,000)   (1,523,000)
                                                       ----------   ----------    ----------    ----------
Net accrued pension cost recognized in the Company's
     balance sheet                                      ($856,000) ($3,342,000)    ($443,000)  ($2,119,000)
                                                       ==========   ==========    ==========    ==========
</TABLE>


Combined net pension cost for the fiscal year ended March 25, 1995, the fiscal
nine months ended December 30, 1995, and the fiscal year ended December 28, 1996
included the following components:
 
 
<TABLE>
<CAPTION>
                                                            Fiscal Year   Fiscal Nine   Fiscal Year
                                                              Ended       Months Ended     Ended
                                                            March 1995   December 1995  December 1996
                                                            -----------  -------------  -------------
<S>                                                          <C>         <C>           <C>     
Service cost-benefits earned during the year                 $251,000      $153,000      $240,000
Interest cost on projected benefit obligation                 888,000       673,000       896,000
Actual return on plan assets                                 (782,000)   (1,154,000)   (1,114,000)
Net amortization and deferral                                 230,000       693,000       437,000
                                                             --------    ----------    ----------
Net pension cost                                             $587,000      $365,000      $459,000
                                                             ========    ==========    ========== 
Significant actuarial assumptions used in the 
     valuation include:

Discount rate                                                     8.3%          7.0%          7.5%
                                                             ========    ==========    ========== 

Expected long-term rate of return on assets                       9.5%          9.5%          9.5%
                                                             ========    ==========    ========== 
</TABLE>


                                      F-18

<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Income Taxes

The provision for (benefit from) income taxes was as follows:


<TABLE>
<CAPTION>
                                             Fiscal Year Ended    Fiscal Nine Months Ended      Fiscal Year Ended
                                              March 26, 1995          December 30, 1995         December 28, 1996
                                             -----------------    -------------------------     -----------------
<S>                                         <C>                          <C>                        <C>       
Federal:
         Current (Benefit) Provision        $       ---                  $    ---                   $      ---
                                            -----------                  --------                   ----------
         Deferred (Benefit) Provision        (2,127,000)                      ---                    2,536,000
                                             (2,127,000)                      ---                    2,536,000
State:
         Current Provision                      408,000                   178,000                      241,000
                                            -----------                  --------                   ----------
                                            $(1,719,000)                 $178,000                   $2,777,000
                                            ===========                  ========                   ==========
</TABLE>


The following represented the significant items comprising net deferred taxes as
of December 30, 1995 and as of December 28, 1996:


<TABLE>
<CAPTION>
                                                   December 30, 1995               December 28, 1996
                                                   -----------------               -----------------
<S>                                                 <C>                                <C>        
Future deductible items
         Accounts receivable allowances             $   733,000                        $   375,000
         Inventory allowances                           792,000                            980,000
         Non-deductible accruals                      5,426,000                          3,327,000
         Pension and retirement accruals              1,686,000                          1,044,000
         Net operating loss carryforward              2,642,000                          5,470,000
         Other                                        1,409,000                          1,585,000
                                                    -----------                        -----------
                                                     12,688,000                         12,781,000
Future taxable items
         Prepaid expenses                              (642,000)                          (327,000)
         Property, plant and equipment               (1,618,000)                        (1,603,000)
         Other                                         (452,000)                          (226,000)
                                                    -----------                        -----------
                                                     (2,712,000)                        (2,156,000)

Valuation allowance                                  (6,076,000)                       (10,625,000)
                                                    -----------                        -----------

Net Deferred Tax Asset                              $ 3,900,000                        $       ---
                                                    ===========                        ===========
</TABLE>


                                      F-19
<PAGE>



                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Income Taxes (continued)

The current portion of the net deferred tax asset as of March 25, 1995 amounted
to $200,000 with the long-term portion amounting to $3,700,000. All of the net
deferred tax asset as of December 30, 1995 is considered to be long-term.

The difference between income tax expense and the tax computed by applying the
statutory income tax rate to income before taxes was as follows:

<TABLE>
<CAPTION>
                                                                      Fiscal Nine Months
                                              Fiscal Year Ended               Ended            Fiscal Year Ended
                                                March 26, 1995         December 30, 1995       December 28, 1996
                                              -----------------       ------------------       -----------------
<S>                                                 <C>                       <C>                   <C>  
Statutory Federal income tax rate                   (34)%                     (34)%                 (34)%
State income taxes, net of Federal benefit            1                         4                     7
Change in valuation allowance                        --                        --                   115
Losses not utilized                                  15                        37                    36
Other                                                 3                        (1)                    1
                                                    -----                     ----                  ----
Effective income tax rate                           (15)%                       6%                  125%
                                                    =====                     ====                  ====
</TABLE>

The valuation allowance for the period ended December 1995 increased $1,127,000
to $6,076,000. The valuation allowance for the period ended December 1996
increased $4,549,000 to $10,625,000. Valuation allowances have been established
since it is more likely than not that certain tax benefits will not be realized.

Deferred income taxes result primarily from certain inventory adjustments not
currently deductible for income tax purposes, the use of accelerated
depreciation methods for income tax purposes, the reserve method for recording
bad debt expense for income tax purposes, non-deductible accruals and
differences in reporting bad debt and pension expense for financial statement
and income tax purposes. In addition, as of December 30, 1995 and December 28,
1996, the Company recorded a minimum pension liability adjustment of $2,000,000
and $2,565,000 respectively, net of deferred income taxes of $1,300,000 and $0,
respectively, as a reduction to stockholders' equity.

The net operating loss for income tax purposes for the fiscal year ended March
1995 was $3,800,000, of which $1,200,000 was carried back to a prior period.
This net operating loss carryback generated a refund of approximately $350,000
and an alternative minimum tax credit of $100,000 which can be used in future
years when the Company is subject to regular tax. The remaining portion of the
total tax loss amounting to $2,600,000 represents a net operating loss
carryforward which will be available to offset earnings during the carryforward
period expiring in fiscal 2010. The net operating loss for income tax purposes
for the fiscal nine months ended December 30, 1995 was $3,800,000, which will be
carried forward and available to offset earnings during the carry forward period
expiring December 2011. The net operating loss for income tax purposes for the
fiscal year ended December 1996 is estimated to be $7,200,000, which primarily
results from the write off of $5,000,000 due from a prior affiliate which has
been deemed worthless for tax purposes in the current year. The December 1996
net operating loss will be carried forward and available to offset earnings
during the carry forward period expiring December 2012. The future utilization
of the net operating loss carry forwards are subject to the provisions of
Section 382 of the Internal Revenue Code in connection with potential changes in
ownership.


                                      F-20
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Commitments and Contingencies

Litigation

In December 1992, several class actions (subsequently consolidated) were filed
against the Company, certain of its officers and directors, the underwriters of
its initial public offering and the Company's former parent, Esmark, in the U.S.
District Court for the Southern District of New York, alleging that materially
false and misleading statements were made in the prospectus for the Company's
initial public offering and in subsequent public statements and a regulatory
filing. These actions arose following the Company's reporting of a $1,000,000
pre-tax charge against income in fiscal 1993 related to production problems
caused by an unauthorized change in product specifications by a yarn vendor.

Following a fairness hearing held on May 29, 1996, the Court entered an Order
and Final Judgement approving a settlement of the consolidated actions. The
settlement was funded in its entirety by defendants unrelated to the Company and
by the carrier of the Company's Director and Officer Liability insurance policy.
The Company also recovered a portion of its cost of defending the action from
the carrier. The Order and Final Judgment certifies the class and releases all
of the defendants from claims by the class members arising from the purchase of
the Company's securities, as well as claims for contribution or indemnification
arising from a class member's claims.

On August 19, 1994, a stockholder, who was also a plaintiff in the securities
class action litigation described above, filed a derivative action in the
Delaware Court of Chancery against the directors of the Company, with the
Company as nominal defendant, alleging that a certain amount of funds advanced
by the Company to Esmark, and for which reserves charged to operations have been
established by the Company, constituted a waste of corporate assets. The action
does not seek any damages from the Company. This matter has been settled by
agreement, dated May 17, 1996, among the plaintiffs, the defendants and the
carrier of the Company's Directors and Officers Liability policy, and the
terms of the settlement were approved by the Court of Chancery on November 26,
1996.

The Company has terminated its prior Canadian license agreement of the
Danskin(R) and Playskin(R) trademarks. It has awarded a new Playskin(R) license
to another company, and has initiated direct sales of Danskin merchandise in
Canada. The Company has received a letter from its former Canadian licensee
threatening legal action to recover damages resulting from the "unethical
manner" in which it conducted negotiations concerning the relationship. The
Company has commenced litigation against a principal of the former licensee for
fraud in the willful underreporting of royalties that were due under the prior
license agreement and for damages. The Company believes that it has substantial
defenses to any allegations that may be brought by the former licensee, and that
any potential liability that might result will not have a material adverse
effect on its consolidated financial position or results of operations.

The Company has been named as third party defendant in Beatrice Company v.
Robinson, Silverman, etc. U.S. District Court, Southern District of New York, 96
Civ. 4110 (HB), an action for conversion by the defendant of a tax refund check
in the amount of $1,141,323.85 that was issued by the Internal Revenue Service
in the name of "Esmark, Inc" and apparently mailed to the Company's
headquarters. The check had been destined for the Company's wholly owned
subsidiary, Danpen, Inc. ("Danpen"), the former name of which was "Esmark,
Inc.", and which in turn was obligated to turn the check over to Beatrice
Company ("Beatrice"), since it related to the 1984 tax year of Danpen. The
Company has in turn filed a fourth party complaint against Byron A. Hero, Jr.,
its former Chairman of the Board and Chief Executive Officer, alleging
conversion and breach of fiduciary duty. Beatrice charges in its complaint that
Mr. Hero had received the check in his capacity as the principal of Esmark and
endorsed it to his own uses, even though the check bore the employer
identification number of Danpen and even though the 1984 tax year to which the
refund applied was a year prior to the formation of Esmark. Beatrice filed its
claim against Robinson, Silverman, Pearce, Aronson & Smith for conversion of the
check in having established a client trust account on behalf of Mr. Hero, from
which the funds were disbursed. Robinson, Silverman the Company on a theory of
negligence in having allowed the check to fall under the control of Mr. Hero.
This action has now been discontinued by stipulation among all the parties, and
an order of dismissal was entered on February 19, 1997.


                                      F-21
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Commitments and Contingencies (continued)

On March 11, 1997, a complaint was filed against the Company in Christian Dior
Couture S.A. and Christian Dior, Inc. Vs Danskin, Inc., U.S. District Court,
Southern District of New York. 97Civ. 1709 (SAS), an action brought by the
Company's former licensor of the Christian Dior(R) trademark for women's
hosiery, alleging that the Company had marketed certain unapproved merchandise
under Dior's trademark and requesting an injunction as well as monetary damages.
Concurrently with the filing of the complaint, the plaintiffs also requested an
order directing the Company to show cause as to why a temporary restraining
order should not be entered enjoining the Company from, among other things,
selling non-conforming merchandise under Dior's trademark. On March 14, 1997,
the parties entered into a Stipulation and Order resolving the issues relating
to the plaintiffs request for an injunction which was so ordered by the District
Court on March 17, 1997.

The Company intends to contest these allegations and to assert affirmative
defenses in its answer to the complaint which is not yet due, and management
believes that any possible ultimate liability of the Company in these
proceedings will not be material to its consolidated financial position or
results of operations.

The Company is a party to a number of other legal proceedings in the ordinary
course of business. Management believes that the ultimate resolution of these
proceedings will not in the aggregate, have a material adverse impact on the
financial condition, results of operations, liquidity or business of the
Company.

Tax Audits

The Company has been selected for audit by certain state tax authorities, for
which resolution cannot be determined at this time. Management believes that any
possible ultimate liability resulting from these audits will not materially
affect the consolidated financial position or results of operations of the
Company.

Operating Leases

The minimum annual rental commitments under non-cancelable operating leases at
December 28, 1996 for office space, manufacturing space, equipment and retail
stores were approximately as follows:

  Fiscal Years Ending                                            Amount
  -------------------                                            ------
  December 1997                                               $ 5,976,000
  December 1998                                                 5,239,000
  December 1999                                                 4,130,000
  December 2000                                                 3,434,000
  December 2001                                                 2,564,000
  Thereafter                                                    4,170,000
                                                              -----------
  Total minimum rental payments                               $25,513,000
                                                              ===========

The majority of operating leases are for three-year to five-year terms,
generally with options to renew for similar terms, except for the corporate
office, certain full price retail stores, and the Pennaco mill and warehouse
space which are for terms of 9 to 15 years. Certain leases require the payment
of contingent rent based upon sales and other factors.

Rent expense was approximately as follows:
<TABLE>
<CAPTION>
                                                   Fiscal Nine Months
                              Fiscal Year Ended         Ended                Fiscal Year Ended
                                March 25, 1995      December 30, 1995        December 28, 1996
                              -----------------    ------------------        -----------------
<S>                             <C>                      <C>                  <C>       
Minimum rent                    $6,369,000               $4,168,000           $6,637,000
Contingent rent                    704,000                  619,000              829,000
                                ----------               ----------           ----------
Rent expense                    $7,073,000               $4,787,000           $7,466,000
                                ==========               ==========           ==========
</TABLE>

Employment Agreements

The Company has entered into employment agreements that provide for base and
incentive compensation, and that are terminable for cause, as defined, or
resignation following a change of control, as defined. The Company's total
minimum commitment pursuant to the term of these agreements for 1996 and future
years is $1,000,000, unless employment is terminated in which case total pay
will continue for 24 months following such termination.


                                      F-22
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Commitments and Contingencies (continued)

During the year ended December 1996 full pay was reinstated for certain
employees who previously voluntarily agreed to a temporary reduction in their
annual base compensation. In addition, the former Chairman of the Company
received payment of all base compensation earned during calendar year 1995 which
has been deferred. During 1996 the Chairman resigned as Chief Executive Officer
with a reduction in base compensation of $400,000.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of accounts receivable from department stores,
sporting goods stores and other specialty retailers as well as commercial
letters of credit. Although the concentration of risk is limited due to the
large number of customers included within the Company's customer base, various
of the Company's retail customers have experienced financial difficulties in
recent years. These financial difficulties have increased the risk of extending
credit to such customers. The Company subjects all customers to credit
evaluation prior to acceptance and maintains ongoing reviews based on
established policies.

Minimum Royalty Commitments

The Company generally enters into licensing arrangements, as a licensee, that
provide for minimum annual royalty payments and additional royalty payments
based on a percentage of net revenues. The Company also licenses its Danskin(TM)
and Round-the-Clock(TM) names to selected companies. As of December 28, 1996,
the Company was committed to certain licensing arrangements as follows:

                                  Royalty Expense            Royalty Income
                                  ---------------            --------------
  Fiscal Years Ending
  December 1997                     $  796,000                 $  590,000
  December 1998                        595,000                    833,000
  December 1999                            ---                  1,043,000
  December 2000                            ---                    345,000
                                    ----------                 ----------
                                    $1,391,000                 $2,811,000
                                    ==========                 ==========


                                      F-23
<PAGE>


                       SUPPLEMENTAL FINANCIAL INFORMATION
                    SELECTED QUARTERLY FINANCIAL INFORMATION
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                             Fiscal Quarters Ended
 
                                                      March        June      September     December
                                                   -----------  -----------  -----------  -----------
<S>                                                <C>          <C>          <C>          <C>        
The fiscal year ended December 28, 1996:           
                                                   
     Net revenues                                  $31,421,000  $29,664,000  $34,818,000  $32,243,000
                                                   ===========  ===========  ===========  ===========
     Gross profit                                  $10,389,000  $10,621,000  $12,365,000  $11,160,000
                                                   ===========  ===========  ===========  ===========
     Net (loss) income                             ($2,037,000)   ($437,000)    $503,000  ($3,018,000)
                                                   ===========  ===========  ===========  ===========
     Net (loss) income applicable to Common Stock  ($2,037,000)   ($437,000)    $426,000  ($3,143,000)
                                                   ===========  ===========  ===========  ===========
     Primary net (loss) earnings per share              ($0.34)      ($0.07)       $0.06       ($0.52)
                                                   ===========  ===========  ===========  ===========
     Weighted average shares                         5,933,000    6,022,000    6,655,000   $6,045,000
                                                   ===========  ===========  ===========  ===========
                                                   
                                                   
The four fiscal quarters ended December 30, 1995:
                                                   
     Net revenues                                  $32,151,000  $29,602,000  $33,625,000  $30,560,000
                                                   ===========  ===========  ===========  ===========
     Gross profit                                  $10,214,000  $10,155,000  $11,636,000   $9,815,000
                                                   ===========  ===========  ===========  ===========
     Net (income) loss                             ($5,372,000)   ($105,000)    $307,000  ($3,424,000)
                                                   ===========  ===========  ===========  ===========
     Primary net (loss) earnings  per share             ($0.91)      ($0.02)       $0.05       ($0.58)
                                                   ===========  ===========  ===========  ===========
     Weighted average shares                         5,919,000    5,920,000    6,520,000    5,921,000
                                                   ===========  ===========  ===========  ===========
</TABLE>


Non-recurring charges amounted to $1.1 million and $4.1 million in the years
ended December 1995

Totals for the four quarters may not agree to full year amounts due to rounding
differences.



                                      F-24
<PAGE>


                         DANSKIN, INC. AND SUBSIDIARIES
                  SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
                                                                           SCHEDULE II
 
            Column A                         Column B            Column C - Additions     Column D       Column E
            ---------                        --------            --------------------     --------       --------
                                                                           Charged to
                                              Balance at     Charged to      Other                        Balance
                                             Beginning of    Costs and      Accounts-     Deductions-    at End of
Description                                    Period         Expenses      Describe      Describe (a)     Period
-----------                                  ------------    -----------   -----------   -------------   --------- 
<S>                                           <C>           <C>            <C>            <C>            <C>     
Year Ended December 28, 1996:
 Allowance for doubtful accounts receivable  #1,631,000     ($43,000)      $ ---          $650,000         $938,000
                                             ==========     ========       ======         ========       ========== 
Nine Months Ended December 30, 1995:
 Allowance for doubtful accounts receivable  $1,601,000     $383,000       $ ---          $353,000       $1,631,000
                                             ==========     ========       ======         ========       ========== 
Year Ended March 25, 1995:
 Allowance for doubtful accounts receivable  $1,099,000     $1,031,000     $ ---          $529,000       $1,601,000
                                             ==========     ========       ======         ========       ========== 
</TABLE>
  
 
---------------------
(a) Uncollectible accounts receivable written off, net of recoveries
 



                                       S-1